<PAGE>
As filed with the Securities and Exchange Commission on June 22, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VITRIA TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7372 77-0386311
(State or other jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
500 Ellis Street
Mountain View, CA 94043
(650) 237-6900
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
---------------
JOMEI CHANG, Ph.D.
Vitria Technology, Inc.
President and Chief Executive Officer
500 Ellis Street
Mountain View, CA 94043
(650) 237-6900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Eric C. Jensen, Esq. Jose F. Macias, Esq.
Cooley Godward LLP Wilson Sonsini Goodrich & Rosati
Five Palo Alto Square Professional Corporation
3000 El Camino Real 650 Page Mill Road
Palo Alto, CA 94306 Palo Alto, CA 94304
(650) 843-5000 --------------- (650) 493-9300
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 145 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title Of Each Class Of Securities To Be Aggregate Amount Of
Registered Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value par share........ $75,000,000 $20,850
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee, in
accordance with Rule 457(o) under the Securities Act of 1933.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 22, 1999
Shares
[LOGO OF VITRIA TECHNOLOGY, INC.]
Common Stock
---------
Prior to this offering, there has been no public market for the common stock.
The initial public offering price of the common stock is expected to be between
$ and $ per share. We have applied to list the common stock on
The Nasdaq Stock Market's National Market under the symbol "VITR."
The underwriters have an option to purchase a maximum of additional shares
to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 5.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to Vitria
Public Commissions Technology
------------ ------------- ------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston Merrill Lynch & Co.
BancBoston Robertson Stephens
SoundView Technology Group
The date of this prospectus is , 1999.
<PAGE>
[DESCRIPTION OF GRAPHICS:
Inside cover gatefold
. Vitria logo
. Graphic: Combines a graphic of the Vitria solution coupled with a graphical
representation of an order fulfillment business process. Each step in the
process is shown as an IT system that is named according to its business
function (e.g. Billing). The Vitria solution is shown as a graphic that
illustrates the four elements of our solution: (1) process automation, (2)
real-time analysis, (3) Internet-based communications, and (4) application
integration. There is a call-out for each of the elements to describe and/or
illustrate its function.]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Special Note Regarding Forward-Looking Statements........................ 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 30
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 42
Certain Transactions....................................................... 52
Principal Stockholders..................................................... 53
Description of Capital Stock............................................... 55
Shares Eligible for Future Sale............................................ 58
Underwriting............................................................... 60
Notice to Canadian Residents............................................... 62
Legal Matters.............................................................. 63
Experts.................................................................... 63
Where You Can Find More Information........................................ 63
Index to Financial Statements.............................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is
legal to sell these securities. The information in this document may only be
accurate on the date of this document.
------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
. the conversion of all our outstanding shares of preferred stock into
shares of common stock upon the closing of this offering;
. no exercise of the underwriters' over-allotment option;
. our reincorporation from California to Delaware; and
. the filing of our amended and restated certificate of incorporation prior
to the closing of this offering.
"Vitria" and the Vitria logo are registered trademarks of Vitria, and we
have filed for federal trademark registration for "BusinessWare." This
prospectus also includes trademarks owned by other parties.
------------
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully.
Vitria Technology, Inc.
Vitria is pioneering a new category of software platform for real-time
eBusiness. Our product suite, BusinessWare, combines business process
automation and analysis, application integration and Internet-based
communications in one comprehensive platform. BusinessWare is designed to
provide business managers with an infrastructure that gives them end-to-end
visibility and control of their business operations, enabling them to reduce
time to market, rapidly respond to change, and manage the growing complexity of
business interactions across the extended enterprise.
Rapid advances in new technology, deregulation and global competition are
transforming today's business environment. In particular, the use of the
Internet to conduct business, often referred to as "eBusiness," is radically
changing business-to-business, business-to-consumer and business-to-employee
interactions. To compete in this new environment, companies must find ways to
streamline and manage mission-critical business processes across their
"extended enterprises" which include their partners and customers. From order
fulfillment to customer service, there are significant benefits to automating
business processes across the extended enterprise. For example, companies that
allow their customers to place and track orders using self-service Web
applications can increase revenue opportunities while reducing order management
and customer service costs. Deploying eBusiness solutions that deliver these
business benefits, however, is a significant challenge.
To address this challenge, BusinessWare combines in a single solution the
four elements that we believe are essential for an eBusiness platform:
(1) Process automation--Empowers business users to define, manage and
automate business processes through a graphical modeling environment;
(2) Application integration--Integrates the internal and external IT
systems that implement business process steps across the extended
enterprise;
(3) Internet-based communications--Exchanges business information between a
company and its partners and customers in a secure and reliable fashion
using Internet standards; and
(4) Real-time analysis--Gathers key business and process information in
real time, analyzes the data in real time, and selectively uses the
results to automatically change business processes.
We have initially targeted the telecommunications, business services,
manufacturing and financial services industries. To date, we have licensed
BusinessWare to over 30 companies, including CableVision, Covad, Deutsche Bank,
Duke Energy, FedEx, Fujitsu PC, Inacom, Level 3, PageMart Wireless, Qwest, SBC,
Sprint and Verio. We intend to expand our position in our current markets and
leverage this position to penetrate other markets.
As part of our strategy to establish BusinessWare as the eBusiness platform
of choice, we have developed strong working relationships with leading system
integrators, including Andersen Consulting and EDS. In addition, Vitria is
developing vertical eBusiness solutions built on the BusinessWare platform.
We were incorporated in California in October 1994. We intend to
reincorporate in Delaware prior to the closing of this offering. Our principal
executive offices are located at 500 Ellis Street, Mountain View, California
94043, and our telephone number is (650) 237-6900. Our Internet address is
www.vitria.com. The information on our website is not incorporated by reference
into this prospectus.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Vitria.............. shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds ............................ General corporate purposes, including
relocation of our principal offices,
expansion of our sales and marketing
capabilities, product development, and
other working capital requirements. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol ..... VITR
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999, and
excludes:
. 2,061,740 shares subject to options outstanding as of March 31, 1999, at a
weighted average exercise price of $0.41 per share;
. 4,488,792 additional shares that we could issue under our stock option
plans; and
. 1,500,000 shares that we could issue under our employee stock purchase
plan.
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
---------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License............................ $ -- $ 955 $ 5,198 $ 139 $ 3,487
Service............................ 1,042 1,425 1,633 151 1,472
Government grant................... 984 1,255 796 371 250
------ ------ ------- ------- -------
Total revenues.................... 2,026 3,635 7,627 661 5,209
Cost of revenues..................... 1,167 1,611 2,905 493 1,606
------ ------ ------- ------- -------
Gross profit......................... 859 2,024 4,722 168 3,603
Income (loss) from operations........ 235 (655) (9,875) (1,607) (2,840)
Net income (loss).................... 243 (580) (9,569) (1,516) (2,711)
====== ====== ======= ======= =======
Net income (loss) per share:
Basic.............................. $ 0.03 $(0.06) $ (0.80) $ (0.14) $ (0.21)
Diluted............................ $ 0.02 $(0.06) $ (0.80) $ (0.14) $ (0.21)
Weighted average shares:
Basic.............................. 7,044 9,915 12,003 10,490 12,699
Diluted............................ 13,835 9,915 12,003 10,490 12,699
Pro forma basic and diluted net loss
per share........................... $ (0.48) $ (0.12)
Pro forma basic and diluted weighted
average shares...................... 20,111 23,250
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $11,444 $
Working capital............................................. 10,771
Total assets................................................ 18,240
Deferred revenue............................................ 3,277
Stockholders' equity........................................ 12,023
</TABLE>
- --------
See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
The as adjusted balance sheet data gives effect to the receipt of net
proceeds of $4.5 million from the sale of 1,003,980 shares of Series D
preferred stock in May 1999 and the net proceeds from the sale of the
shares of common stock offered hereby at an assumed public offering
price of $ per share after deducting the estimated underwriting discounts
and commissions and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before purchasing
our shares. The risks and uncertainties described below are not the only ones
facing us. Additional risks and uncertainties not presently known to us or that
we currently see as immaterial may also impair our business operations. If any
of the following risks actually occur, our business could be harmed. In such
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.
Risks Related to Vitria
Our short operating history makes it difficult to evaluate our prospects.
We were incorporated in October 1994. Until November 1997, we were engaged
primarily in research and development of our initial products. We licensed our
first product in November 1997 and have only recently established sales and
service organizations. We will experience heightened risks and unexpected
expenses and difficulties frequently encountered by small companies in an early
stage of development. Such risks include:
. fluctuations in operating results and uncertain growth rates;
. market acceptance of our products;
. dependence on system integrators;
. long and variable sales and product implementation cycles;
. concentration of revenues in a relatively small number of customers;
. concentration of our revenues in a single product line;
. need to manage rapidly expanding operations;
. need to expand our sales and marketing organization; and
. need to attract, train and recruit qualified personnel.
If we do not manage these risks, our business will be significantly harmed.
We have a large accumulated deficit and expect future losses.
We have incurred substantial losses since inception as we funded the
development of our products and technologies, and through our efforts to expand
our sales and marketing organization. Our net losses for 1998 were $9.6
million, and our net losses for the three months ended March 31, 1999 were $2.7
million. As of March 31, 1999, we had an accumulated deficit of $12.9 million.
We intend to continue to invest heavily in sales, marketing and research and
development. As a result, we will need to significantly increase our quarterly
revenues to achieve profitability. We cannot predict when we will operate
profitably, if at all.
Our operating results fluctuate significantly and we may not be able to
maintain our existing growth rates.
Although we have had significant revenue growth in recent quarters, our
growth rates may not be sustainable and prospective investors should not use
these past results to predict future operating margins or results. Our
quarterly operating results have fluctuated significantly in the past and may
vary significantly in the future. Our future operating results will depend on
many factors, including the following:
. size and timing of customer orders and product and service delivery;
. level of demand for our professional services;
. changes in the mix of our products and services;
5
<PAGE>
. actions taken by our competitors, including new product introductions and
pricing changes;
. costs of maintaining and expanding our operations;
. timing of our development and release of new and enhanced products;
. costs and timing of hiring qualified personnel;
. success in maintaining and enhancing existing relationships and
developing new relationships with system integrators;
. technological changes in our markets, including changes in standards for
computer and networking software and hardware;
. deferrals of customer orders in anticipation of product enhancements or
new products;
. delays in our ability to recognize revenue as a result of the decision by
our customers to postpone software delivery;
. customer budget cycles and changes in these budget cycles;
. delays or reductions in spending for, or the implementation of,
application software by our potential customers as companies attempt to
stabilize their computer systems prior to January 1, 2000 in order to
reduce the risk of computer system problems associated with the
occurrence of the Year 2000; and
. costs related to acquisition of technologies or businesses.
Our revenues and operating results depend upon the volume and timing of
customer orders and payments and the date of product delivery. Historically, a
substantial portion of revenues in a given quarter have been recorded in the
third month of that quarter, with a concentration of such revenues in the last
two weeks of the third month. We expect this trend to continue and, therefore,
any failure or delay in the closing of orders would have a material adverse
effect on our quarterly operating results. Since our operating expenses are
based on anticipated revenues and because a high percentage of these expenses
are relatively fixed, a delay in the recognition of revenue from one or more
license transactions could cause significant variations in operating results
from quarter to quarter and cause unexpected results.
We record as deferred revenues payments from customers that do not meet our
revenue recognition policy requirements. Since only a small portion of our
revenues each quarter is recognized from deferred revenues, our quarterly
results will depend primarily upon entering into new contracts to generate
revenues for that quarter. New contracts may not result in revenue in the
quarter in which the contract was signed, and we may not be able to predict
accurately when revenues from these contracts will be recognized.
As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations are not a good predictor of
our future performance. If our operating results are below the expectations of
stock market analysts or investors, our stock price is likely to decline.
Market acceptance of our products is uncertain.
The limited sales and deployment of our products, and limited acceptance of
process automation technology, makes our prospects difficult to predict. In
addition, we have only licensed our products to a small number of customers,
and only a portion of these customers have commenced commercial deployment.
Successful deployment will require our products to interoperate with a variety
of software applications and systems and, in some cases, to process a high
number of transactions per second. If our products fail to satisfy these
demanding technological objectives, our customers will be dissatisfied and our
business will be harmed. Failure to establish a significant base of customer
references will significantly reduce our ability to license our products to
additional customers.
6
<PAGE>
Our growth is dependent upon the successful development of relationships with
system integrators.
We believe that our future growth will depend significantly on our ability
to develop and maintain successful strategic relationships with system
integrators. These entities design and develop custom systems and perform
custom integration of systems and applications. Some system integrators engage
in joint marketing and sales efforts with us. These system integrators include
Andersen Consulting and EDS Corporation. In many cases, these parties have
extensive relationships with our existing and potential customers and influence
the decisions of these customers. We rely upon these firms for recommendations
of our products during the evaluation stage of the purchasing process, as well
as for implementation and customer support services. Our strategy is to
continue to increase the number of licenses to customers introduced to us by
these entities and to rely on them to implement our products at customer sites.
A number of our competitors have stronger relationships with these system
integrators and, as a result, these system integrators may be more likely to
recommend competitors' products and services. In addition, a number of our
competitors have relationships with a greater number of these system
integrators and, therefore, have access to a broader base of enterprise
customers. Our failure to establish or maintain such relationships would
significantly harm our ability to license and successfully implement our
software products. In addition, we rely on the vertical market expertise and
reach of these firms. Therefore, this failure would also harm our ability to
develop new products for new vertical markets. We are currently investing, and
plan to continue to invest, significant resources to develop these
relationships. Our operating results could be adversely affected if these
efforts do not generate license and service revenues necessary to offset such
investment. In addition, if these relationships fail, we will have to devote
substantially more resources to the distribution, sales and marketing,
implementation and support of our products than we would otherwise, and our
efforts may not be as effective as those of the system integrators.
We depend on third party implementation providers.
We rely on system integrators and other third party implementation
providers. If the number of implementations of our products increases, we must
maintain our existing relationships with these parties and build alliances with
additional implementation partners. These parties are not contractually
required to continue to help implement our products. As a result of the
competition for the resources of these service providers, we may be unable to
obtain sufficient resources to provide the necessary implementation services to
support our needs. If these resources are unavailable, we will be required to
provide these services internally, which would significantly limit our ability
to meet our customers' implementation needs and adversely affect operating
results. In addition, we cannot control the level and quality of service
provided by our current and future implementation partners.
Our dependence upon a limited number of customers could cause fluctuations in
our results.
A relatively small number of customers account for a significant portion of
our total revenues. In 1998, sales to our ten largest customers accounted for
86% of total revenues. In 1998, sales to Level 3 accounted for 30% of total
revenues, and sales to KPMG accounted for 12% of total revenues. In addition,
research grants awarded to us by the National Institute of Standards and
Technology, or NIST, accounted for 10% of revenues in 1998.
Our license agreements do not generally provide for ongoing license
payments. Therefore, we expect that revenues from a limited number of new
customers will continue to account for a large percentage of total revenues in
future quarters. Our ability to attract new customers will depend on a variety
of factors, including the performance, quality, breadth and depth of our
products. The loss or delay of individual orders could have a significant
impact on revenues and operating results. Our failure to add new customers that
make significant purchases of our products and services would harm our
business.
Our markets are highly competitive and our customers may choose to purchase our
competitors' products.
The market for our products is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition is expected to
increase in the future. Increased competition is likely to result in
7
<PAGE>
price reductions, reduced gross margins and loss of market share, any one of
which could seriously harm our business. Our current competitors include:
EAI vendors. We face competition from vendors offering Enterprise
Application Integration, or EAI, software products. EAI products have generally
been designed only to address the application integration needs of customers.
These vendors include Active Software, Inc., CrossWorlds Software, Inc., and
New Era of Networks, Inc., also known as NEON. A number of other companies are
offering products that address specific aspects of EAI including BEA Systems,
Inc., Forte Software, Inc., Hewlett-Packard Company, IBM Corporation and Tibco
Software Inc. In the future, some of these companies may expand their products
to also provide the process automation and real-time analysis functionality of
our BusinessWare product suite.
Internal IT departments. "In house" information technology departments of
potential customers have developed or may develop systems that provide for some
or all of the functionality of our BusinessWare product suite. We expect that
internally developed application integration and process automation efforts
will continue to be a principal source of competition for the foreseeable
future. In particular, it can be difficult to sell our products to a potential
customer whose internal development group has already made large investments in
and progress towards completion of systems that our products are intended to
replace.
Other software vendors. We may in the future also encounter competition from
major enterprise software developers such as Oracle Corporation, PeopleSoft,
Inc., and SAP AG. In addition, Microsoft Corporation has announced its
intention to introduce products which could compete with certain aspects of our
products. These companies have significantly greater resources than Vitria.
Many of our competitors have more resources and broader customer
relationships than we do. In addition, many of these competitors have extensive
knowledge of our industry. Current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to offer a single solution and increase the ability of their products
to address customer needs.
Although we believe that our solutions generally compete favorably with
respect to these factors, our market is relatively new and is evolving rapidly.
In the past, we have lost potential customers to competitors for various
reasons, including lower prices for less complex implementations. We may not be
able to maintain our competitive position against current and potential
competitors, especially those with significantly greater resources.
We experience long and variable sales cycles.
Our products are often used by our customers to deploy mission-critical
solutions used throughout their organization. Customers generally consider a
wide range of issues before committing to purchase our products, including
product benefits, ability to operate with existing and future computer systems,
ability to accommodate increased transaction volume and product reliability.
Many customers will be addressing these issues for the first time. As a result,
we or other parties, such as system integrators, must educate potential
customers on the use and benefits of our products and services. In addition,
the purchase of our products generally involves a significant commitment of
capital and other resources by a customer. This commitment often requires
significant technical review, assessment of competitive products, and approval
at a number of management levels within the customer's organization. Because of
these issues, our sales cycle has ranged from two to nine months and is
difficult to predict for any particular license transaction.
The cost and difficulties of our product implementation may harm our ability to
license additional products to our customers.
Our products are often purchased as part of large projects undertaken by our
customers. Such projects are complex, time consuming and expensive. In many
cases, our customers must interact with, modify, or replace significant
elements of their existing computer systems. The costs of our products and
services represent only a portion of the related hardware, software,
development, training and consulting costs. The significant
8
<PAGE>
involvement of third parties, such as system integrators, reduces the control
we have over the implementation of our products or the quality of customer
service provided to organizations which license our software. Failure by the
customer to successfully deploy our products, or the failure by us or third
party consultants to ensure customer satisfaction, could damage our reputation
with existing and future customers. Any adverse impact on our ability to
license additional software for new projects to our current customers and enter
into software licenses with new customers would significantly harm our
business.
Our sales are concentrated in certain vertical markets.
A key element of our strategy is to target certain vertical markets. Sales
to customers in the telecommunications and financial services industries
accounted for 57% of total revenues in 1998 and 73% of total revenues in the
first quarter of 1999. Our future success will depend on our ability to
continue to penetrate these vertical markets. Given our limited market
penetration, the high degree of competition and the rapidly changing
environment in these industries, there is no assurance that we will be able to
continue sales in these industries at current levels. In addition, we intend to
address new vertical markets. Customers in these new vertical markets are
likely to have different requirements and may require us to change our product
design or features, sales methods, support capabilities or pricing policies. A
failure to successfully address these new vertical markets could adversely
affect our business.
In particular, our strategy is to develop packaged versions of our product
which incorporate business processes of our target vertical markets. This
presents technical challenges and will require collaboration with system
integrators and the commitment of significant resources. If we are not
successful in developing these targeted products or these products do not
achieve market acceptance, our business could be harmed.
Our operating results are substantially dependent on license revenues from one
product family.
Since 1998 a majority of our total revenues has been, and is expected to be,
derived from the license of our BusinessWare product suite. Accordingly, our
future operating results will depend on the demand for BusinessWare by future
customers, including new and enhanced releases that are subsequently
introduced. If our competitors release new products that are superior to
BusinessWare in performance or price, or we fail to enhance BusinessWare and
introduce new products in a timely manner, demand for our products may decline.
A decline in demand for BusinessWare as a result of competition, technological
change or other factors would seriously harm our business.
If our products do not operate with the many hardware and software platforms
and applications used by our customers, we will not be successful.
We currently serve a customer base with a wide variety of constantly
changing hardware, packaged software applications and networking platforms. To
gain broad market acceptance, we believe that we will have to support our
products on a variety of these platforms. Our success will depend, among
others, on the following factors:
. our ability to integrate our product with multiple platforms and
existing, or legacy, systems and to modify our products as new versions
of packaged applications are introduced;
. access to the application programming interface, or API, of the packaged
applications with which our products need to integrate;
. the portability of our products, particularly the number of hardware
platforms, operating systems and databases that our products can source
or target;
. our ability to anticipate and support new standards, especially Internet
standards;
. the integration of additional software modules under development with
existing products; and
. our management of software being developed by third parties for our
customers or use with our product.
9
<PAGE>
Our access to APIs of third-party applications are controlled by the
provider of such applications. If the application provider denies or delays our
access to APIs, our business may be harmed. Some application providers may
become competitors or establish alliances with our competitors, increasing the
likelihood that we would not be granted access to their APIs.
We depend on the timely release of our products.
We may fail to introduce or deliver new products on a timely basis, if at
all. In the past, we have experienced delays in the commencement of commercial
shipments of our BusinessWare products. If new releases or products are delayed
or do not achieve market acceptance, we could experience a delay or loss of
revenues and cause customer dissatisfaction. In addition, customers may delay
purchases of products in anticipation of future releases. If customers defer
material orders in anticipation of new releases or new product introductions,
our business would be harmed.
Our products rely on third party programming tools and applications.
Our programs utilize Java programming technology provided by Sun
Microsystems. In addition, we license technology related to the connectivity of
our products to third-party database and other applications. Loss of the
ability to use such technology, delays in upgrades, or failure of these third
parties to support these technologies or offer technology compatible with
emerging industry standards, could harm our business.
New versions and releases of our products may contain errors or defects.
Our products and their interactions with customers' software applications
and IT systems are complex and, accordingly, there may be undetected errors or
failures when products are introduced or as new versions are released. We have
in the past discovered software errors in our new releases and new products
after their introduction. For example, we discovered problems with respect to
the ability of software written in Java to run sufficiently fast to meet the
needs of users in certain high performance applications. These errors have
resulted in product release delays, delayed revenues and customer
dissatisfaction. We may in the future discover errors, including Year 2000
compliance errors and additional performance limitations, in new releases or
new products after the commencement of commercial shipments. Since many
customers are using our products for mission-critical business operations, any
such occurrence could seriously harm our business.
If we fail to manage the growth of operations, our business may be adversely
affected.
We must plan and manage our growth effectively in order to successfully
offer products and services and implement our business plan in a rapidly
evolving market. We continue to increase domestically, and to a lesser extent
internationally, the scope of our operations, and have added a number of
employees. For example, the number of our employees grew from 34 at December
31, 1997 to 157 at May 31, 1999. In particular, our sales force grew from four
people at December 31, 1997 to 46 people at May 31, 1999. This growth has and
will continue to place a significant strain on our management systems and
resources. Many of our executive officers have not held positions of comparable
responsibility at a public company. For us to effectively manage our growth, we
must continue to do the following:
. improve our operational, financial and management controls;
. improve our reporting systems and procedures;
. install new management and information control systems; and
. expand, train and motivate our workforce.
In particular, we are currently migrating to a new accounting software
package designed to allow greater flexibility in reporting and tracking
results. In addition, we are implementing new management information systems,
including sales and marketing management and human resources management
software. If we fail to
10
<PAGE>
install this software in an efficient and timely manner, or if the new systems
fail to adequately support our level of operations, then we could incur
substantial additional expenses to remedy such failures. In addition, by
October 1999 we expect to move our primary offices to a larger facility in
Sunnyvale, California. This move may disrupt our sales and marketing and
research and development activities and adversely impact our business if it is
not done efficiently.
If we do not keep pace with technological change, our customers may purchase
our competitors' products.
Our industry is characterized by very rapid technological change, frequent
new product introductions and enhancements, changes in customer demands and
evolving industry standards. Our existing products will be rendered obsolete if
we fail to introduce new products or product enhancements that meet new
customer demands, support new standards or integrate with new or upgraded
versions of packaged applications. We have also found that the technological
life cycles of our products are difficult to estimate. We believe that our
future success will depend upon our ability to continue to enhance our current
product line while we concurrently develop and introduce new products that
anticipate emerging technology standards and keep pace with competitive and
technological developments. Failure to do so will harm our ability to compete.
As a result, we are required to continue to make substantial product
development investments.
If we fail to attract and retain qualified personnel, our business may be
adversely affected.
Our success greatly depends on the continued service of our key technical,
sales and senior management personnel. None of these persons are bound by an
employment agreement. The loss of any of our senior management or other key
research, development, sales and marketing personnel could have a material
adverse effect on our future operating results. In particular Dr. JoMei Chang,
our President and Chief Executive Officer, and Dr. Dale Skeen, our Chief
Technology Officer, would be difficult to replace.
In addition, our future success will depend in large part upon our ability
to attract, retain and motivate highly skilled employees. In particular, we are
actively seeking a vice president of engineering. We face significant
competition for individuals with the skills required to develop, market and
support our products and services. We cannot assure that we will be able to
recruit and retain sufficient numbers of these highly skilled employees.
Our business and reputation could be harmed if we have improperly reported
wages or made withholdings for our employees and independent contractors.
On May 25, 1999 we were subject to an onsite audit by the California
Employment Development Department. The purpose of the audit was to ensure that
we have properly reported wages and made all required withholdings and other
payments under California law for our employees and independent contractors. We
provided the documentary information requested in connection with the audit,
and we are awaiting the results of the audit. To the extent that we are
required to make significant additional payments on behalf of our employees or
independent contractors, or pay penalties, our business and operating results
could be harmed.
Risks Related to Our Industry
We depend on the increasing use of the Internet and on the growth of electronic
commerce. If the use of the Internet and electronic commerce does not grow
as anticipated, our business will be seriously harmed.
We depend on the increased acceptance and use of the Internet as a medium
for electronic commerce and the adoption by businesses of eBusiness solutions.
Rapid growth in the use of the Internet is a recent occurrence. As a result,
acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of business customers may not adopt or continue to use
the Internet as a medium of commerce. Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty, and there exist few proven services and products.
11
<PAGE>
If we fail to adequately protect our proprietary rights, we may lose such
rights and our business may be adversely affected.
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual property rights. We rely on a
combination of copyright, trademark and trade secret laws, as well as
confidentiality agreements and licensing arrangements, to establish and protect
our proprietary rights. We have no issued patents. Despite our efforts to
protect our proprietary rights, existing laws afford only limited protection.
Attempts may be made to copy or reverse engineer aspects of our products or to
obtain and use information that we regard as proprietary. Accordingly, there
can be no assurance that we will be able to protect our proprietary rights
against unauthorized third-party copying or use. Use by others of our
proprietary rights could materially harm our business. Furthermore, policing
the unauthorized use of our products is difficult and expensive litigation may
be necessary in the future to enforce our intellectual property rights.
Certain of our license agreements require us to place the source code for
our products in escrow. These agreements generally provide these customers with
a limited, non-exclusive license to use this code if:
. we fail to provide products or maintenance and support;
. we cease to do business without a successor; or
. there is a bankruptcy proceeding by or against Vitria.
Our business would be harmed if customers were granted this access.
Our products could infringe the intellectual property rights of others causing
costly litigation and the loss of significant rights.
We expect that third parties may claim that we have infringed their current
or future intellectual property rights. We expect that software developers in
our market will increasingly be subject to infringement claims as the number of
products in different software industry segments overlap. Any claims, with or
without merit, could be time-consuming, result in costly litigation, prevent
product shipment or cause delays, or require us to enter into royalty or
licensing agreements, any of which could harm our business. Patent litigation
in particular has complex technical issues and inherent uncertainties. In the
event an infringement claim against us is successful and we cannot obtain a
license on acceptable terms or license a substitute technology or redesign our
products to avoid infringement, our business would be harmed. Furthermore,
former employers of our current and future employees may assert that our
employees have improperly disclosed to us or are using confidential or
proprietary information.
There are many risks associated with international operations which may
adversely affect our business.
To date, we have not generated any revenue from sales outside of the United
States. We have recently opened an office in the United Kingdom and intend to
establish additional offices in Europe. We anticipate devoting significant
resources and management attention to expanding international opportunities.
There are a number of challenges to establishing operations outside of the
United States and we may be unable to successfully establish international
operations. If we fail to sell our products in international markets, our
business would be adversely affected.
Potential year 2000 problems with our software, third party equipment or our
internal operating systems could adversely affect our business.
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 code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates, known as "Year 2000 compliant." As
a result, in a few months, computer systems and/or software products used by
many companies may need to be upgraded to be Year 2000 compliant. While we have
assessed our products, services and internal systems, certain internal
12
<PAGE>
financial packages have not yet been implemented and may require further
assessment by us. We believe we are currently expending sufficient resources to
review our products and services, as well as our internal management
information systems in order to remedy those products, services and systems
that are not Year 2000 compliant. We expect such modifications will be made on
a timely basis and we do not believe that the cost of such modifications will
have a material effect on our operating results. There can be no assurance,
however, that we will be able to modify such products, services and systems in
a timely and successful manner to be Year 2000 compliant, which could have a
material adverse effect on our operating results. Conversely, concerns
regarding Year 2000 compliance could cause a significant number of companies,
including our current customers, to reevaluate their current system needs and,
as a result, consider switching to other systems and suppliers. Although we
have not experienced the effects of such a trend to date, if customers defer
purchases of our products because of such a reallocation, it could adversely
affect our operating results.
Risks Related to Our Offering
The substantial number of shares that will be eligible for sale in the near
future may adversely affect the market price for our common stock.
Sales of substantial number of shares of our common stock in the public
market following this offering could materially adversely affect the market
price for our common stock. The number of shares of common stock available for
sale in the public market is limited by restrictions under federal securities
law and under certain agreements that our stockholders have entered into with
the underwriters and with us. Those lockup agreements restrict our stockholders
from selling, pledging our otherwise disposing of their shares for a period of
180 days after the date of this prospectus without the prior written consent of
Credit Suisse First Boston Corporation. However, Credit Suisse First Boston
Corporation may, in its sole discretion, release all or any portion of the
common stock from the restrictions of the lockup agreements. The following
table indicates approximately when the 26,836,895 shares of our common stock
that are not being sold in the offering but which were outstanding as of June
1, 1999 will be eligible for sale into the public market:
<TABLE>
<CAPTION>
Eligibility of Restricted
Shares for Sale in Public
Market
-------------------------
<S> <C>
At effective date................................ 0
180 days after effective date.................... 24,693,040
At various times after the effective date........ 2,143,855
</TABLE>
Additionally, of the 2,303,900 shares issuable upon exercise of options to
purchase our common stock outstanding as of June 1, 1999, approximately 324,076
shares will be vested and eligible for sale 180 days after the completion of
this offering. For a further description of the eligibility of shares for sale
into the public market following the offering. See "Shares Eligible for Future
Sale."
We may need to raise additional capital that may not be available.
We expect that the net proceeds from this offering will be sufficient to
meet our working capital and capital expenditure needs for at least the next
twelve months. After that, we may need to raise additional funds, and we cannot
be certain that we will be able to obtain additional financing on favorable
terms, or at all. If we need additional capital and cannot raise it on
acceptable terms, we may not be able to, among other things:
. develop or enhance our products and services;
. acquire technologies, products or businesses;
. expand operations, in the United States or internationally;
. hire, train and retain employees; or
. respond to competitive pressures or unanticipated capital requirements.
Our failure to do any of these things could seriously harm our business.
13
<PAGE>
Our stock price may be volatile because our shares have not been publicly
traded before.
Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after the offering and therefore we cannot predict the extent to how liquid
this market will become. We will negotiate and determine the initial public
offering price with the representatives of the underwriters and this price may
not be indicative of prices that will prevail in the trading market.
As a result you may be unable to sell your shares of common stock at or
above the offering price. The market price of the common stock may fluctuate
significantly in response to the following factors, most of which are beyond
our control:
. variations in our quarterly operating results;
. changes in securities analysts' estimates of our financial performance;
. changes in market valuations of similar companies;
. announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. loss of a major customer or failure to complete significant license
transactions;
. additions or departures of key personnel; and
. fluctuations in stock market price and volume, which are particularly
common among securities of software and Internet-oriented companies.
We are at risk of securities class action litigation due to our expected stock
price volatility.
In the past, securities class action litigation has often been brought
against a company following a decline in the market price of its securities. We
may in the future be the target of similar litigation. Securities litigation
could result in substantial costs and divert management's attention and
resources, and could seriously harm our business.
We have implemented certain anti-takeover provisions.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:
. establishment of a classified board of directors such that not all
members of the board may be elected at one time;
. authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
. limitations on who may call special meetings of stockholders;
. prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporations Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of Vitria.
14
<PAGE>
Concentration of ownership among our existing executive officers, directors and
principal stockholders may prevent new investors from influencing
significant corporate decisions.
Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
% of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This could have the effect of delaying or preventing a change of
control of Vitria and will make some transactions difficult or impossible
without the support of these stockholders. See "Principal Stockholders."
15
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of such
terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors, including
the risks outlined under "Risk 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 or activity, performance
or achievements expressed or implied by such forward-looking statements.
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, unless required by law.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares
of our common stock to be approximately million, approximately $
million if the underwriters' over-allotment option is exercised in full, at an
assumed initial public offering price of $ per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses.
We expect to use approximately $1.4 million of the net proceeds of the
offering for capital expenditures in connection with leasing a new facility for
our primary offices, which we expect to occupy by October 1999. The remaining
net proceeds will be used for general corporate purposes, including expansion
of sales and marketing capabilities, product development, and other working
capital requirements. We will retain broad discretion over the use of the net
proceeds of this offering. The amounts and timing of the expenditures for these
purposes may vary significantly depending on numerous factors, such as the
progress of our research and development efforts, technological advances and
the competitive environment for our products. We may also use a portion of the
net proceeds to acquire or invest in other businesses, products and
technologies. We have no agreements or understandings regarding any such
acquisition or investments.
We believe that our available cash, together with the net proceeds of this
offering, will be sufficient to meet our capital requirements for at least the
next twelve months. Pending use of the net proceeds, we intend to invest the
net proceeds in short-term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends. We currently expect to
retain earnings for use in the operation and expansion of our business, and
therefore do not anticipate paying any cash dividends. See "Description of
Capital Stock."
17
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. Our actual capitalization as of March 31, 1999;
. Our pro forma capitalization after giving effect to (1) the receipt of
net proceeds of approximately $4.5 million from the sale of 1,003,980
shares of Series D preferred stock in May 1999 and (2) the conversion of
all outstanding shares of preferred stock upon the closing of this
offering; and
. Our pro forma as adjusted capitalization to give effect to the sale of
the shares of common stock at an assumed initial public offering
price of $ per share in this offering, less the estimated underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Stockholders' equity:
Convertible Preferred Stock: issuable in
series, $0.001 par value; 13,469,745 shares
authorized, 10,551,635 actual shares issued
and outstanding; no shares issued and
outstanding, pro forma; 5,000,000 shares
authorized; no shares issued and
outstanding, pro forma as adjusted.......... $ 11 $ -- $
Common Stock: $0.001 par value; 51,000,000
shares authorized, 15,541,180 actual shares
issued and outstanding; 27,096,795 shares
issued and outstanding, pro forma;
250,000,000 shares authorized; shares
issued and outstanding, pro forma as
adjusted.................................... 16 27
Additional paid-in capital................... 31,391 35,890
Unearned stock-based compensation............ (6,456) (6,456)
Accumulated deficit.......................... (12,939) (12,939)
-------- -------- -------
Total stockholders' equity................. 12,023 16,522
-------- -------- -------
Total capitalization..................... $ 12,023 $ 16,522 $
======== ======== =======
</TABLE>
This table excludes the following shares:
. 2,061,740 shares of common stock issuable upon the exercise of stock
options outstanding under our stock option plans, and 4,488,792
additional shares of common stock available for issuance under these
stock option plans; and
. 1,500,000 shares of common stock available for issuance under our
employee stock purchase plan.
18
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock, on March 31,
1999, after giving effect to the receipt of the net proceeds of approximately
$4.5 million from the sale of 1,003,980 shares of Series D preferred stock in
May 1999 and the conversion of all outstanding shares of preferred stock upon
the closing of the offering was approximately $16,522,000, or approximately
$0.61 per share. Pro forma net tangible book value per share represents the
amount of our total tangible assets less total liabilities divided by the
number of shares of common stock outstanding. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of common stock in this offering and the net
tangible book value per share of our common stock immediately afterwards.
Assuming our sale of shares of common stock offered by this prospectus
at an assumed initial public offering price of $ per share, and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, our net tangible book value at March 31, 1999 would have
been approximately $ million or $ per share. This represents an immediate
decrease in net tangible book value of $ per share to new investors
purchasing shares of common stock in this offering. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
Pro forma net tangible book value per share at March 31, 1999... $0.61
Decrease per share attributable to new investors................
-----
Pro forma net tangible book value per share after this offering...
------
Dilution per share to new investors............................... $
======
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares in this offering. We
have assumed an initial public offering price of $ per share, and we have
not deducted estimated underwriting discounts and commissions and estimated
offering expenses in our calculations.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 27,096,795 % $32,554,000 % $1.20
New investors..................
---------- ----- ----------- -----
Total........................ % $ %
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options. The exercise of options outstanding under our stock option plans
having an exercise price less than the offering price would increase the
dilutive effect to new investors. See "Capitalization" and "Management--
Employee Stock Plans."
If the underwriters exercise their over-allotment in full, the following
will occur:
. the number of shares of common stock held by existing stockholders will
decrease to or approximately % of the total number of
shares of our common stock outstanding; and
. the number of shares held by new investors will increase to , or
approximately % of the total number of our common stock outstanding
after this offering.
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Vitria's financial statements and related notes included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998, and the balance
sheet data as of December 31, 1997 and 1998, are derived from the audited
financial statements included elsewhere in this prospectus. The statement of
operations data for the period from inception (October 17, 1994) to December
31, 1994 and for the year ended December 31, 1995, and the balance sheet data
as of December 31, 1994, 1995 and 1996, are derived from the audited financial
statements not included elsewhere in this prospectus. The statement of
operations data for the three months ended March 31, 1998 and 1999 and the
balance sheet data as of March 31, 1999 are derived from the unaudited
financial statements included elsewhere in this prospectus. The historical
results are not necessarily indicative of results to be expected for future
periods.
<TABLE>
<CAPTION>
Three Months Ended
Period from Inception Year Ended December 31, March 31,
(October 17, 1994) to ------------------------------ --------------------
December 31, 1994 1995 1996 1997 1998 1998 1999
--------------------- ------ ------ ------ ------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
License................ $ -- $ -- $ -- $ 955 $ 5,198 $ 139 $ 3,487
Service................ 67 376 1,042 1,425 1,633 151 1,472
Government grant....... -- -- 984 1,255 796 371 250
---- ------ ------ ------ ------- --------- ---------
Total revenues....... 67 376 2,026 3,635 7,627 661 5,209
---- ------ ------ ------ ------- --------- ---------
Cost of revenues:
License................ -- -- -- 18 -- -- 62
Service................ -- 15 183 338 2,109 122 1,294
Government grant....... -- -- 984 1,255 796 371 250
---- ------ ------ ------ ------- --------- ---------
Total cost of
revenues............ -- 15 1,167 1,611 2,905 493 1,606
---- ------ ------ ------ ------- --------- ---------
Gross profit............ 67 361 859 2,024 4,722 168 3,603
---- ------ ------ ------ ------- --------- ---------
Operating expenses:
Sales and marketing.... -- -- 80 1,143 6,572 701 2,889
Research and
development........... 124 575 397 841 4,794 717 1,961
General and
administrative........ 28 37 147 695 1,807 234 726
Amortization of stock-
based compensation.... -- -- -- -- 1,424 123 867
---- ------ ------ ------ ------- --------- ---------
Total operating
expenses............ 152 612 624 2,679 14,597 1,775 6,443
---- ------ ------ ------ ------- --------- ---------
Income (loss) from
operations............. (85) (251) 235 (655) (9,875) (1,607) (2,840)
Interest income......... -- 14 8 75 306 91 129
---- ------ ------ ------ ------- --------- ---------
Net income (loss)....... $(85) $ (237) $ 243 $ (580) $(9,569) $ (1,516) $ (2,711)
==== ====== ====== ====== ======= ========= =========
Net income (loss) per
share:
Basic.................. $ -- $(0.05) $ 0.03 $(0.06) $ (0.80) $ (0.14) $ (0.21)
Diluted................ $ -- $(0.05) $ 0.02 $(0.06) $ (0.80) $ (0.14) $ (0.21)
Weighted average shares:
Basic.................. -- 4,843 7,044 9,915 12,003 10,490 12,699
Diluted................ -- 4,843 13,835 9,915 12,003 10,490 12,699
Pro forma basic and
diluted net loss per
share.................. $ (0.48) $ (0.12)
Pro forma basic and
diluted weighted
average shares......... 20,111 23,250
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------- March 31,
1994 1995 1996 1997 1998 1999
---- ---- ---- ------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 33 $128 $399 $ 9,138 $12,792 $11,444
Working capital...................... (92) 179 585 9,762 12,336 10,771
Total assets......................... 136 252 961 11,141 20,000 18,240
Deferred revenue..................... -- -- -- 223 2,874 3,277
Stockholders' equity (deficit)....... (85) 241 636 10,099 13,391 12,023
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements, trend analysis and other information contained in the
following discussion relative to markets for our products and trends in
revenues, gross margins and anticipated expense levels, as well as other
statements including words such as "anticipate," "believe," "could" "estimate,"
"expect" "intend" and "plan" and other similar expressions constitute forward-
looking statements. These forward-looking statements are subject to business
and economic risks and uncertainties, and our actual results of operations may
differ materially from those contained in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors" as well as other risks and
uncertainties referenced in this prospectus.
Overview
Vitria was incorporated in October 1994. We initially generated revenues
exclusively through consulting contracts with third parties and government
grants from NIST. In June 1997, we commercially released our first products.
With the initial release of these products, we accelerated the development of
our sales and marketing organizations. We have incurred significant losses
since inception, and as of March 31, 1999, we had an accumulated deficit of
$12.9 million.
We derive revenues from three sources: licenses, services, and government
grants. Since the introduction of our products in 1997, licenses have become
our primary source of revenue. Products are typically licensed to customers for
a perpetual term, with pricing based on the number of systems or applications
managed. We record license revenues when a license agreement has been signed by
both parties, the fee is fixed and determinable, collection of the fee is
probable, and delivery of our product has occurred. For electronic
transmissions, we consider our products to have been delivered when the access
code to download the software from the Internet has been provided to the
customer. Payments received in advance of revenue recognition are recorded as
deferred revenue.
Service revenues include product maintenance, consulting and training.
Customers who license BusinessWare products normally purchase maintenance
contracts. These contracts provide unspecified software upgrades and technical
support over a specified term, which is typically twelve months. Maintenance
contracts are usually paid in advance, and revenues from these contracts are
recognized ratably over the term of the contract. Customers typically purchase
consulting services from us to enlist our support in implementation activities
related to their purchase of BusinessWare licenses. These consulting services
are generally sold on a time and materials basis and recognized as the services
are performed. We also offer training services which are sold on a per student
basis and recognized as the classes are attended.
We have received government grants to conduct research and development on
emerging technologies. These grants permit us to be reimbursed for costs
related to these activities. We recognize revenues from these grants as the
research is performed and qualifying costs are incurred.
We market our products through our direct sales force, and augment our sales
efforts through relationships with system integrators and other strategic
partners. While our revenues to date have been derived exclusively from
accounts in the United States, we opened an office in the United Kingdom in
June 1999. We believe international revenues will represent a more meaningful
component of our total revenues as we grow. To date, we have not experienced
significant seasonality of revenues. We expect that future results may be
affected by the fiscal or quarterly budget cycles of our customers.
A relatively small number of customers account for a significant portion of
our total revenues. As a result, the loss or delay of individual orders can
have a significant impact on our revenues. In 1998, sales to our ten largest
customers accounted for 86% of total revenues. In 1998, revenues from Level 3,
KPMG and NIST accounted for 30%, 12% and 10% of total revenues. We expect that
revenues from a limited number of
21
<PAGE>
customers will continue to account for a large percentage of total revenues in
future quarters. Our ability to attract new customers will depend on a variety
of factors, including the reliability, security, scalability and cost-
effectiveness of our products.
We have a limited operating history which makes it difficult to predict
future operating results. We believe our success requires expanding our
customer base and continuing to enhance our BusinessWare products. We intend to
continue to invest significantly in sales, marketing and research and
development and expect to incur operating losses for at least the next eighteen
months. Our operating expenses are relatively fixed and are based on
anticipated revenue trends; a delay in the recognition of revenue from one or
more license transactions could cause significant variations in operating
results from quarter to quarter and could result in unforeseen losses. Fees
from contracts that do not meet our revenue recognition policy requirements are
recorded as deferred revenues. While a small portion of our revenues each
quarter is recognized from deferred revenue, our quarterly performance will
depend primarily upon entering into new contracts to generate revenues for that
quarter. New contracts may not result in revenue during the quarter in which
the contract was signed, and we may not be able to predict accurately when
revenues from these contracts will be recognized. As a result of these factors,
we believe that period-to-period comparisons of our results of operations are
not necessarily meaningful and should not be relied upon as indications of
future performance. It is likely that in some future quarter our operating
results will be below the expectations of public market analysts and investors.
In such event, the price of our common stock would likely decline.
22
<PAGE>
Results Of Operations
The following tables set forth statement of operations data for each of the
five quarters ended March 31, 1999, as well as the percentage of our total
revenues represented by each item. This information has been derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on the same basis as the audited financial statements contained in
this prospectus and include all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of
such information. You should read this information in conjunction with our
annual audited financial statements and related notes appearing elsewhere in
this prospectus. Our quarterly operating results are expected to vary
significantly from quarter to quarter and you should not draw any conclusions
about our future results from the results of operations for any quarter.
<TABLE>
<CAPTION>
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
License.................. $ 139 $ 888 $ 1,643 $ 2,528 $ 3,487
Service.................. 151 111 279 1,092 1,472
Government grant......... 371 54 121 250 250
------- ------- ------- ------- -------
Total revenues.......... 661 1,053 2,043 3,870 5,209
------- ------- ------- ------- -------
Cost of revenues:
License.................. -- -- -- -- 62
Service.................. 122 198 540 1,249 1,294
Government grant......... 371 54 121 250 250
------- ------- ------- ------- -------
Total cost of revenues.. 493 252 661 1,499 1,606
------- ------- ------- ------- -------
Gross profit............... 168 801 1,382 2,371 3,603
------- ------- ------- ------- -------
Operating expenses:
Sales and marketing...... 701 1,653 1,585 2,633 2,889
Research and
development............. 717 1,346 1,369 1,362 1,961
General and
administrative.......... 234 399 617 557 726
Amortization of stock-
based compensation...... 123 215 412 674 867
------- ------- ------- ------- -------
Total operating
expenses............... 1,775 3,613 3,983 5,226 6,443
------- ------- ------- ------- -------
Loss from operations....... (1,607) (2,812) (2,601) (2,855) (2,840)
Interest income............ 91 69 56 90 129
------- ------- ------- ------- -------
Net loss................... $(1,516) $(2,743) $(2,545) $(2,765) $(2,711)
======= ======= ======= ======= =======
As a Percentage of Total Revenues:
Revenues:
License.................. 21% 84% 80% 65% 67%
Service.................. 23 11 14 28 28
Government grant......... 56 5 6 7 5
------- ------- ------- ------- -------
Total revenues.......... 100 100 100 100 100
------- ------- ------- ------- -------
Cost of revenues:
License.................. -- -- -- -- 1
Service.................. 19 19 26 32 25
Government grant......... 56 5 6 7 5
------- ------- ------- ------- -------
Total cost of revenues.. 75 24 32 39 31
------- ------- ------- ------- -------
Gross profit............... 25 76 68 61 69
------- ------- ------- ------- -------
Operating expenses:
Sales and marketing...... 106 157 78 68 56
Research and
development............. 108 128 67 35 38
General and
administrative.......... 35 38 30 15 14
Amortization of stock-
based compensation...... 19 20 20 17 16
------- ------- ------- ------- -------
Total operating
expenses............... 268 343 195 135 124
------- ------- ------- ------- -------
Loss from operations....... (243) (267) (128) (74) (55)
Interest income............ 14 7 3 3 3
------- ------- ------- ------- -------
Net loss................... (229)% (260)% (125)% (71)% (52)%
======= ======= ======= ======= =======
</TABLE>
23
<PAGE>
Revenues
License. We recognized no license revenue in 1996. License revenues
increased from $955,000 in 1997 to $5.2 million in 1998 primarily due to the
growth in the number of licenses to new customers. Comparing the first quarter
of 1998 to the first quarter of 1999, license revenues increased from $139,000
to $3.5 million due to the growth in the number of licenses to new customers
and higher average transaction size.
Service. Service revenues increased from $1.0 million in 1996, to $1.4
million in 1997, to $1.6 million in 1998. Prior to the introduction of our
products in 1997, we partially funded our operations through the provision of
custom design services. Throughout 1998, resources were redeployed from custom
design services to product support services in support of the newly introduced
products. This redeployment resulted in a volatile revenue stream and slower
overall growth in service revenues in 1998, as illustrated by the drop in
service related revenues in the second quarter of 1998. Comparing the first
quarter of 1998 to the first quarter of 1999, service revenues grew from
$151,000 to $1.5 million. This substantial increase in service revenues began
in the fourth quarter of 1998 due to the growth of maintenance, support and
consulting revenues associated with license agreements signed in earlier
periods. These service revenues continued to increase in the first quarter of
1999 as we supported a number of new deployments of our products.
Government grant. Government grant revenues were $984,000 in 1996, $1.3
million in 1997 and $796,000 in 1998. Government grant revenues were $371,000
in the first quarter of 1998 and $250,000 in the first quarter of 1999.
Revenues vary from quarter to quarter based upon the extent to which our
internal development resources are deployed to work on activities covered under
the grants. Since each grant is awarded on a competitive basis, we cannot
predict whether these government grant revenues will continue in future
periods. Based on our current awards, we can conduct research activities and
seek reimbursement for up to an additional $1.4 million of associated costs.
Cost of Revenues
License. Cost of license revenues consists primarily of royalty payments to
third parties for technology incorporated in certain of our products. We began
incurring these costs in the first quarter of 1999 due to the licensing to our
customers of products which incorporated third-party technology.
Service. Cost of service revenues consists primarily of salaries, facility
costs, and payments to third party consultants incurred in providing customer
support, training, and implementation services. Cost of service revenues was
$183,000 in 1996, $338,000 in 1997 and $2.1 million in 1998. As a percentage of
our service revenues, these costs represented 18% in 1996, 24% in 1997 and 129%
in 1998. In the first quarter of 1998, cost of service revenues was $122,000,
or 81% of service revenues and, in the first quarter of 1999, $1.3 million, or
88% of service revenues. In the last three quarters of 1998 we invested heavily
in service personnel and infrastructure in anticipation of supporting a larger
customer base in future periods. This increased investment, combined with
slower service revenue growth during this period, resulted in a substantial
increase in the cost of services measured as a percentage of service revenues.
Comparing the third quarter of 1998 to the fourth quarter of 1998 and the first
quarter of 1999, our cost of service revenues increased significantly in dollar
amounts primarily due to our engagement of a third-party service provider to
support our significantly increased activity. We expect that cost of service
revenues will continue to increase in dollar amount as we continue to expand
our customer support organization to meet anticipated customer demand.
Government grant. Under the terms of the government grants, we receive
reimbursements for costs incurred in connection with related research
activities. The employees who work on the grant activities are members of our
research and development team. Our work related to these grants varies from
quarter to quarter depending on the priorities in the research and development
organization. As eligible work is performed by the research and development
team, the allowable costs are charged to cost of government grant revenues.
These charged costs are exactly equal to the grant revenues recognized.
24
<PAGE>
Operating Expenses
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions, field office expenses, travel and entertainment and
promotional expenses. Sales and marketing expenses increased from $80,000 in
1996, to $1.1 million in 1997, to $6.6 million in 1998, and were $701,000 in
the first quarter of 1998 and $2.9 million in the first quarter of 1999. These
expenses decreased as a percentage of total revenues from approximately 106% in
the first quarter of 1998 to approximately 55% in the first quarter of 1999.
Sales and marketing expense increased in dollar amounts due primarily to the
hiring of additional sales and marketing personnel, increased commissions
associated with higher sales and costs associated with expanded promotional
activities. The decrease in sales and marketing expenses in dollar amount and
as a percentage of total revenues from the second quarter to the third quarter
of 1998 resulted from the departure of several marketing employees and a
decrease in promotional spending. We expect that sales and marketing expenses
will continue to increase in dollar amounts as we continue to expand our sales
and marketing efforts, establish additional U.S. and international sales
offices and increase promotional activities.
Research and development. Research and development expenses include costs
associated with the development of new products, enhancements to existing
products, and quality assurance activities. These costs consist primarily of
employee salaries, benefits, and the cost of consulting resources that
supplement the internal development team. We have not capitalized any software
development costs and have expensed all such costs as incurred. Research and
development expenses increased from $397,000 in 1996, to $841,000 in 1997, to
$4.8 million in 1998, and were $717,000 in the first quarter of 1998 and $2.0
million in the first quarter of 1999. The increases in the dollar amounts of
research and development expenses during these comparison periods were
primarily attributable to costs related to the hiring of additional personnel.
Research and development expenses consistently increased on a quarterly basis,
with the exception of the third and fourth quarters of 1998. While the dollars
spent on research and development continued to increase during this period, the
portion of these dollars that were spent on activities related to the
government grants and charged to cost of government grant revenues increased
when compared to earlier quarters. We anticipate that we will continue to
devote substantial resources to research and development and that such expenses
will increase in dollar amounts.
General and administrative. General and administrative expenses consist
primarily of salaries for administrative, executive and finance personnel,
recruiting costs, information systems costs, professional service fees and
allowances for doubtful accounts. These expenses increased from $147,000 in
1996, to $695,000 in 1997, to $1.8 million in 1998 and were $234,000 in the
first quarter of 1998 and $726,000 in the first quarter of 1999. Increases in
dollar amounts were primarily attributable to an increase in the number of
employees, higher professional service fees, and increased allowances for
doubtful accounts. We believe that our general and administrative expenses will
continue to increase in dollar amounts as a result of our growing operations
and the expenses associated with operating as a public company.
Amortization of stock-based compensation. Amortization of stock-based
compensation includes the amortization of unearned employee stock-based
compensation and expenses for stock granted to consultants in exchange for
services. Employee stock-based compensation expense is amortized over a five-
year vesting period using the multiple option approach. In connection with the
grant of certain employee stock options, we recorded aggregate unearned stock-
based compensation of $8.6 million through March 31, 1999 and expect to record
an additional $2.4 million in the second quarter of 1999. We amortized employee
stock-based compensation expense of $1.3 million in 1998 and $867,000 for the
quarter ended March 31, 1999. We expect to record employee stock-based
compensation expenses of approximately $1.1 million for the quarter ending
June 30, 1999, $1.1 million for the quarter ending September 30, 1999,
$1.0 million for the quarter ending December 31, 1999 and $846,000 for the
quarter ending March 31, 2000. We anticipate such expense to decrease
consistently in future periods. Unearned compensation expense will be reduced
for future periods to the extent that options are terminated prior to full
vesting. We recorded expenses of $147,000 for the year ended December 31, 1998
in connection with stock issued for services.
Interest Income
Interest income is primarily comprised of income earned on our cash and cash
equivalent balances.
25
<PAGE>
Provision For Income Taxes
We incurred operating losses for all periods with the exception of 1996,
when we had net income of $243,000. Our 1996 tax liability, however, was
reduced due to the utilization of net operating loss carryforwards. Our
deferred tax assets primarily consist of net operating loss carryforwards,
nondeductible allowances and research and development tax credits. We have
recorded a valuation allowance for the full amount of our net deferred tax
assets, as the future realization of the tax benefit is not currently likely.
As of December 31, 1998, we had net operating loss carryforwards for federal
tax purposes of approximately $7.2 million and for state tax purposes of
approximately $3.3 million. These federal and state tax loss carryforwards are
available to reduce future taxable income and expire at various dates through
fiscal 2013. Under the provisions of the Internal Revenue Code, certain
substantial changes in our ownership may limit the amount of net operating loss
carryforwards that could be utilized annually in the future to offset taxable
income.
Liquidity and Capital Resources
Since inception, we have financed our operations through private sales of
common and preferred stock, with net proceeds totaling $22.7 million. As of
March 31, 1999, we had $11.4 million in cash and cash equivalents, and $10.8
million in working capital with no outstanding debt. In May 1999, we completed
an additional round of private funding which resulted in net proceeds of $4.5
million.
Net cash generated in operating activities was $223,000 in 1996. Net cash
used in operating activities was $873,000 in 1997 and $6.8 million in 1998 and
$1.5 million in the three months ended March 31, 1999. Net cash used to fund
operating activities in each of these periods reflect net losses, offset in
part by increases in deferred revenues. Net cash used in investing activities
was $104,000 in 1996, $431,000 in 1997, $947,000 in 1998 and $300,000 for the
first quarter of 1999. Investing activities consist primarily of purchases of
computer hardware and software, office furniture and equipment and leasehold
improvements. Net cash generated from financing activities was $152,000 in
1996, $10.0 million in 1997, $11.4 million in 1998 and $476,000 for the first
quarter of 1999. Net cash generated from financing activities consists
primarily of net proceeds from the issuance of convertible preferred stock.
We signed a lease for a new principal facility in April 1999. Lease payments
under the agreement commence in August 1999 and continue for forty-nine months,
resulting in aggregate lease expenses of approximately $500,000 per quarter. We
have commitments for capital expenditures in 1999 of $1.4 million related to
the establishment of this facility, which we expect to occupy by October 1999.
We expect to experience significant growth in our operating expenses for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. In addition, we may utilize
cash resources to fund acquisitions or investments in other businesses,
technologies or product lines. We believe that available cash and cash
equivalents and the net proceeds from the sale of the common stock in this
offering will be sufficient to meet our working capital and operating expense
requirements for at least the next twelve months. Thereafter, we may require
additional funds to support our working capital and operating expense
requirements or for other purposes and may seek to raise such additional funds
through public or private debt or equity financings. There can be no assurance
that such additional financing will be available, or if available, will be on
reasonable terms and not dilutive to our stockholders.
Recently Issued Accounting Pronouncements
Our revenue recognition policies are in accordance with Statement of
Position or SOP 97-2, "Software Revenue Recognition" which we adopted on
January 1, 1998, with the exception of the provision deferred by SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2." The adoption of
SOP 97-2 resulted, for certain agreements, in the deferral of software license
revenues that would have been recognized upon delivery of the related software
under prior accounting standards. Prior to January 1, 1998, we recorded
26
<PAGE>
revenue in accordance with the provisions of SOP 91-1, "Software Revenue
Recognition". In December 1998, SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition" was issued. We adopted SOP 98-9 for all transactions
entered into in fiscal 1999. The adoption of this statement did not have a
material impact on our operating results, financial position or cash flow.
In March 1998, SOP, 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" was issued. SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We adopted SOP 98-1 in
fiscal 1999. The adoption of this did not have a material effect on our
financial position, results of operations or cash flow.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we
do not currently hold any derivative instruments and do not engage in hedging
activities, we expect the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flow. We will
be required to adopt SFAS No. 133 in fiscal 2000.
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and currently market our products
in North America. We anticipate marketing products in Europe in the second half
of 1999. As a result, our financial results could be affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. As all sales are currently made in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the short-term nature of our investments, we
believe that there is no material risk exposure. Therefore, no quantitative
tabular disclosures are required.
Year 2000 Readiness
The "Year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able
to distinguish whether "00" means 1900 or 2000, which may result in failures or
the creation of erroneous results.
We designed all of our products to be Year 2000 compliant when configured
and used in accordance with the related documentation, and provided that the
underlying operating system of the host machine and any other software used
with or in the host machine or our products are Year 2000 compliant. However,
we have not exhaustively tested our products for Year 2000 compliance. We
continue to respond to customer questions about prior versions of our products
on a case-by-case basis.
We have defined Year 2000 compliant as the ability to:
. Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
. Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
. Respond to two-digit date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner;
. Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and
. Recognize year 2000 as a leap year.
27
<PAGE>
We are seeking assurances from our vendors that licensed software is Year
2000 compliant. To date, we have received assurances from a subset of the
vendors of our enterprise resource planning software, and technology support
software as to their Year 2000 compliance. Despite testing by us and current
and potential customers, and assurances from developers of products
incorporated into our products, our products may contain undetected errors or
defects associated with Year 2000 date functions. Known or unknown errors or
defects in our products could result in delay or loss of revenues, diversion of
development resources, damage to our reputation, increased service and warranty
costs, or liability from our customers, any of which could seriously harm our
business.
As a specific example, older versions of Vitria's BusinessWare product were
designed to work with Sun Microsystem's Java Developer Kit version 1.1.5. Sun
Microsystems has announced that this version and earlier versions of the Java
Developer Kit are not Year 2000 compliant. Vitria customers who are still using
these older versions of the BusinessWare products are thus subject to Year 2000
operating risk due to this Java Developer Kit compliance problem. We are
currently working with each of the affected customers to migrate them to newer
versions of the BusinessWare product which use Sun Microsystem's Java Developer
Kit version 1.1.7. Sun Microsystems claims that version 1.1.7 is Year 2000
compliant. We have not made any representations to our customers concerning the
Year 2000 readiness of this development kit. To the extent one or more of these
customers fail to migrate to the newer Vitria BusinessWare products, these
customers could potentially suffer operating difficulties in systems using
Vitria's BusinessWare products. Vitria could be exposed to an indirect
liability in this event.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of these lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we may be affected by it. There is a bill
being discussed by Congress which could eliminate liability for certain
failures to achieve Year 2000 compliance. There can be no assurance that this
bill will be signed into law or that it will provide us with any protection.
We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology. We have not initiated an assessment of our
non-information technology systems. We expect to complete testing of our
information technology systems in 1999. To the extent that we are not able to
test the technology provided by third-party vendors, we are seeking assurances
from these vendors that their systems are Year 2000 compliant. We are not
currently aware of any material operational issues or costs associated with
preparing our internal information technology and non-information technology
systems for the Year 2000. However, we may experience material unanticipated
problems and costs caused by undetected errors or defects in the technology
used in our internal information technology and non-information technology
systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our products and services. As a result, our business could
be seriously harmed.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could seriously harm our business.
We do not have a contingency plan to address situations that may result if
our critical operations are not Year 2000 ready, and we do not anticipate the
need to do so. The cost of developing and implementing such a plan may itself
be material. Finally, we are also subject to external forces that might
generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failure interruptions.
28
<PAGE>
Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:
. claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgments; and
. our inability to manage our own business.
29
<PAGE>
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause
differences include, but are not limited to, those discussed in "Risk Factors."
Vitria is pioneering a new category of software platform for real-time
eBusiness. Our product suite, BusinessWare, combines business process
automation and analysis, application integration and Internet-based
communications in one comprehensive platform. BusinessWare is designed to
provide business managers with an infrastructure that gives them end-to-end
visibility and control of their business operations, enabling them to reduce
time to market, rapidly respond to change, and manage the growing complexity of
business interactions across the extended enterprise.
We have initially targeted the telecommunications, business services,
manufacturing and financial services industries. To date, we have licensed
BusinessWare to over 30 companies, including CableVision, Covad, Deutsche Bank,
Duke Energy, FedEx, Fujitsu PC, Inacom, Level 3, PageMart Wireless, Qwest, SBC,
Sprint and Verio. We intend to expand our position in our current markets and
leverage this position to penetrate other markets. As part of our strategy to
establish BusinessWare as the eBusiness platform of choice, we have developed
strong working relationships with leading system integrators, including
Andersen Consulting and EDS. In addition, Vitria is developing vertical
eBusiness solutions built on the BusinessWare platform.
Industry Background
Rapid advances in new technology, deregulation and global competition are
transforming the business environment. In particular, the use of the Internet
to conduct business, often referred to as "eBusiness," is radically changing
business-to-business, business-to-consumer and business-to-employee
interactions. Many companies are exploring innovative business models to
capitalize on this eBusiness opportunity. These eBusiness participants include
established companies transitioning to new Internet-enabled business models,
new companies formed specifically to deliver products and services over the
Internet, and providers of the Internet infrastructure, such as networking and
telecommunications companies. These companies operate in an environment
characterized by rapid change and increasingly complex business interactions
with partners and customers. The business processes that define these complex
interactions often span an "extended enterprise" that links companies with an
Internet-enabled network of partners and customers.
To compete in this new environment, companies must find ways to streamline
and manage mission-critical business processes across their extended
enterprise. From order fulfillment to customer service, the benefits of
automating business processes across the extended enterprise are significant.
For example, telecommunications service providers that automate manual order
hand-offs between themselves and local network providers can reduce service
activation times, resulting in increased customer satisfaction. Similarly,
companies that allow their customers to place and track orders using self-
service Web applications can increase revenue opportunities while reducing
order management and customer service costs.
Deploying eBusiness solutions that deliver these business benefits is a
significant challenge. Companies need to define and manage the business
processes that implement these solutions. Once defined, these business
processes must be tied into the underlying information technology, or IT,
systems that support them so that information can flow smoothly from the first
step of the process to the last. Business processes must often coordinate the
flow of information across multiple stand-alone IT systems, including both
packaged applications and legacy systems. These stand-alone systems add
additional complexity to the effort because they typically are not designed to
work with each other.
30
<PAGE>
The following diagram illustrates the challenges of deploying an eBusiness
solution. The diagram depicts the order fulfillment process for a company that
allows customers to place orders directly, using a self-service Web
application, and outsources its inventory management and shipping processes to
a distribution partner. The diagram shows how each step in the order
fulfillment process directs the flow of information across internal and
external IT systems, and how these systems must be integrated to smoothly
process the customer order from initial placement to final product delivery to
customer billing.
[Graphic shows the flow of an order from a customer to a Web browser to an
order entry system to an order fulfillment system to an inventory management
system to a billing system.]
In order to successfully deploy sophisticated eBusiness solutions,
companies need to (1) define, manage and automate their business processes,
(2) integrate the internal and external IT systems that implement business
process steps, (3) exchange business information between a company and its
partners and customers in a secure and reliable fashion using Internet
standards, and (4) gather and analyze, in real time, key business and process
information, and use the results to automatically change business processes.
Until now, no solution has combined these four elements in a single
platform optimized for the deployment of eBusiness solutions. Current
approaches typically focus on the use of enterprise application integration,
or EAI, software products. These approaches suffer from the following
limitations:
Weak Process Automation and Real-Time Analysis Functionality. EAI products
address the application integration aspect of eBusiness solution
deployment. However, they do not generally provide the functionality to
manage and automate the business processes that define eBusiness
solutions. In addition, EAI products typically do not support real-time
analysis of business and process information.
Require Extensive IT Involvement. EAI products generally require multiple
custom software programs to define and implement business processes. As a
result, the design, implementation and modification of business processes
require extensive involvement by IT personnel. This makes it is difficult
for business managers to manage their business processes.
Limited Scalability. EAI products are typically built on "hub-and-spoke"
architectures that are designed for single site deployment. Generally,
solutions based on these architectures can neither be incrementally
expanded, or scaled, to support high transaction volumes nor distributed
across multiple locations without incurring significant administrative
overhead.
Lack of Support for Internet Standards. Ideally, companies need to
seamlessly exchange information between their corporate intranets and the
Internet. EAI products typically use proprietary communication protocols
and data formats, rather than Internet standards, such as HTTP and XML, to
exchange information between applications. This makes it difficult for
companies to deploy eBusiness solutions that link them with their partners
and customers over the Internet.
We believe that there is a significant market opportunity for a software
platform that addresses these limitations and enables companies to rapidly
deploy comprehensive eBusiness solutions. The independent research firm,
International Data Corporation, identified this opportunity as the
"Businessware Management System" market in a May 1999 report. IDC estimates
that the market will grow from $313 million in 1998 to more than $5 billion by
2003.
31
<PAGE>
Vitria Solution
Vitria is pioneering a new category of software platform for real-time
eBusiness. Our product suite BusinessWare, enables customers to deploy
sophisticated eBusiness solutions within and across their extended enterprises.
BusinessWare automates business processes that link partners and customers, and
integrates the underlying IT systems that must work together to support these
processes.
BusinessWare combines in a single solution the four elements that we believe
are essential for an eBusiness platform:
(1) Process Automation--Empowers business users to define, manage and
automate business processes through a graphical modeling environment;
(2) Application Integration--Integrates the internal and external IT
systems that implement business process steps across the extended
enterprise;
(3) Internet-Based Communications--Exchanges business information between a
company and its partners and customers in a secure and reliable fashion
using Internet standards; and
(4) Real-Time Analysis--Gathers key business and process information in
real time, analyzes the data in real time, and selectively uses the
results to automatically change business processes.
Once customers use BusinessWare to define their business process models and
integrate the underlying IT systems, BusinessWare starts controlling the flow
of information across the IT systems as specified by the process models.
BusinessWare continuously analyzes the customer's business processes and can
automatically change the processes in response to this analysis. This
capability allows companies to transform the information flowing through their
IT systems into "actionable intelligence" that enables business managers to
automate and optimize their business operations.
BusinessWare allows customers to solve their eBusiness problems using
graphical models rather than developing custom programs. Business managers use
the visual process modeling environment to define their business processes
graphically, and then use our application integration products to map the
graphical models to the underlying IT systems. Our graphical process models are
"directly executable," which means that they can be deployed immediately,
without programming by IT personnel.
We believe that BusinessWare provides the following benefits to customers:
Easy for Business Managers to Use. The combination of our graphical process
modeling and automation functionality with our robust application integration
foundation, allows customers to focus on the business objectives of their
eBusiness solutions rather than the mechanics of solution implementation.
Reduces Time to Market. We enable customers to reduce their time to market
by allowing them to graphically define and automate new business processes to
support the delivery of new products and services.
Leverages IT Investment. We help companies to preserve and leverage the
substantial IT investment they have made by allowing them to assemble eBusiness
solutions using their existing IT systems.
Allows Rapid Response to Change. We enable customers to graphically model
their existing business processes, and then continuously refine and optimize
them as business conditions change over time. To change a business process,
managers simply change the associated graphical model.
Provides a Comprehensive Solution. BusinessWare combines the four elements
of an eBusiness platform in a single comprehensive solution. This eliminates
the need for our customers to purchase and integrate separate solution
components from multiple vendors.
Scales to Support High Transaction Volumes and Distributed Deployment. Our
platform features an architecture that uses the same distributed processing
principles as those used on the Web. Unlike alternative "hub-and-spoke"
architectures that are optimized for single site deployment, our "federated"
architecture
32
<PAGE>
allows customers to incrementally add servers to support increasing loads,
without adding administrative complexity.
Enables Mission-Critical Deployments. The importance of our customers'
eBusiness initiatives demand that our software platform meets high standards
for performance, security and reliability. BusinessWare has been designed for
superior performance to accommodate the high transaction volumes enabled by the
Internet. In addition, our solution was designed to ensure secure communication
of business information across the extended enterprise using rigorous
authentication and data encryption technologies. BusinessWare provides high
availability through multiple server redundancy and automatic failover to
backup systems.
Strategy
Our objective is to establish BusinessWare as the leading software platform
for real-time eBusiness. Key elements of our strategy to achieve this objective
include:
Leverage and Expand Strategic Alliances. We intend to leverage our
relationships with leading system integrators, such as Andersen Consulting and
EDS, to extend our reach and provide comprehensive solutions to our customers.
We have established a group to focus exclusively on strengthening and expanding
these relationships. Our partners' relationships with the most senior levels of
management facilitate access to strategic projects which often generate large
commitments from our customers. We believe that this access also reduces the
length of our sales cycles. In addition, our partners' software deployment
expertise and vertical industry knowledge shortens implementation time and
helps us to secure add-on business.
Develop Market-Focused Solutions. We are developing packaged eBusiness
solutions built on the BusinessWare platform which capture business processes
used widely in specific vertical markets. We intend to leverage the industry
expertise of our system integrator partners and our customers to rapidly build
these market-focused solutions. We believe customers and partners will derive
significant time-to-market benefits and reduce their implementation and
maintenance costs by deploying these out-of-the-box business solutions. This
strategy also provides us with additional revenue opportunities while reducing
our internal development costs.
Expand Product and Technology Leadership. We have established a new category
of software platform that combines process automation, application integration,
Internet-based communications, and real-time analysis in a single unified
environment. We intend to continue to introduce innovative products which
enable our customers to rapidly deploy complex business solutions and extend
their enterprise easily and cost-effectively. We also intend to extend our
technological leadership by continuing to invest significantly in research and
development. We have assembled a team of prominent developers and engineers
with expertise in Internet communication protocols, messaging technologies, and
enterprise software and have established a corporate culture which fosters
continuous product innovation. In addition, by promoting and embracing emerging
Internet standards, we intend to facilitate the broad acceptance of our
eBusiness platform.
Target Fast-Growing Vertical Markets. To date, we have targeted the
telecommunications, business services, manufacturing and financial services
industries. These markets are characterized by high rates of growth, dynamic
business processes and rapid adoption of eBusiness solutions. We intend to
expand our position in these markets and leverage this position to target other
markets.
Extend Relationships with Customers. The strategic importance of
BusinessWare to our customers allows us to develop relationships with their
senior decision makers. This visibility to senior management and a focused
implementation approach facilitate the rapid adoption and deployment of
BusinessWare throughout the organization. We intend to leverage these
relationships as we introduce new products and services. Additionally, because
BusinessWare is used by companies to automate and manage their interactions
across their extended enterprise, we are introduced to opportunities with our
customers' business partners.
33
<PAGE>
Products
BusinessWare is a software product suite designed to provide customers with
a comprehensive platform for rapidly deploying sophisticated eBusiness
solutions. The BusinessWare platform is illustrated and summarized below:
[Graphic: Depicts the components of the Vitria product suite including the
following:
. BusinessWare Modeler
. BusinessWare Administrator
. BusinessWare Server
. BusinessWare Automator
. BusinessWare Analyzer
. BusinessWare Communicator
. BusinessWare Connectors and Transformers
. BusinessWare Common Services
. Customer's IT systems]
BusinessWare Modeler. The Modeler is BusinessWare's process modeling
component. Business managers use the Modeler to create graphical models of
their business processes using a point-and-click interface. These process
models provide an intuitive visual representation of interdependent processing
steps. Users can add business rules to each processing step to provide
additional modeling flexibility. Once specified and saved in the BusinessWare
Repository, process models can be directly executed by the BusinessWare
Automator. The Modeler supports advanced modeling constructs that allow users
to define and manage complex, real-world business processes. The Modeler
supports Unified Modeling Language, the industry standard for business process
modeling and automation.
BusinessWare Server. The BusinessWare Server provides the host environment
for five functional components: Automator, Analyzer, Communicator, Connector
and Transformer. The BusinessWare Server is designed to provide a set of common
services that are shared by each of these components:
. Security: provides rigorous support for authentication, data encryption
and access control.
. Transaction management: ensures the integrity of business processes and
related updates to underlying IT systems.
. Persistence: provides automatic recovery in the event of system or
network failures.
. Repository: stores and manages all BusinessWare metadata, such as process
models.
BusinessWare Automator. Automator is BusinessWare's process automation
component. It executes the business process models defined by users in the
Modeler and stored in the BusinessWare Repository. Automator automates business
processes by coordinating the flow of information among the underlying IT
systems.
BusinessWare Analyzer. Analyzer selectively gathers and analyzes business
and process information throughout the extended enterprise. Analyzer provides
real-time visibility into key business metrics, that business users need to
manage their business effectively. Analyzer also helps companies to rapidly
identify processing bottlenecks, thus providing them with the information they
need to support their continuous process improvement efforts. Analyzer's
results can be automatically fed back into Automator to change business
processes in real time.
BusinessWare Communicator. Communicator provides the communications backbone
that ties together all of the BusinessWare components and the IT systems that
they integrate. Communicator provides fast and secure information delivery with
multiple quality of service options. Communicator supports Internet standards,
such as HTTP and XML. Communicator is designed to interoperate with third-party
products, like IBM MQ Series and Microsoft MSMQ.
34
<PAGE>
BusinessWare Connectors and Transformers. Connectors and Transformers
together provide BusinessWare's application integration functionality, enabling
heterogeneous IT systems to exchange information.
. Connectors translate business information to Internet standards, such as
XML. We provide off-the-shelf Connectors for a number of popular packaged
applications, messaging systems and databases. We also provide a toolkit
that enables customers to rapidly develop Connectors for custom or legacy
systems.
. Transformers map data structures from one IT system to another. In
addition to our own transformation components, customers have the option
to augment their BusinessWare solution with transformation products from
third parties.
BusinessWare Administrator. Administrator is BusinessWare's graphical
systems management and monitoring component. Administrator allows systems
administrators to perform local and remote administration from any BusinessWare
server.
Customers and Case Studies
We have initially targeted the telecommunications, business services,
manufacturing and financial services industries. As of June 15, 1999, over 30
customers had licensed BusinessWare, including the following customers who have
paid $250,000 or more for licenses and related services:
<TABLE>
<S> <C>
A.B. Watley, Inc. ICG Communications, Inc.
Advanced Radio Telecom Corp. Inacom Corporation
CableVision Systems Corporation KPMG LLP
Covad Communications Company Level 3 Communications, Inc.
Deutsche Bank AG PageMart Wireless, Inc.
Duke Energy Corporation Qwest Communications Corporation
Federal Express Corporation SBC Communications, Inc.
Sprint Communications
Fujitsu PC Corporation Company, L.P.
Hewitt Associates LLC Verio, Inc.
</TABLE>
The following case studies illustrate how some of our customers have used
BusinessWare:
Covad Communications Group, Inc.
Covad is a leading high-speed Internet and network access provider offering
DSL-based high speed Internet access through Internet Service Providers, or
ISPs. Covad sells its service indirectly to small and medium businesses and
consumers through ISPs and sells directly to large enterprise customers.
Opportunity: As a new player in the fiercely competitive
telecommunications market, Covad needed to make it simple and inexpensive
for ISPs, to resell Covad's high-speed Internet access service.
Specifically, they wanted to create an eBusiness link with ISPs that would
automate the DSL ordering process, improve service levels and lower
operating costs.
Solution: Covad is using BusinessWare to build an eBusiness solution
which enables ISPs to automate their business interactions with Covad. The
solution will automate the DSL ordering process and integrate each ISP's
order entry system with Covad's order management system. Covad expects the
solution to have significant business benefits for both themselves and
their ISP partners. Major benefits for ISPs include faster time to market
with a DSL-based Internet access service, automatic access to order status
information, and lower administration costs. Major benefits for Covad
include deeper, stronger links with their ISP partners, lower operating
costs, and the ability to make it easier for ISPs to do business with Covad
than with competing DSL providers.
35
<PAGE>
Fujitsu PC Corporation
Fujitsu PC Corporation, or FPC, is a subsidiary of Fujitsu Limited, a
leading provider of information technology products and solutions for the
global marketplace. FPC delivers high-performance mobile computing solutions
for the North American market.
Opportunity: Faced with growing competitive pressures, FPC needed to
automate their order fulfillment process for custom-configured notebook
computers. This required FPC to integrate disparate IT systems, including a
Web-based order configuration system, an enterprise resource planning
system, and a manufacturing execution system. FPC's goal is to reduce the
time required to ship orders and improve customer satisfaction.
Solution: FPC is using BusinessWare to link the IT systems that support
their order fulfillment process. This will eventually automate the entire
fulfillment process for custom-configured notebook computers. The
BusinessWare solution is expected to provide end-to-end visibility and
control of the process, significantly reducing the time required to take
customer orders, and assemble and ship custom-configured notebook
computers. FPC also expects to lower costs and increase customer
satisfaction.
Inacom Corporation
Inacom Corp. is a global Fortune 500 technology services leader. The company
designs, implements and manages distributed technology infrastructure solutions
that optimize clients' return on IT investments.
Opportunity: One of Inacom's services is to provide an outsourced PC
service and support operation to meet the needs of Fortune 500 companies
and major PC hardware vendors. This service is designed to reduce PC
service and support costs. Inacom needed a solution that would allow them
to automate these processes, tailor them to the unique requirements of each
client, and proactively manage them to best-in-industry service levels.
Solution: Inacom used BusinessWare to graphically model and automate
their PC service and support processes. In parallel with this initiative,
the company used BusinessWare to integrate its internal IT systems,
including a legacy system for managing service dispatch requests, with
their customers' systems. Now, Inacom's clients can send PC service
dispatch requests over the Internet, using EDI or XML, to Inacom's PC
repair technicians. The solution also allows clients to receive automatic
status updates on all open service requests. This initial project
established BusinessWare as Inacom's standard platform for eBusiness
solutions. Subsequent projects will leverage this platform to automate
additional mission-critical business processes. One project will use
BusinessWare to enable Inacom's PC hardware vendor customers to
automatically update Inacom's internal systems each time they change a PC
part.
Technology
We have assembled a team of software engineers with expertise in distributed
computing, model-driven business process automation, real-time query processing
and publish-and-subscribe communications. Our founders, Dr. JoMei Chang and Dr.
Dale Skeen, have established reputations as technology innovators. Dr. Chang is
the principal patent author for one of the first "reliable multicast"
protocols. Multicast protocols reduce traffic congestion over the Internet. Dr.
Skeen is the principal author of multiple patents for publish-and-subscribe
communication, which is the preferred communication method for enterprise
application integration. In recognition of our significant technology
expertise, the National Institute of Standards and Technology's Advanced
Technology Program awarded us three prestigious, multi-million dollar research
grants to address complex business integration and supply chain management
problems. For a description of these awards, see "Government Grants."
36
<PAGE>
Model-Driven Business Process Automation. We have pioneered and
commercialized the concept of direct manipulation and execution of business
processes through graphical models. This powerful concept combines visual
process modeling with business rules to express and automate complex business
scenarios using terminology and concepts familiar to business users. Advanced
modeling functions, such as nested and concurrent processes, are designed to
provide users with the sophisticated modeling power they need to express the
real-world complexity of today's business operations. In addition, our process
models are dynamically adaptable through a capability known as parameterized
sub-processing. Specifically, this allows companies to define business
processes that can automatically select alternate processing flows based on
current business conditions.
Real-Time Analysis. We have pioneered and commercialized the concept of a
general purpose real-time query tool. This tool allows users to define queries
that continuously monitor and analyze, in real time, information flowing across
their business processes and IT systems. Real-time query processing is
fundamentally different from more traditional query processing. Whereas
traditional query processing optimizes the one-time, bulk evaluation of a
single query across a large number of records, Vitria's technology is designed
to optimize the incremental evaluation of a single new message against a large
number of outstanding queries. Since it is possible to have thousands of real-
time queries concurrently active, we have developed patent-pending algorithms
for optimizing the processing of a large number of concurrent queries.
Vitria has also pioneered technology to perform complex real-time queries
that join two or more real-time information streams together, or that join a
real-time information stream to information stored in a database. This
capability significantly increases the power of real-time querying. We have
developed patent-pending algorithms to execute and optimize such complex, real-
time queries.
Scalability and Reliability. BusinessWare implements a federated
architecture and a naming scheme modeled after that used by the Web. This kind
of architecture partitions workload among an unlimited number of servers and
supports incremental expansion, as needed. Additional servers can be added in a
manner that is transparent to end users and system administrators, resulting in
scalability to high orders of magnitude without unnecessary administrative
overhead. BusinessWare is also designed to support the caching and replication
of information across multiple servers to provide faster information access and
robust failover and recovery support in the event of system or network
failures. BusinessWare supports the option to use a reliable multicast protocol
that is built on top of the Internet-based IP multicast protocol. Multicast
protocols provide a particularly efficient method for disseminating real-time
information to a large number of users. The combination of our federated
architecture, extensive use of cached and replicated information, and support
for multicast protocols is designed to enable our solutions to communicate
business information across the extended enterprise with little latency, and
high scalability and reliability.
Security. Security is essential for business-critical applications operating
over extranets and the Internet. BusinessWare provides a security framework
based on the widely accepted Secure Socket Layers, or SSL, standard. Our
security framework supports digital signatures, multiple authentication
services and multiple encryption services, including both public key and
private key encryption. The framework is designed to be easily extended to
support additional authentication and encryption services. All BusinessWare
components provide discretionary authorization of users through the use of
Access Control Lists. In addition, BusinessWare can support multiple security
domains and provide secure communication between domains. Security domains
allow the selective and secure sharing of information among business partners,
while allowing each partner to retain control over their own security policies.
Sales and Marketing
We license our products and sell services primarily through our direct sales
organization, complemented by the selling and support efforts of our system
integrators and other strategic partners. As of June 1, 1999, our sales force
consisted of 46 sales professionals and technical sales engineers located in
nine domestic locations and an office in the United Kingdom. We have sales
offices in the greater metropolitan areas of Boston,
37
<PAGE>
Chicago, Dallas, Denver, Irvine, New York City (two offices), San Jose,
Washington D.C., and London, England. System engineers who provide pre-sales
support to potential customers on product information and deployment
capabilities complement our direct sales professionals. We plan to
significantly expand the size of our direct sales organization and to establish
additional sales offices domestically and internationally.
Our sales process requires that we work closely with targeted customers to
identify short-term technical needs and long-term goals. Our sales team, which
includes both sales and technical professionals, then works with the customer
to develop a proposal to address these needs. In many cases, we collaborate
with our customers' senior management team, including the chief executive
officer, chief information officer and chief financial officer, to develop
mission-critical applications. The level of customer analysis and financial
commitment required for many of our product implementations has caused our
sales cycle to range from two to nine months.
We focus our marketing efforts on educating potential customers, generating
new sales opportunities, and creating awareness of our products and their
applications. We conduct a variety of marketing programs to educate our target
market, including seminars, trade shows, direct mail campaigns, press
relations, and industry analyst programs.
Strategic Partners
To enhance the productivity of our sales and service organizations, we have
established relationships with system integrators, value-added resellers and
technology partners.
System Integrators. We have established strategic relationships with a
number of leading system integrators including Andersen Consulting and EDS.
Many of our system integrators have deep relationships across a broad range of
enterprise customers and our relationships with these system integrators often
enable us to reach key decision makers within these enterprises more quickly,
thus reducing sales cycles. The significant financial and technical resources
of many of our system integrators help us secure large, mission-critical
engagements. Working with system integrators enables us to leverage our service
organization and shorten solution implementation time. In addition, by
leveraging our partners' domain expertise, we can more effectively and rapidly
build custom templates which codify business process solutions for vertical
markets.
Value-Added Resellers. We also deliver BusinessWare through value-added
resellers or "VARs." VARs enable us to seed the market with specific pre-
packaged solutions built on the BusinessWare platform. Many of these VARs
specialize in providing solutions to particular industries such as
telecommunications and financial services. We intend to leverage our VARs'
industry expertise to deliver solutions that accelerate our penetration in key
markets.
Technology Partners. Our technology partners include application software,
database and hardware providers. We work with these partners to ensure
compatibility of BusinessWare with their software and hardware. We have
relationships with leading companies including Clarify, Inc., Hewlett-Packard
Company, IBM, Informix Corp., Microsoft Corporation, Oracle Corp., Siebel
Systems, Inc., Sun Microsystems Inc., Sybase Inc. and The Vantive Corporation.
Service and Support
The primary function of our professional services organization is to
facilitate the implementation of our products by system integrators. We advise
our customers and system integrators on BusinessWare project analysis,
implementation and performance training. Our professional services organization
works closely with our strategic partners to train their personnel in the
design and implementation of our products.
Customer support is available by telephone and over the Internet seven days
a week, 24 hours a day. Our education services group delivers education and
product training to our customers and strategic partners,
38
<PAGE>
concerning the design of business solutions using BusinessWare, as well as the
technical aspects of deployment, use and maintenance. Our professional service
and customer support organizations consisted of 26 employees as of June 1,
1999.
Research and Development
As of June 1, 1999, our engineering group consisted of 56 employees,
divided into the following groups:
Product Development. Our product development teams are organized around
components of BusinessWare. Each component is developed independently in
order to speed design and testing. Development of the customer interface
is centralized, with the goal of creating a consistent and unified product
look and feel.
Advanced Research. Our advanced research group works independently from
our product development teams to research and develop advanced
architectures and technologies. This group also closely monitors
developments in industry standards related to eBusiness, Internet
technologies, operating systems, networks and software applications.
Quality Assurance and Platform Support. This group designs and manages a
process designed to identify and prevent software defects throughout the
development cycle.
Documentation. This group is responsible for creating and maintaining
customer and system integrator documentation for our products.
Research and development expenses, together with expenditures under NIST
grants, were $1.4 million in 1996, $2.1 million in 1997 and $5.6 million in
1998.
Government Grants
We have received three governmental research grants that have funded, and
continue to fund, portions of our research and development. We were awarded
our first grant in January 1996 by the National Institute of Standards and
Technology, commonly referred to as NIST, under its advanced technology
program. This NIST program is a partnership between government and private
industry to encourage commercially promising, but highly challenging research.
We used this grant to fund research and development of model-driven
technologies for integrating IT systems. We received an additional grant from
NIST in October 1997 to conduct further research and development into these
technologies. Under the terms of these grants, we retain all intellectual
property rights to all research results except that the federal government has
a non-exclusive, non-transferable, paid-up license to any patents arising from
this research. In addition, the NIST grants require us to commercially license
the research results. We are fulfilling this obligation by incorporating our
results into our BusinessWare software products.
Our third grant was awarded to us as a member of the Extended Enterprise
Coalition for Integrated Collaborative Manufacturing Systems, also known as
EECOMS. EECOMS is a consortium of vendors, customers and providers of enabling
technologies, whose goal is to develop new frameworks to improve supply chain
logistics, product delivery to customers, product inventories and the
competitive ability of U.S. manufacturers in the global marketplace. We were
awarded this grant in January 1998 and the grant is scheduled to conclude in
December 2000. Funds under this grant have been used to develop supply chain
scenarios for the extended enterprise. Research results from this grant are
jointly owned by EECOMS and the federal government is granted a non-exclusive
license to these research results and related intellectual property rights. We
have not used these funds for technology development.
39
<PAGE>
Competition
The market for our products is competitive, evolving and subject to rapid
technological change. The intensity of competition is expected to increase in
the future. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any one of which could
seriously harm our business. Our competitors include:
EAI vendors. We face competition from vendors offering EAI software
products. These vendors include Active Software, Inc., CrossWorlds Software,
Inc., and New Era of Networks, Inc., also known as NEON. A number of other
companies are offering products that address specific aspects of EAI including
BEA Systems, Inc., Forte Software, Inc., Hewlett-Packard Company, IBM and Tibco
Software Inc. EAI products address the application integration needs of
customers. In the future, some of these companies may expand their products to
also provide the advanced process automation and real time analysis
functionality of our BusinessWare product suite.
Internal IT departments. "In house" information technology departments of
potential customers have developed or may develop systems that substitute for
some or all of the functionality of our BusinessWare product suite. We expect
that internally developed application integration and process automation
efforts will continue to be a principal source of competition for the
foreseeable future. In particular, it can be difficult to sell our products to
a potential customer whose internal development group has already made large
investments in and progress towards completion of systems that our products are
intended to replace.
Other software vendors. We may in the future also encounter competition from
major enterprise software developers such as Oracle Corporation, PeopleSoft,
Inc., and SAP AG. In addition, Microsoft Corporation has announced its
intention to introduce products which could compete with certain aspects of our
products.
We believe that the principal competitive factors in our market include:
. the breadth and depth of solutions;
. product quality and performance;
. ability of products to operate with multiple software applications;
. ability to implement solutions;
. customer service;
. relationship with system integrators;
. establishment of a significant base of reference customers;
. strength of core technology; and
. product price.
Although we believe that our solutions compete favorably with respect to
these factors, our market is relatively new and is evolving rapidly. In the
past, we have lost potential customers to competitors for various reasons,
including lower prices for less complex implementations. We may not be able to
maintain our competitive position against current and potential competitors,
especially those with significantly greater resources.
Intellectual Property and Other Property Rights
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights. We rely primarily
on a combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws to accomplish these goals.
40
<PAGE>
We license BusinessWare pursuant to non-exclusive license agreements which
impose restrictions on customers' ability to utilize the software. In addition,
we seek to avoid disclosure of our trade secrets, including but not limited to,
requiring employees, customers and others with access to our proprietary
information to execute confidentiality agreements with us and restricting
access to our source code. We also seek to protect our software, documentation
and other written materials under trade secret and copyright laws.
We have four U.S. patent applications pending. It is possible that the
patents that we have applied for, if issued, or our potential future patents
may be successfully challenged or that no patent will be issued from our patent
application. It is also possible that we may not develop proprietary products
or technologies that are patentable, that any patent issued to us may not
provide us with any competitive advantages, or that the patents of others will
seriously harm our ability to do business.
Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or reverse engineer
aspects of our products or to obtain and use information that we regard as
proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Use by others of our proprietary rights could materially harm our business.
Furthermore, policing the unauthorized use of our products is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.
It is also possible that third parties will claim that we have infringed
their current or future products. We expect that eBusiness developers will
increasingly be subject to infringement claims as the number of products in
different industry segments overlap. Any claims, with or without merit, could
be time-consuming, result in costly litigation, prevent product shipment, cause
delays, or require us to enter into royalty or licensing agreements, any of
which could harm our business. Patent litigation in particular has complex
technical issues and inherent uncertainties. In the event an infringement claim
against us was successful and we could not obtain a license on acceptable terms
or license a substitute technology or redesign to avoid infringement, our
business would be harmed.
Employees
As of June 1, 1999, we had a total of 157 employees, including 56 in
research and development, 55 in sales and marketing, 26 in customer support,
professional services and training, and 20 in administration and finance. None
of our employees is represented by a collective bargaining agreement, nor have
we experienced any work stoppage. We consider our relations with our employees
to be good.
Our success greatly depends on the continued service of our key technical,
sales and senior management personnel. None of these persons are bound by an
employment agreement. The loss of any of our senior management or other key
research, development, sales and marketing personnel could have a material
adverse effect on our future operating results. In particular Dr. JoMei Chang,
our President and Chief Executive Officer, and Dr. Dale Skeen, our Chief
Technology Officer, would be difficult to replace.
In addition, our future success will depend in large part upon our ability
to attract, retain and motivate highly skilled employees. In particular, we are
actively seeking a vice president of engineering. We face significant
competition for individuals with the skills required to develop, market and
support our products and services. We cannot assure that we will be able to
recruit or retain sufficient numbers of these highly skilled employees.
Facilities
Our principal sales, marketing, research and development and administrative
offices are currently located in approximately 18,000 square feet in Mountain
View, California, under a lease that expires on May 1, 2003. On April 6, 1999
we entered into a four-year lease relating to approximately 63,000 square feet
in Sunnyvale, California, which we intend to occupy by October 1999.
41
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and information about them as of June
22, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
JoMei Chang, Ph.D. .......... 46 President, Chief Executive Officer and
Director
Dale Skeen, Ph.D. ........... 44 Chief Technology Officer and Director
Jay W. Shiveley.............. 42 Senior Vice President, Worldwide Sales
Aleksander Osadzinski........ 40 Vice President, Marketing
Paul Auvil, III.............. 35 Vice President, Finance, Chief Financial
Officer and Secretary
Robert M. Halperin (1)(2).... 71 Director
John L. Walecka (1).......... 39 Director
William H. Younger, Jr. (2).. 49 Director
</TABLE>
- ---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
JoMei Chang, Ph.D., founded Vitria in 1994 and has been our President, Chief
Executive Officer and a Director since Vitria's inception. Prior to founding
Vitria, Dr. Chang was Vice President General Manager, Trader Workstation and
General Manager, Emerging Technologies from 1986 to 1994 at Teknekron Software
Systems, now TIBCO, Inc., a software company. From 1984 to 1986 she served as a
senior engineer in the Network File System group at Sun Microsystems. Dr. Chang
holds a B.S. in Computer Science from National ChiaoTung University, Taiwan and
a Ph.D. in Electrical Engineering on Database Management Systems from Purdue
University.
Dale Skeen, Ph.D., founded Vitria in 1994 and has been our Chief Technology
Officer and a Director since Vitria's inception. Prior to founding Vitria, Dr.
Skeen worked at TIBCO where he served as Chief Scientist from 1986 to 1994. Dr.
Skeen was a researcher at IBM, Almaden Research Center from 1984 to 1986. Dr.
Skeen was on the faculty at Cornell University from 1981 to 1984. Dr. Skeen
holds a B.S. in Computer Science from North Carolina State University and a
Ph.D. in Distributed Database Systems from the University of California,
Berkeley.
Jay W. Shiveley, has been our Senior Vice President, Worldwide Sales since
1997. He was Senior Vice President of Operations of Forte Software, Inc., a
software company, from 1991 to 1997. From 1984 to 1991, he worked at Oracle
Corporation and was a principal at Lawson Associates, a financial software
company, from 1981 to 1984. Mr. Shiveley holds a B.S. in Finance and Accounting
from Mankato State University.
Aleksander Osadzinski, has been our Vice President, Marketing since 1998.
From 1996 to 1998 he was Vice President of Sales and Marketing at Be, Inc., a
company specializing in computer operating systems. From 1994 to 1996,
Mr. Osadzinski held a number of management positions at Grass Valley Group, a
producer of digital video production equipment, most recently as General
Manager of the Telecommunications Unit. Mr. Osadzinski has also held a number
of management positions in both the United States and Europe at Sun
Microsystems, including Vice President, Markets and Product Strategy from 1986
to 1994.
Paul Auvil, III, has been our Vice President, Finance and Chief Financial
Officer since 1998, and Secretary since 1999. From 1997 to 1998, he served as
Vice President and General Manager of the Internet Products Division of VLSI
Technology Inc., a semiconductor company, and as its General Manager, PC
Products Strategic Business Unit from 1996 to 1997. Mr. Auvil also held various
other positions at VLSI, including European Controller in 1992 and Director of
Financial Planning from 1993 to 1995. Mr. Auvil holds a Bachelor of Engineering
from Dartmouth College and an Master of Management from the Kellogg Graduate
School of Management.
42
<PAGE>
Robert M. Halperin, has been a Director since 1994. Mr. Halperin has been an
advisor to Greylock Management, a venture capital firm, since 1994. Mr.
Halperin was also Vice Chairman of the Board of Raychem Corporation, an
electronic instrument and controls company, from 1990 to 1994. Mr. Halperin is
also a director of Avid Technology Inc., a computer peripheral company,
theGlobe.com, an Internet information service provider, as well as several
privately-held companies. Mr. Halperin holds a Ph.B. in Liberal Arts from the
University of Chicago, a Bachelor of Mechanical Engineering from Cornell
University and an M.B.A. from Harvard Business School.
John L. Walecka, has been a Director since 1997. He has been a general
partner of venture capital funds associated with Brentwood Associates since
1990. From 1984 to 1990, Mr. Walecka was an associate with Brentwood
Associates. He is also a director of Rhythms Net Connections, a provider of
high-speed Internet access, Xylan Corporation, a company specializing in
telephone and telegraph equipment, Documentum, Inc., a software firm, and
several privately-held companies. Mr. Walecka holds a B.S and M.S. in
Engineering and an M.B.A. from Stanford University.
William H. Younger, Jr., has been a Director since 1997. Mr. Younger is the
managing director and a general partner of Sutter Hill Ventures, a venture
capital firm, where he has been employed since 1981. Mr. Younger currently
serves as a director of Forte Software, Inc., a software company, and
Information Advantage Inc., a software company specializing in Web-based
intelligence technologies and several privately-held companies. Mr. Younger
holds a B.S.E.E. degree from the University of Michigan and an M.B.A. from
Stanford University.
There are no family relationships between any of our directors or executive
officers, except that JoMei Chang, Ph.D. our President, Chief Executive Officer
and a Director and Dale Skeen, Ph.D., our Chief Technology Officer and a
Director, are married.
Board Committees
. Audit committee. Our audit committee currently consists of Messrs.
Halperin and Walecka. The audit committee reviews our internal accounting
procedures and consults with and reviews the services provided by our
independent accountants.
. Compensation committee. Our compensation committee currently consists of
Messrs. Younger and Halperin. The compensation committee administers our
stock option plans, reviews and approves the compensation and benefits of
all our officers and establishes and reviews general policies relating to
compensation and benefits of our employees.
Director Compensation
Directors currently receive no cash compensation from us for their services
as members of the board or for attendance at committee meetings.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serve as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
Messrs. Younger and Halperin serve as members of the compensation committee.
Mr. Halperin is an investor in Vitria. Mr. Younger is affiliated with funds
that have invested in Vitria. See "Certain Transactions."
Board Composition
Upon the closing of this offering, we will have authorized five directors.
In accordance with the terms of our certificate of incorporation, the terms of
office of the board of directors will be divided into three classes. As a
result, a portion of our board of directors will be elected each year. The
division of the three classes and their respective election dates are as
follows:
. the class I directors' term will expire at the annual meeting of
stockholders to be held in 2000;
43
<PAGE>
. the class II directors' term will expire at the annual meeting of
stockholders to be held in 2001; and
. the class III director's term will expire at the annual meeting of
stockholders to be held in 2002.
Our class I directors will be Dr. Skeen and Mr. Younger. Our class II
directors will be Messrs. Halperin and Walecka. Our class III director will be
Dr. Chang. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will
be elected to serve from the time of election and qualification until the third
annual meeting following election. Any additional directorships resulting from
an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the board of directors may have the
effect of delaying or preventing changes in control or management of Vitria.
Executive Compensation
The following table sets forth summary information concerning the
compensation paid to our Chief Executive Officer and four most highly
compensated executive officers for services during the year ended December 31,
1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------
Number of
Securities
Underlying Other
Name and Principal Position Salary Bonus Options Compensation
- --------------------------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C>
JoMei Chang, Ph.D.(1)............... $175,000 $ 75,000 -- --
President and Chief Executive
Officer
Dale Skeen, Ph.D.(2)................ 150,000 60,000 -- --
Chief Technology Officer
Jay W. Shiveley..................... 140,000 210,000 150,000 --
Senior Vice President, Worldwide
Sales
Aleksander Osadzinski(3)............ 39,965 -- 300,000 --
Vice President, Marketing
Paul Auvil, III(4).................. 126,215 29,479 250,000 $4,302
Vice President, Finance, Chief
Financial
Officer and Secretary
</TABLE>
- ---------------------
(1) Dr. Chang's salary figure includes $9,798 in non-qualified deferred
compensation.
(2) Dr. Skeen's salary figure includes $8,592 in non-qualified deferred
compensation.
(3) Mr. Osadzinski joined our company in October 1998. His current annual
salary is $185,000.
(4) Mr. Auvil joined our company in April 1998. His current salary is $160,000.
Mr. Auvil's other annual compensation consists of reimbursement of
relocation expenses.
Option Grants in Fiscal Year 1998
The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1998, to each of the individuals listed on the previous
table.
The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at
fair market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares.
44
<PAGE>
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by
. multiplying the number of shares of common stock subject to a given
option by the assumed initial public offering price of $ per share;
. assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
. subtracting from that result the aggregate option exercise price.
The initial public offering price may be higher than the estimated fair
market value on the date of grant, and the potential realizable value of the
option grants could be significantly higher than the numbers shown in the table
if future stock prices were projected to the end of the option term by applying
the same annual rates of stock price appreciation to the initial public
offering price.
The shares listed in the following table under "Number of Securities
Underlying Options Granted" are subject to vesting. Upon completion of 12
months of service from the vesting start date, 20% of the option shares vest
and the balance vest in a series of equal monthly installments over the next
four years of service. Each of the options has a ten-year term, subject to
earlier termination if the optionee's service with us ceases. See "Employee
Stock Plans" for a description of the material terms of these options.
Percentages shown under "Percent of Total Options Granted to Employees in
Fiscal Year" are based on an aggregate of 3,257,740 options granted to
employees of Vitria under our stock option plans during the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual
Number of Percent of Rates of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price Per Expiration ---------------------------
Name Granted Fiscal Year Share Date 5% 10%
- ---- ---------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
JoMei Chang, Ph.D. ..... -- -- -- -- -- --
Dale Skeen, Ph.D. ...... -- -- -- -- -- --
Jay W. Shiveley......... 150,000 4.60% $0.25 10/15/08
Aleksander Osadzinski... 300,000 9.21% $0.25 10/15/08
Paul Auvil, III......... 250,000 7.67% $0.25 5/18/08
</TABLE>
45
<PAGE>
Fiscal Year-End Option Values
The following table sets forth the number and value of securities underlying
unexercised options that are held by each of the individuals listed on the
previous page as of December 31, 1998.
Amounts shown under the column "Value Realized" are based on the difference
between the fair market value of the common stock at December 31, 1998 as
determined by the board of directors and the exercise price of the options.
Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1998" are based on the assumed initial public offering price of
$ , without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares underlying
the option, less the exercise price payable for these shares. Vitria's stock
option plans allow for the early exercise of options granted to employees. All
options exercised early are subject to repurchase by Vitria at the original
exercise price, upon the optionee's cessation of service prior to the vesting
of the shares.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1998 December 31, 1998
Shares Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
JoMei Chang, Ph.D. ..... -- -- -- --
Dale Skeen, Ph.D. ...... -- -- -- --
Jay W. Shiveley......... 200,000(1) $90,000 550,000/0
Aleksander Osadzinski... 112,500(2) 50,625 0/0
Paul Auvil, III......... 250,000(3) 90,000 187,500/0
</TABLE>
- ---------------------
(1) Includes 50,000 shares subject to repurchase as of December 31, 1998.
(2) Includes 112,500 shares subject to repurchase as of December 31, 1998.
(3) Includes 250,000 shares subject to repurchase as of December 31, 1998.
46
<PAGE>
Employee Stock Plans
1999 Equity Incentive Plan.
We adopted the 1999 Equity Incentive Plan in June 1999. The incentive plan
is an amendment and restatement of our 1995 Equity Incentive Plan.
Share Reserve. We have currently reserved 10,000,000 shares for issuance
under the incentive plan, less shares issued or issuable under Vitria's 1998
Executive Incentive Plan. On December 31 of each year for 10 years, starting
with the year 1999, the number of shares in this reserve shared by the
incentive plan and the executive plan will automatically increase by 6.5% of
the outstanding common stock on a fully-diluted basis. However, no more than
8,000,000 shares may be used for incentive stock options under both the
executive plan and the incentive plan. If stock awards granted under the
incentive plan expire or otherwise terminate without being exercised, the
shares not acquired pursuant to the stock awards again become available for
issuance under the incentive plan.
Administration. The board administers the incentive plan unless it has
delegated administration to a committee. The board has the authority to
construe, interpret and amend the incentive plan as well as to determine:
. the grant recipients;
. the grant dates;
. the number of shares subject to the award;
. the exercisability of the award;
. the exercise price;
. the type of consideration; and
. the other terms of the award.
Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code of 1986, as amended, to employees,
including officers, of Vitria or an affiliate of Vitria. The board may grant
nonstatutory stock options, stock bonuses, restricted stock purchase awards and
stock appreciation rights to employees, including officers, or directors of and
consultants to Vitria or an affiliate of Vitria. A restricted stock purchase
award is an offer to purchase our shares at a price either at or near the fair
market value of the shares. A stock bonus, on the other hand, is a grant of our
shares at no cost to the recipient in consideration for past services rendered.
Vitria may reacquire the shares under either type of award at the original
purchase price (which is zero in the case of a stock bonus) if the recipient's
service to Vitria or an affiliate is terminated before the shares vest. A stock
appreciation right is a right that allows a recipient to elect to receive cash
or stock of a value equal to the appreciation of optioned rights.
The board may not grant an incentive stock option to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10% of
the total combined voting power of Vitria or any affiliate of Vitria, unless
the exercise price is at least 110% of the fair market value of the stock on
the grant date and the option term is five years or less. In addition, the
aggregate fair market value, determined at the grant date, of incentive stock
option shares that are exercisable for the first time during a calendar year
(under the incentive plan and all other stock plans of Vitria and its
affiliates) may not exceed $100,000.
Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations to certain compensation paid to
specific employees in a taxable year to the extent that the compensation
exceeds $1,000,000. When we become subject to Section 162(m), the board may not
grant options and stock appreciation rights under the incentive plan to an
employee covering an aggregate of more than 1,200,000 shares in any calendar
year.
47
<PAGE>
Options and Stock Appreciation Rights. The board may grant incentive stock
options and stock appreciation rights with an exercise price of 100% or more of
the fair market value of a share of our common stock on the grant date. It may
grant nonstatutory stock options with an exercise price as low as 85% of the
fair market value of a share on the grant date.
Option Terms. The maximum option term is 10 years. The board may provide for
exercise periods of any length in individual option grants, subject to certain
limitations. However, generally an option terminates three months after the
optionholder's service terminates. If the termination is due to the
optionholder's disability, the exercise period generally is extended to 12
months. If the termination is due to the optionholder's death or if the
optionholder dies within three months after his or her service terminates, the
exercise period generally is extended to 18 months following death.
Other Provisions. The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock options may
be transferable. Otherwise, the option exercise rights will pass by the
optionholder's will or by the laws of descent and distribution.
The board determines the purchase price of other stock awards, but the
purchase price may not be less than 85% of the fair market value of Vitria's
common stock on the grant date. However, the board may award stock bonuses in
consideration of past services without a purchase payment. Shares sold or
awarded under the incentive plan may, but need not be, restricted and subject
to a repurchase option in favor of Vitria in accordance with a vesting schedule
that the board determines. The board, however, may accelerate the vesting of
the restricted stock.
Transactions not involving receipt of consideration by Vitria, such as a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares subject to the incentive plan and to
outstanding awards. In that event, the board will appropriately adjust the
incentive plan as to the class and the maximum number of shares subject to the
incentive plan, to the incentive stock option limitation and to the Section
162(m) limitation. It also will adjust outstanding awards as to the class,
number of shares and price per share subject to the awards.
Upon a change in control of Vitria the surviving entity will either assume
or substitute outstanding awards under the incentive plan. Otherwise, the
vesting and exercisability of awards generally will accelerate.
Options Issued. As of June 1, 1999, Vitria has issued 2,698,032 shares upon
the exercise of options under the incentive plan, 598,000 shares of which have
been repurchased and 1,326,192 shares of which are subject to repurchase;
options to purchase 2,043,900 shares were outstanding; and 4,488,792 shares,
less shares issued or issuable pursuant to the exercise or award of stock
awards under Vitria's 1998 Executive Incentive Plan, remained available for
future grant. As of June 1, 1999, the board has granted 1,005,000 restricted
stock awards under the incentive plan, 30,000 shares of which have been
repurchased. The incentive plan will terminate in 2009 unless the board
terminates it sooner.
1998 Executive Incentive Plan
We adopted the 1998 Executive Incentive Plan in October 1998 and amended it
in December 1998. We again amended the executive plan in June 1999.
Share Reserve. We have currently reserved 10,000,000 shares for issuance
under the executive plan less shares issued or issuable under Vitria's 1999
Equity Incentive Plan. On December 31 of each year for 10 years, starting with
the year 1999, the number of shares in this reserve shared by the incentive
plan and the executive plan will automatically increase by 6.5% of the
outstanding common stock on a fully-diluted basis. However, no more than
8,000,000 shares may be used for incentive stock options under both the
executive plan and the incentive plan. If options granted under the executive
plan expire or otherwise terminate without being exercised, the shares not
acquired pursuant to the options again become available for issuance under the
executive plan.
48
<PAGE>
Administration. The board administers the executive plan unless it has
delegated administration to a committee. The board has the authority to
construe, interpret and amend the executive plan as well as to determine:
. the grant recipients;
. the grant dates;
. the number of shares subject to the option;
. the exercisability of the option;
. the exercise price;
. the type of consideration; and
. the other terms of the option.
Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to employees, including officers, of
Vitria or an affiliate of Vitria. The board may grant nonstatutory stock
options to employees, including officers, or directors of and consultants to
Vitria or an affiliate of Vitria.
The board may not grant an incentive stock option to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10% of
the total combined voting power of Vitria or an affiliate of Vitria, unless the
exercise price is at least 110% of the fair market value of the stock on the
grant date and the option term is five years or less. In addition, the
aggregate fair market value, determined at the grant date, of incentive stock
option shares that are exercisable for the first time during a calendar year
(under the executive plan and all other stock plans of Vitria and its
affiliates) may not exceed $100,000.
Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations to compensation paid to specific
employees in a taxable year to the extent that the compensation exceeds
$1,000,000. When we become subject to Section 162(m), the board may not grant
options under the executive plan to an employee covering an aggregate of more
than 1,200,000 shares in any calendar year.
Options Rights. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock
on the grant date. It may grant nonstatutory stock options with any exercise
price it determines.
Option Terms. The maximum incentive stock option term is 10 years. The board
may provide for exercise periods of any length in individual option grants.
However, generally an option terminates three months after the optionholder's
service terminates. If the termination is due to the optionholder's disability,
the exercise period generally is extended to 12 months. If the termination is
due to the optionholder's death or if the optionholder dies within three months
after his or her service terminates, the exercise period generally is extended
to 18 months following death.
Other Provisions. The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock option rights
may be transferable. Otherwise, the option exercise rights will pass by the
optionholder's will or by the laws of descent and distribution.
Transactions not involving receipt of consideration by Vitria, such as a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares subject to the executive plan and to
outstanding options. In that event, the board will appropriately adjust the
executive plan as to the class and the maximum number of shares subject to the
executive plan and to the Section 162(m) limitation. It also will adjust
outstanding options as to the class, number of shares and price per share
subject to the options.
49
<PAGE>
Upon a change in control of Vitria the surviving entity will either assume
or substitute all outstanding options under the executive plan. Otherwise, the
vesting and exercisability of the options generally will accelerate.
Options Issued. As of June 1, 1999, Vitria has issued 62,500 shares upon the
exercise of options under the executive plan, 25,000 of which have been
repurchased and 31,666 of which are subject to repurchase; options to purchase
260,000 shares were outstanding; and 4,488,792 shares less shares issued or
issuable pursuant to the exercise or award of stock awards under Vitria's 1999
Equity Incentive Plan, remained available for future grant. The executive plan
will terminate in 2008 unless the board terminates it sooner.
1999 Employee Stock Purchase Plan
We adopted the 1999 Employee Stock Purchase Plan in June 1999.
Share Reserve. We authorized the issuance of 1,500,000 shares of our common
stock pursuant to purchase rights granted to employees of Vitria and to
employees of designated affiliates of Vitria. On August 14 of each year for
10 years, beginning in 2000, the number of shares in the reserve automatically
will be increased by the greater of:
. 2% of our outstanding shares on a fully-diluted basis, or
. that number of shares so that the share reserve is 1,500,000 shares.
The automatic share reserve increase in the aggregate may not exceed 16,500,000
shares over the 10-year period.
Eligibility. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement this purchase plan by offerings
of purchase rights to eligible employees. Generally, all employees of Vitria
and any United States affiliate may participate in the purchase plan, excluding
part-time and seasonal employees. However, no employee may participate in the
purchase plan if immediately after we grant the employee a purchase right, the
employee has voting power over 5% or more of our outstanding capital stock. As
of the date of this prospectus, no shares of common stock have been purchased
under the purchase plan.
Administration. Under the purchase plan, the board may specify offerings of
up to 27 months. The first offering will begin on the effective date of this
initial public offering. Unless the board otherwise determines, our common
stock is purchased for accounts of participating employees at a price per share
equal to the lower of:
. 85% of the fair market value of a share on the first day of the offering,
or
. 85% of the fair market value of a share on the purchase date.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
. 85% of the fair market value of a share on the day they began
participating in the purchase plan, or
. 85% of the fair market value of a share on the purchase date.
Under the current offering, employees may authorize payroll deductions of up
to 10% of their base compensation, not including sales commissions or bonuses,
for the purchase of stock under the purchase plan and may end their
participation in the offering at any time up to 10 days before a purchase date.
Participation ends automatically on termination of employment with Vitria or
its affiliate.
Other Provisions. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase
50
<PAGE>
plans established by Vitria or its affiliate, if any, do not permit the
employee's rights to purchase our stock to accrue at a rate that exceeds
$25,000 of the fair market value of our stock for each calendar year in which
the purchase rights are outstanding. The board also may limit the number of
shares that an employee may purchase on any purchase date.
Upon a change of control of Vitria the board may provide that the successor
corporation will assume or substitute outstanding purchase rights.
Alternatively, the board may shorten the offering and provide that shares will
be purchased for participants immediately before the change in control.
401(k) Plan
The Company maintains a 401(k) Plan for eligible employees. An employee
participant may contribute up to 20% of his or her total annual compensation to
the 401(k) Plan, up to a legal annual limit. The annual limit for calendar year
1999 is $10,000. Each participant is fully vested in his or her deferred salary
contributions. Participant contributions are held and invested by the 401(k)
Plan's trustee. We may make discretionary contributions as a percentage of
participant contributions, subject to established limits. To date, we have made
no contributions to the 401(k) Plan on behalf of the participants. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code, so
that contributions by employees or by Vitria to the 401(k) Plan, and income
earned on the 401(k) Plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by Vitria, if any,
will be deductible when made.
1998 Nonqualified Deferred Compensation Plan
In December 1998, we established a nonqualified, unfunded deferred
compensation plan for executive officers providing for payments upon
retirement, death or disability. Under the plan, these employees receive
payments equal to the employee's entire accrued benefit, the sum of all
deferred amounts and any discretionary corporate contributions credited to the
plan and due and owing to the employee, together with earning adjustments,
minus any distributions. These employees may elect to defer up to 70% of their
salary compensation and 100% of their bonus compensation. As of June 1, 1999,
we have not made any contributions to the plan. Amounts, if any, deferred by
executive officers during 1998 are included in the Summary Compensation Table
above.
Limitation of Liability and Indemnification
Our amended and restated certificate of incorporation and bylaws contain
provisions permitted under Delaware law relating to the liability of directors.
These provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in circumstances involving
wrongful acts, such as:
. for any breach of the director's duty of loyalty to Vitria or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for any acts under Section 174 of the Delaware General Corporation Law;
or
. for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws. In addition, we intend to
enter into separate indemnification agreements with our directors and executive
officers that provide each of them indemnification protection in the event the
amended and restated certificate of incorporation and amended and restated
bylaws are subsequently amended. We believe that these provisions and
agreements will assist us in attracting and retaining qualified individuals to
serve as directors and officers.
51
<PAGE>
CERTAIN TRANSACTIONS
The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts as of the
date set forth below.
<TABLE>
<CAPTION>
Shares of Preferred Stock
----------------------------------------------------------
Common Stock Series A Series A1 Series B Series C Series D
-------------- ------------- --------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Directors and Executive
Officers
JoMei Chang, Ph.D....... 4,276,878 421,875 -- -- -- --
Dale Skeen, Ph.D........ 5,458,125 421,875 -- -- -- --
Robert M. Halperin (1).. 687,498 675,832 271,475 -- -- --
William H. Younger,
Jr..................... -- -- -- -- 11,885 21,146
Entities Affiliated with
Directors
Brentwood Associates
(2).................... -- -- -- 2,481,327 248,756 444,444
Sutter Hill Ventures
(3).................... -- -- -- 2,481,327 248,756 444,444
Other 5% Stockholders
Weston Presidio Capital
II, L.P................ -- -- -- -- 1,430,349 105,880
The Chang Family Trust,
Michael W. Taylor,
Trustee (4)............ 1,691,247 -- 678,688 -- -- --
Price Per Share......... $0.004-$0.25 $0.36 $0.61 $1.81 $4.02 $4.50
Date(s) of Purchase..... 12/94 to 09/98 1/95 and 8/96 5/96(5) 10/97 10/98 to 1/99 5/99
</TABLE>
- --------
(1) Includes shares held by Mr. Halperin's children and trusts for his
grandchildren.
(2) John L. Walecka, one of our directors, is a general partner of venture
funds associated with Brentwood Associates.
(3) William H. Younger, Jr., one of our directors, is a general partner of
Sutter Hill Ventures.
(4) The Chang Family Trust is a trust for the benefit of family members of
JoMei Chang, Ph.D.
(5) Notes convertible into Series A1 preferred stock were issued in May 1996.
The conversion of these notes occurred in December 1997.
Investor Rights Agreement. Vitria and the preferred stockholders described
above have entered into an agreement, pursuant to which these and other
preferred stockholders will have registration rights with respect to their
shares of common stock following this offering. Upon the completion of this
offering, all shares of our outstanding preferred stock will be automatically
converted into an equal number of shares of common stock.
We intend to enter into indemnification agreements with our directors and
officers for the indemnification of and advancement of expenses to these
persons to the full extent permitted by law. We also intend to execute such
agreements with our future directors and officers.
We believe that all of the transactions set forth above were made on terms
no less favorable to Vitria than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between Vitria and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested directors, and will continue to be on terms no
less favorable to Vitria than could be obtained from unaffiliated third
parties.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of June 1, 1999, and as adjusted to reflect
the sale of our common stock offered by this prospectus, by:
. each of the individuals listed on the "Summary Compensation Table" above;
. each of our directors;
. each person (or group of affiliated persons) who is known by us to own
beneficially 5% or more of our common stock; and
. all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of June 1, 1999 are deemed
outstanding. These shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares shown as
beneficially owned by them. Percentage of ownership is based on 26,836,895
shares of common stock outstanding on June 1, 1999 and shares of
common stock outstanding after completion of this offering. This table assumes
no exercise of the underwriters' over-allotment option. Unless otherwise
indicated, the address of each of the individuals named below is: c/o Vitria
Technology, Inc., 500 Ellis Street, Mountain View, California 94043.
<TABLE>
<CAPTION>
Beneficial Ownership Prior to
Offering
--------------------------------
Percent
Shares Issuable Beneficially
Number of pursuant to Owned
Shares Options Exercisable -----------------
Beneficially within 60 days of Before After
Name of Beneficial Owner Owned June 1, 1999 Offering Offering
- ------------------------ ------------ ------------------- -------- --------
<S> <C> <C> <C> <C>
Directors and Executive
Officers
JoMei Chang, Ph.D.(1)...... 4,612,253 -- 17.19%
The Chang Family Trust,
Michael W. Taylor,
Trustee(2)................ 2,369,935 -- 8.83
Dale Skeen, Ph.D.(3)....... 5,794,500 -- 21.59
William H. Younger,
Jr.(4).................... 3,174,527 -- 11.83
John L. Walecka(5)......... 3,174,527 -- 11.83
Robert M. Halperin(6)...... 1,451,213 -- 5.41
Jay W. Shiveley(7)......... 400,000 350,000 2.76
Paul Auvil, III(8)......... 254,975 -- 1.0
Aleksander Osadzinski(9)... 112,500 187,500 1.1
Other 5% Stockholders
Entities affiliated with
Brentwood Associates(10).. 3,174,527 -- 11.83
3000 Sand Hill Road
Building 1, Suite 260
Menlo Park, CA 94025
Entities affiliated with
Sutter Hill Ventures(11).. 3,174,527 -- 11.83
755 Page Mill Road
Suite A200
Palo Alto, CA 94304
Weston Presidio Capital II,
L.P....................... 1,536,229 -- 5.72
343 Sansome Street
Suite 1210
San Francisco, CA 94104
All directors and executive
officers as a group
(8 persons)(12)........... 18,974,495 537,500 71.28
</TABLE>
53
<PAGE>
- ---------------------
(1) Includes 54,199 shares subject to repurchase by Vitria which shall expire
on July 1, 1999.
(2) The Chang Family Trust is a trust for the benefit of family members of
JoMei Chang, Ph.D. Dr. Chang does not have voting or dispositive power over
and disclaims beneficial ownership of the shares held by the trust.
(3) Includes 54,199 shares subject to repurchase by Vitria which shall expire
on July 1, 1999.
(4) Includes 2,380,896 shares held by Sutter Hill Ventures, a California
Limited Partnership, 760,600 shares held by parties affiliated with Sutter
Hill Ventures and 33,031 shares held by William H. Younger, Jr. Trustee,
The Younger Living Trust. Mr. Younger is a general partner of Sutter Hill
Ventures and disclaims beneficial ownership of the shares held by these
entities except to the extent of his proportionate partnership interest
therein.
(5) Includes 3,047,546 shares held by Brentwood Associates VIII, L.P. and
126,981 shares held by Brentwood Affiliates Fund, L.P. Mr. Walecka is a
general partner of Brentwood Associates and disclaims beneficial ownership
of the shares held by these entities except to the extent of his
proportionate partnership interest therein.
(6) Includes 550,780 shares held by Mr. Halperin's children for which he has
power of attorney but as to which he does not have dispositive power over
and disclaims beneficial ownership of the shares held by his children.
Excludes 183,592 shares of common stock held in trust for Mr. Halperin's
grandchildren. Mr. Halperin does not have voting or dispositive power and
disclaims beneficial ownership of the shares held by his grandchildren's
trusts.
(7) Includes 170,000 shares subject to repurchase by Vitria within 60 days of
June 1, 1999.
(8) Includes 187,500 shares subject to repurchase by Vitria within 60 days of
June 1, 1999.
(9) Includes 112,500 shares subject to repurchase by Vitria within 60 days of
June 1, 1999.
(10) Includes 3,047,546 shares held by Brentwood Associates VIII, L.P and
126,981 shares held by Brentwood Affiliates Fund, L.P.
(11) Includes 2,380,896 shares held by and Sutter Hill Ventures, a California
Limited Partnership and 793,631 shares held by parties affiliated with
Sutter Hill Ventures. Sutter Hill Ventures disclaims voting power and
beneficial ownership to the shares held by its affiliated parties.
(12) Includes 130,078 shares subject to repurchase by Vitria which will expire
on July 1, 1999, 470,000 shares subject to repurchase by Vitria within 60
days of June 1, 1999. See footnotes (1) and (3) through (9).
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 250 million shares of common stock, $0.001 par value, and five million
shares of preferred stock, $0.001 par value.
Common Stock
As of June 1, 1999, there were 26,836,895 shares of common stock outstanding
that were held of record by approximately 145 stockholders after giving effect
to the conversion of our preferred stock into common stock at a one-to-one
ratio. There will be shares of common stock outstanding (assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options) after giving effect to the sale of the shares of common
stock offered by this prospectus.
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that
may be applicable to any preferred stock outstanding at the time, the holders
of outstanding shares of common stock are entitled to receive ratably any
dividends out of assets legally available therefor as our board of directors
may from time to time determine. Upon liquidation, dissolution or winding up of
Vitria, holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
Preferred Stock
Pursuant to our amended and restated certificate of incorporation, our board
of directors will have the authority, without further action by the
stockholders, to issue up to five million shares of preferred stock in one or
more series. The board will be able to fix the rights, preferences, privileges
and restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of this series. The issuance of preferred stock could adversely affect the
voting power of holders of common stock, and the likelihood that holders of
preferred stock will receive dividend payments and payments upon liquidation
may have the effect of delaying, deferring or preventing a change in control of
Vitria, which could depress the market price of our common stock. We have no
present plan to issue any shares of preferred stock.
Registration Rights of Stockholders
Upon completion of this offering, 11,460,839 shares of common stock or their
transferees will be entitled to rights to register these shares under the
Securities Act of 1933. If we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
securityholders, the holders of these shares will be entitled to notice of the
registration and will be entitled to include, at our expense, their shares of
common stock. In addition, the holders of these shares may require us, at our
expense and on not more than two occasions at any time beginning approximately
six months from the date of the closing of this offering, to file a
registration statement under the Securities Act with respect to their shares of
common stock, and we will be required to use our best efforts to effect the
registration. Further, the holders may require us at our expense to register
their shares on Form S-3 when this form becomes available. These rights shall
terminate on the earlier of four years after the effective date of this
offering, or when a holder is able to sell all its shares pursuant to Rule 144
under the Securities Act in any 90-day period.
Anti-Takeover Provisions of Delaware Law and Certain Charter Provisions
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any
55
<PAGE>
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder unless:
. prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
. subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Our bylaws provide that candidates for director may be nominated only by the
board of directors or by a stockholder who gives written notice to us no later
than 60 days prior nor earlier than 90 days prior to the first anniversary of
the last annual meeting of stockholders. The board may consist of one or more
members to be determined from time to time by the board. The board currently
consists of five members divided into three different classes. As a result,
only one class of directors will be elected at each annual meeting of
stockholders of Vitria, with the other classes continuing for the remainder of
their respective terms. Between stockholder meetings, the board may appoint new
directors to fill vacancies or newly created directorships.
Our amended and restated certificate of incorporation requires that upon
completion of the offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Our certificate
of incorporation also provides that the authorized number of directors may be
changed only by resolution of the board of directors. Delaware law and these
charter provisions may have the effect of deterring hostile takeovers or
delaying changes in control or our management, which could depress the market
price of our common stock.
Section 2115
We are currently subject to Section 2115 of the California Corporations
Code. Section 2115 provides that, regardless of a company's legal domicile,
provisions of California corporate law relating to shareholder rights,
56
<PAGE>
election and removal of directors and distributions to shareholders will apply
to that company if the company meets the requirements of Section 2115. We will
not be subject to Section 2115 if:
. we are qualified for trading as a national market security on The Nasdaq
National Market, and we have at least 800 stockholders of record as of
the record date of our most recent annual meeting, or
. during any income year less than 50% of our outstanding voting securities
are held of record by persons having addresses in California.
The following table sets forth some of the effects on our corporate
governance of California Corporations Code Section 2115:
<TABLE>
<CAPTION>
Section 2115 Non-Section 2115
------------ ----------------
<S> <C> <C>
Election of Cumulative voting is allowed, No cumulative voting is allowed;
Directors which allows each shareholder to accordingly a holder of 50% or
vote the number of votes equal to more of voting stock controls
the number of candidates election of all directors.
multiplied by the number of votes
to which the shareholders' shares
are normally entitled in favor of
one candidate. This potentially
allows minority stockholders to
elect some members of the board.
Removal of Directors Removal with or without cause by If the board is classified,
the affirmative vote of the removal is only allowed for cause
holders of a majority of upon the affirmative vote of a
outstanding voting stock is majority of the outstanding
allowed. voting stock entitled to vote in
the election of directors.
Supermajority Vote
Requirement In order to institute a Simple majority may adopt
supermajority provision, the amendment providing for
amendment must be approved by at supermajority.
least as large a proportion as
would be required under the
amendment.
Dividend Dividends are only payable out of Dividends are payable out of
Distribution the surplus of retained earnings either the surplus of retained
and if, immediately after the earnings or out of its net
distribution, a company's assets profits for the year the
are at least equal to its distribution takes place, or the
liabilities. preceding year.
Dissenters' Rights Generally available in any type Generally only available in a
of reorganization, including a merger. No rights so long as our
merger, sale of assets or common stock is quoted on The
sale/exchange of shares. If the Nasdaq National Market or traded
shares are listed on an exchange, on an exchange.
5% of the shareholders must
assert their right for any
shareholder to have these rights.
</TABLE>
In addition to these differences, Section 2115 also provides for information
rights and required filings in the event a company effects a sale of assets or
completes a merger.
Transfer Agent
The transfer agent and registrar for our common stock is BankBoston, N.A.
Its phone number is (781) 575-3120.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices. Furthermore, since no
shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining 27,020,295 shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be
available for sale in the public market as follows:
. no shares will be eligible for immediate sale on the date the
registration statement of which this prospectus is a part is declared
effective;
. no shares will be eligible for sale prior to 180 days from the date the
registration statement of which this prospectus is a part is declared
effective;
. 24,876,440 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, 180 days after the date this
offering is declared effective; and
. 324,076 shares will be eligible for sale upon the exercise of vested
options 180 days after the date this offering is declared effective.
Lock-Up Agreements. All of our officers, directors, stockholders and option
holders have agreed not to transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock, for a period of 180 days after the
date the registration statement of which this prospectus is a part is declared
effective. Transfers or dispositions can be made sooner with the prior written
consent of Credit Suisse First Boston Corporation.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date the registration statement of which this prospectus is a
part is declared effective, a person or persons whose shares are aggregated,
who his beneficially owned restricted securities for at least one year,
including the holding period of any prior owner except an affiliate, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
. 1% of the number of shares of our common stock then outstanding which
will equal approximately shares immediately after this
offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Vitria.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at
58
<PAGE>
least two years, including the holding period of any prior owner except an
affiliate, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
No shares will qualify as "144(k) shares" within 180 days after the date the
registration statement, of which this prospectus is a part, is declared
effective.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with a compensatory
stock purchase plan or option plan or other written agreement will be eligible
to resell their shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.
Registration Rights. Upon completion of this offering, the holders of
11,460,839 shares of our common stock, or their transferees, will be entitled
to rights with respect to the registration of their shares under the Securities
Act. Registration of their shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness
of such registration.
Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance under our 1999 Equity Incentive Plan and 1998
Executive Incentive Plan and the 1999 Employee Stock Purchase Plan. The
registration statement is expected to be filed and become effective as soon as
practicable after the closing of this offering. Accordingly, shares registered
under the registration statements will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, beginning
180 days after the effective date of the registration statement of which this
prospectus is a part.
59
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , we have agreed to sell to the underwriters named below,
for whom Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, BancBoston Robertson Stephens Inc. and SoundView
Technology Group, Inc. are acting as representatives, the following respective
number of shares of common stock:
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- -------
<S> <C>
Credit Suisse First Boston Corporation...............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
BancBoston Robertson Stephens Inc. ..................................
SoundView Technology Group, Inc. ....................................
-------
Total..............................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public
offering price less the underwriting discounts and commissions. This option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock to the public
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $ per
share. The underwriters and selling group members may allow a discount of
$ per share on sales to other broker/dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------- -------------------
Without With Without With
Over- Over- Over- Over-
allotment allotment allotment allotment
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions
paid by us......................... $ $ $ $
Expenses payable by us.............. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our directors, officers and our stockholders have agreed that we and
they will not offer, sell, contract to sell, announce our intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act of 1933 relating to, any additional shares of our common stock
or securities convertible into or exchangeable or exercisable for any of our
common stock without the prior consent of Credit Suisse First Boston
Corporation for a period of 180 days
60
<PAGE>
after the date of this prospectus, except in connection with our stock option
and employee stock purchase plans.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent these
persons purchase these reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933 or to contribute to payments which the underwriters may
be required to make in that respect.
We have applied to list our shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "VITR."
ML IBK Positions, Inc., an affiliate of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, one of the representatives of the underwriters, holds
shares of preferred stock of Vitria that will convert into 746,269 shares of
common stock upon the closing of the offering.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include: the information set forth in
this prospectus and otherwise available to the underwriters; the history and
the prospects for the industry in which we will compete; the ability of our
management; the prospects for our future earnings; the present state of our
development and our current financial condition; the general condition of the
securities markets at the time of this offering; and the recent market prices
of, and the demand for, publicly traded common stock of generally comparable
companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
61
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that Vitria prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of the
common stock in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Vitria and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (iii) the purchaser has reviewed the text above under "Resale
Restrictions".
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from Vitria. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
62
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, partners and associates of Cooley Godward LLP own an aggregate of
approximately 12,437 shares of common stock through an investment partnership.
Various legal matters in connection with the offering will be passed upon for
the underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
The balance sheet of Vitria Technology, Inc. as of December 31, 1997 and
1998, and the statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998, included in this
prospectus, have been included herein in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement (which term shall include any amendment thereto) on Form S-1 under
the Securities Act of 1933 with respect to the shares of common stock offered
by our company. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
Registration Statement, some items of which are contained in exhibits to the
registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to Vitria and the common stock
offered, reference is made to the registration statement, including the
exhibits, and the financial statements and notes filed as a part of the
registration statement. Statements made in this prospectus as to the contents
of any document referred to in the registration statement are not necessarily
complete, and, in each instance, please review the copy of the document filed
as an exhibit for a more complete description of the matter involved. A copy of
the registration statement, including the exhibits and the financial statements
and notes filed as a part of it, may be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Commission's regional offices
located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048, and copies of all or any part of the registration statement may be
obtained from the Securities and Exchange Commission upon the payment of fees
prescribed by it. The Securities and Exchange Commission maintains a Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding companies that file electronically with it.
63
<PAGE>
VITRIA TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Stockholders' Equity.......................................... F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders' of Vitria Technology, Inc.
The reincorporation described in Note 9 to the financial statements has not
been consummated as of June 22, 1999. When the reincorporation has been
consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Vitria
Technology, Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years ended December
31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
June 22, 1999, except for Note 9,
which is as of June , 1999
F-2
<PAGE>
VITRIA TECHNOLOGY, INC.
BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
---------------- March 31, March 31,
1997 1998 1999 1999
------- ------- --------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $ 9,138 $12,792 $ 11,444
Accounts receivable, net........... 1,600 5,973 5,255
Other current assets............... 66 180 289
------- ------- --------
Total current assets............. 10,804 18,945 16,988
Property and equipment, net.......... 275 967 1,108
Other assets......................... 62 88 144
------- ------- --------
$11,141 $20,000 $ 18,240
======= ======= ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................... $ 211 $ 757 $ 331
Accrued liabilities................ 608 2,978 2,609
Deferred revenue................... 223 2,874 3,277
------- ------- --------
Total current liabilities........ 1,042 6,609 6,217
------- ------- --------
Commitments and contingencies (Note
5)
Stockholders' equity:
Convertible Preferred Stock:
issuable in series, $0.001 par
value; 8,470, 13,470 and 13,470
shares authorized, respectively;
7,708, 10,445, and 10,552
(unaudited) actual shares issued
and outstanding, respectively;
5,000 shares authorized; no shares
issued and outstanding,
pro forma (unaudited) (Liquidation
value of $21,600)................. 8 11 11 $ --
Common Stock: $0.001 par value;
40,000, 41,000 and 51,000 shares
authorized, respectively; 13,249,
15,268 and 15,541 (unaudited)
actual shares issued and
outstanding, respectively; 250,000
shares authorized; 26,091
(unaudited) shares issued and
outstanding,
pro forma......................... 13 15 16 27
Additional paid-in capital........... 10,737 29,104 31,391 31,391
Unearned stock-based compensation.... -- (5,511) (6,456) (6,456)
Accumulated deficit.................. (659) (10,228) (12,939) (12,939)
------- ------- -------- --------
Total stockholders' equity....... 10,099 13,391 12,023 $ 12,023
------- ------- -------- ========
$11,141 $20,000 $ 18,240
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VITRIA TECHNOLOGY, INC.
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December Three Months
31, Ended March 31,
---------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License........................... $ -- $ 955 $ 5,198 $ 139 $ 3,487
Service........................... 1,042 1,425 1,633 151 1,472
Government grant.................. 984 1,255 796 371 250
------ ------ ------- ------- -------
Total revenues.................. 2,026 3,635 7,627 661 5,209
------ ------ ------- ------- -------
Cost of revenues:
License........................... -- 18 -- -- 62
Service........................... 183 338 2,109 122 1,294
Government grant.................. 984 1,255 796 371 250
------ ------ ------- ------- -------
Total cost of revenues.......... 1,167 1,611 2,905 493 1,606
------ ------ ------- ------- -------
Gross profit........................ 859 2,024 4,722 168 3,603
------ ------ ------- ------- -------
Operating expenses:
Sales and marketing............... 80 1,143 6,572 701 2,889
Research and development.......... 397 841 4,794 717 1,961
General and administrative........ 147 695 1,807 234 726
Amortization of stock-based
compensation..................... -- -- 1,424 123 867
------ ------ ------- ------- -------
Total operating expenses........ 624 2,679 14,597 1,775 6,443
------ ------ ------- ------- -------
Income (loss) from operations....... 235 (655) (9,875) (1,607) (2,840)
Interest income..................... 8 75 306 91 129
------ ------ ------- ------- -------
Net income (loss)................... $ 243 $ (580) $(9,569) $(1,516) $(2,711)
====== ====== ======= ======= =======
Net income (loss) per share:
Basic............................. $ 0.03 $(0.06) $ (0.80) $ (0.14) $ (0.21)
====== ====== ======= ======= =======
Diluted........................... $ 0.02 $(0.06) $ (0.80) $ (0.14) $ (0.21)
====== ====== ======= ======= =======
Weighted average shares:
Basic............................. 7,044 9,915 12,003 10,490 12,699
====== ====== ======= ======= =======
Diluted........................... 13,835 9,915 12,003 10,490 12,699
====== ====== ======= ======= =======
Pro forma basic and diluted net loss
per share (unaudited).............. $ (0.48) $ (0.12)
======= =======
Pro forma basic and diluted weighted
average shares (unaudited)......... 20,111 23,250
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VITRIA TECHNOLOGY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred
Stock Common Stock Additional Unearned Total
------------- ------------- Paid-In Stock-Based Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Deficit Equity
------ ------ ------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 1,406 $ 1 11,918 $12 $ 550 $ -- $ (322) $ 241
Issuance of Series A
Convertible Preferred
Stock, net............ 114 1 -- -- 39 -- -- 40
Issuance of Common
Stock, net............ -- -- 1,170 1 111 -- -- 112
Net income............. -- -- -- -- -- -- 243 243
------ --- ------ --- ------- ------- -------- -------
Balance at December 31,
1996................... 1,520 2 13,088 13 700 -- (79) 636
Issuance of Common
Stock, net............ -- -- 161 -- 15 -- -- 15
Issuance of Series A1
Convertible Preferred
Stock for note
payable............... 950 1 -- -- 559 -- -- 560
Issuance of Series B
Convertible Preferred
Stock, net............ 5,238 5 -- -- 9,463 -- -- 9,468
Net loss............... -- -- -- -- -- -- (580) (580)
------ --- ------ --- ------- ------- -------- -------
Balance at December 31,
1997................... 7,708 8 13,249 13 10,737 -- (659) 10,099
Issuance of Common
Stock, net............ -- -- 2,019 2 615 -- -- 617
Issuance of Series C
Convertible Preferred
Stock, net............ 2,737 3 -- -- 10,964 -- -- 10,967
Unearned stock-based
compensation.......... -- -- -- -- 6,788 (6,788) -- --
Amortization of stock-
based compensation.... -- -- -- -- -- 1,277 -- 1,277
Net loss............... -- -- -- -- -- -- (9,569) (9,569)
------ --- ------ --- ------- ------- -------- -------
Balance at December 31,
1998................... 10,445 11 15,268 15 29,104 (5,511) (10,228) 13,391
Issuance of Common
Stock, net
(unaudited)........... -- -- 273 1 55 -- -- 56
Issuance of Series C
Convertible Preferred
Stock, net
(unaudited)........... 107 -- -- -- 420 -- -- 420
Unearned stock-based
compensation
(unaudited)........... -- -- -- -- 1,812 (1,812) -- --
Amortization of stock-
based compensation
(unaudited)........... -- -- -- -- -- 867 -- 867
Net loss (unaudited)... -- -- -- -- -- -- (2,711) (2,711)
------ --- ------ --- ------- ------- -------- -------
Balance at March 31,
1999 (unaudited)....... 10,552 $11 15,541 $16 $31,391 $(6,456) $(12,939) $12,023
====== === ====== === ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VITRIA TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December Three Months
31, Ended March 31,
----------------------- ----------------
1996 1997 1998 1998 1999
----- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................. $ 243 $ (580) $(9,569) $(1,516) $(2,711)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... 115 207 255 19 159
Provision for doubtful
accounts....................... 25 -- 350 -- 118
Amortization of stock-based
compensation................... -- -- 1,424 123 867
Changes in assets and
liabilities:
Accounts receivable........... (474) (1,097) (4,723) (1,050) 600
Other current assets.......... -- (58) (140) 11 (109)
Other assets.................. -- (62) -- (7) (56)
Accounts payable.............. 139 62 546 (19) (426)
Accrued liabilities........... 175 432 2,370 (54) (369)
Deferred revenue.............. -- 223 2,651 932 403
----- ------- ------- ------- -------
Net cash provided by (used in)
operating activities............. 223 (873) (6,836) (1,561) (1,524)
----- ------- ------- ------- -------
Cash flows from investing
activities:
Net cash used in purchasing
property and equipment .......... (104) (431) (947) (182) (300)
----- ------- ------- ------- -------
Cash flows from financing
activities:
Issuance of Convertible note...... -- 560 -- -- --
Issuance of Convertible Preferred
Stock, net....................... 40 9,468 10,967 -- 420
Issuance of Common Stock, net..... 112 15 470 5 56
----- ------- ------- ------- -------
Net cash provided by financing
activities....................... 152 10,043 11,437 5 476
----- ------- ------- ------- -------
Net increase (decrease) in cash and
cash equivalents................... 271 8,739 3,654 (1,738) (1,348)
Cash and cash equivalents at
beginning of period................ 128 399 9,138 9,138 12,792
----- ------- ------- ------- -------
Cash and cash equivalents at end of
period............................. $ 399 $ 9,138 $12,792 $ 7,400 $11,444
===== ======= ======= ======= =======
Supplemental noncash financing
activities:
Issuance of Convertible Preferred
Stock to founders for convertible
note payable..................... $ -- $ 560 $ -- $ -- $ --
===== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1--The Company and Summary of Significant Accounting Policies:
The Company
Vitria Technology, Inc. (the "Company"), develops, markets and supports a
software platform, BusinessWare, which enables customers to deploy
sophisticated eBusiness solutions across the extended enterprise. The Company
was incorporated in California in October 1994.
Unaudited interim results
The interim financial statements as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 are unaudited. In the opinion of
management, interim financial statements have been prepared on the same basis
as the audited financial statements and reflect all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of
the results of interim periods. The financial data and other information
disclosed in these notes to financial statements for the related periods are
unaudited. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future periods.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents and investments with
original maturities greater than three months to be short-term investments.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets of three years. Leasehold improvements are
amortized using the straight-line method over the term of the lease or
estimated useful lives, whichever is shorter.
Revenue recognition
The Company derives revenues from software licenses to end users for its
BusinessWare products and related services, which include maintenance and
support, consulting and training services. Effective January 1, 1998, the
Company adopted Statement of Position ("SOP") 97-2, "Software Revenue
Recognition" with the exception of the provision deferred by SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2." In accordance with
the adopted provisions of SOP 97-2, the Company records revenue from software
licenses when a license agreement is signed by both parties, the fee is fixed
and determinable, collection of the fee is probable and delivery of the product
has occurred. For electronic delivery, the product is considered to have been
delivered when the access code to download the software from the Internet has
been provided to the customer. If an element of the license agreement has not
been delivered, revenue for the element is deferred based on vendor-specific
objective evidence of fair value. If vendor-specific objective evidence of fair
value does not exist, all revenue is deferred until sufficient objective
evidence exists or all elements have been delivered. Payments received in
advance of revenue recognition are recorded as deferred revenue. The adoption
F-7
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
of SOP 97-2 resulted in the deferral of software license revenues in certain
agreements that would have been recognized upon delivery of the related
software under prior accounting standards. Revenues from maintenance and
support are deferred and recognized ratably over the term of the contract.
Revenues from consulting and training are deferred and recognized when the
services are performed and collectibility is deemed probable. Prior to January
1, 1998, the Company recorded revenue in accordance with the provisions of SOP
91-1, "Software Revenue Recognition."
In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9 "Modification of SOP 97-2, "Software Revenue Recognition" and
the Company adopted the statement for all transactions entered into in fiscal
1999. The adoption of this statement did not have a material impact on the
Company's operating results, financial position or cash flows.
A portion of the Company's revenues are also derived from government grants.
Government grant revenue is recognized as the research is performed and
allowable costs are incurred. Unbilled grant revenue is composed of allowable
reimbursable costs for the period in which a reimbursement application has yet
to be filed with the government.
Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivables and accounts payable, are carried at cost, which
approximates their fair value because of the short-term maturity of these
financial instruments.
Research and development
Research and development expenses include costs incurred by the Company to
develop and enhance the Company's software. Research and development costs are
charged to expense as incurred.
Software development costs
Software development costs incurred prior to the establishment of
technological feasibility are charged to research and development expense as
incurred. Material software development costs incurred subsequent to the time a
product's technological feasibility has been established using the working
model approach, through the time the product is available for general release
to customers, are capitalized. Amortization of capitalized software development
costs begins when the products are available for general release to customers,
and is computed as the greater of (1) the ratio of current gross revenues for a
product to the total of current and anticipated future gross revenues for the
product, or (2) the straight-line method over the estimated economic life of
the product. To date, development costs qualifying for capitalization have been
insignificant and therefore have been expensed as incurred.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB
No. 25, unearned compensation is based on the difference, if any, on the date
of the grant, between the fair value of the Company's stock and the exercise
price. Unearned compensation is amortized and expensed in accordance with
Financial Accounting Standards Board Interpretation No. 28 using the multiple
option approach. The Company accounts for stock-based compensation issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force No. 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
F-8
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pro forma stockholders' equity (unaudited)
Effective upon the closing of the Company's initial public offering (the
"Offering"), the outstanding shares of Convertible Preferred Stock will
automatically convert into 10,551,635 shares of Common Stock. Also effective
upon the closing of this offering 250,000,000 shares of Common Stock and
5,000,000 shares of undesignated Convertible Preferred Stock will be
authorized. The pro forma effects of these transactions are unaudited and have
been reflected in the accompanying pro forma Stockholders' Equity as of March
31, 1999.
Income taxes
Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Net income and net loss per share
Basic net income (loss) per share is computed by dividing the net income
(loss) available to common stockholders for the period by the weighted average
number of shares of Common Stock outstanding during the period. Diluted net
income per share is computed by dividing the net income (loss) for the period
by the weighted average number of common and potential common equivalent shares
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Potential
common shares are composed of Common Stock subject to repurchase rights and
incremental shares of Common Stock issuable upon the exercise of stock options,
upon conversion of Preferred Stock and conversion of debt.
F-9
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)........... $ 243 $ (580) $(9,569) $(1,516) $(2,711)
======= ======= ======= ======= =======
Denominator:
Weighted average shares..... 12,315 13,116 13,881 13,250 15,268
Weighted average Common
Stock subject to repurchase
agreements................. (5,271) (3,201) (1,878) (2,760) (2,569)
------- ------- ------- ------- -------
Denominator for basic
calculation................ 7,044 9,915 12,003 10,490 12,699
------- ------- ------- ------- -------
Weighted average effect of
diluted securities:
Series A Preferred Stock.... 1,520 -- -- -- --
Common Stock subject to
repurchase agreements...... 5,271 -- -- -- --
------- ------- ------- ------- -------
Denominator for diluted
calculation................ 13,835 9,915 12,003 10,490 12,699
------- ------- ------- ------- -------
Net income (loss) per share:
Basic....................... $ 0.03 $ (0.06) $ (0.80) $ (0.14) $ (0.21)
======= ======= ======= ======= =======
Diluted..................... $ 0.02 $ (0.06) $ (0.80) $ (0.14) $ (0.21)
======= ======= ======= ======= =======
</TABLE>
The following table sets forth the weighted average potential shares of
Common Stock that are not included in the diluted net income (loss) per share
calculation above because to do so would be antidilutive for the periods
indicated (in thousands):
<TABLE>
<CAPTION>
Three Months
Year Ended Ended March
December 31, 31,
----------------- -------------
1996 1997 1998 1998 1999
---- ----- ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average effect of antidilutive
securities:
Series A Preferred Stock................ -- 1,520 1,520 1,520 1,520
Series A-1 Preferred Stock.............. -- -- 950 950 950
Series B Preferred Stock................ -- 875 5,238 5,238 5,238
Series C................................ -- -- 400 -- 2,843
Convertible debt........................ -- 557 -- -- --
Employee stock options.................. -- 527 1,624 1,450 1,833
Common Stock subject to repurchase
agreements............................. -- 3,201 1,878 2,760 2,569
---- ----- ------ ------ ------
-- 6,680 11,610 11,918 14,958
==== ===== ====== ====== ======
</TABLE>
F-10
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and the
three months ended March 31, 1999 (unaudited) is computed using the weighted
average number of common shares outstanding, including the conversion of the
Company's Convertible Preferred Stock into shares of the Company's Common Stock
effective upon the closing of the Company's initial public offering, as if such
conversion occurred on January 1, 1998 or at date of original issuance, if
later. The resulting unaudited pro forma adjustment includes an increase in the
weighted average shares used to compute basic and diluted net loss per share of
8,108,000 and 10,551,000 for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively. The calculation of pro forma diluted
net loss per share excludes other potential shares of Common Stock as the
effect would be antidilutive. Pro forma potential shares of Common Stock are
composed of Common Stock subject to repurchase rights and incremental Common
Stock issuable upon the exercise of stock options and upon conversion of debt.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. During each of the three years ended
December 31, 1998, and the three months ended March 31, 1998 and 1999
(unaudited) the Company has not had any significant transactions that are
required to be reported in comprehensive income.
Segment information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of Enterprise and Related Information." During
each of the three years ended December 31, 1998 and the three months ended
March 31, 1998 and 1999 (unaudited) the Company's management considers its
business activities to be focused on the license of its product and related
services to end-user customers. Since management's primary form of internal
reporting is aligned with the offering of products and services the Company
believes it operates in one segment. The Company's customers have all been
located in the United States.
Concentration of credit risks
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. All of the Company's available funds at December 31, 1997 and 1998
and March 31, 1999 (unaudited), were deposited in money market accounts with
financial institutions which management believes are of high credit quality.
The Company's accounts receivable are derived from transactions with clients
located in the United States. The Company performs ongoing credit evaluations
of its client's financial condition and generally requires no collateral from
its clients. The Company maintains an allowance for doubtful accounts
receivable based upon the expected collectibility of accounts receivable.
F-11
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes the revenue from customers in excess of 10%
of total customer revenues:
<TABLE>
<CAPTION>
Three Month
Year Ended Ended March
December 31, 31,
---------------- -------------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Company A..................................... 52% 67% --% --% --%
Company B..................................... --% 12% --% 30% --%
Company C..................................... --% 10% 14% 10% --%
Company D..................................... 44% --% --% --% --%
Company E..................................... --% --% 34% --% --%
Company F..................................... --% --% --% --% 20%
Company G..................................... --% --% --% --% 15%
Company H..................................... --% --% --% 45% --%
Company I..................................... --% --% --% --% 10%
</TABLE>
The following table summarizes receivables from customers in excess of 10%
of total accounts receivable:
<TABLE>
<CAPTION>
Three Month
Year Ended Ended
December 31, March 31,
---------------- -------------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Company A..................................... 61% 50% --% 20% --%
Company B..................................... --% 24% --% --% --%
Company C..................................... --% 21% --% 49% --%
Company D..................................... 37% --% --% --% --%
Company E..................................... --% --% 54% --% 13%
Company F..................................... --% --% 14% --% 34%
Company G..................................... --% --% 11% --% --%
Company J..................................... --% --% --% 15% --%
</TABLE>
Stock split
In 1996, the Board of Directors approved a one and a half-for-one stock
split of the Company's Preferred and Common Stock. All information presented
in these financial statements has been retroactively adjusted to reflect the
stock split.
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company has adopted the
provisions of SOP 98-1 in its fiscal year beginning January 1, 1999, and does
not expect such adoption to have a material effect on the Company's financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133 is
effective for all fiscal quarters beginning with the quarter ending June 30,
2000. SFAS 133 establishes accounting and reporting standards of derivative
F-12
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company will adopt SFAS 133 in its
quarter ending June 30, 2000 and does not expect such adoption to have an
impact on the Company's results of operations, financial position or cash
flows.
Note 2--Balance Sheet Components:
<TABLE>
<CAPTION>
December 31,
-------------- March 31,
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable.......................... $1,139 $5,884 $4,499
Unbilled consulting services................. -- 100 703
Unbilled grant revenue....................... 496 322 504
------ ------ ------
1,635 6,306 5,706
Less: Allowance for doubtful accounts.......... (35) (333) (451)
------ ------ ------
$1,600 $5,973 $5,255
====== ====== ======
Property and equipment, net:
Computer equipment........................... $ 66 $ 479 $ 706
Software licenses............................ 20 124 194
Furniture and fixtures....................... 198 404 373
Leasehold improvements....................... 92 263 297
------ ------ ------
376 1,270 1,570
Less: Accumulated depreciation and
amortization.................................. (101) (303) (462)
------ ------ ------
$ 275 $ 967 $1,108
====== ====== ======
Accrued liabilities:
Payroll and related expense.................. $ 232 $1,916 $1,000
Deferred grant awards........................ 258 581 581
Sales taxes.................................. -- 86 214
Other........................................ 118 395 814
------ ------ ------
$ 608 $2,978 $2,609
====== ====== ======
</TABLE>
Note 3--Income Taxes:
For the year ended December 31, 1996, the Company's current tax provison was
reduced by the utilization of available net operating loss carryforwards. The
tax provision is reconciled to the amount computed using the federal statutory
rate as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
---------------------
1996 1997 1998
----- ----- -------
<S> <C> <C> <C>
Federal statutory provision (benefit)................ $ 87 $(197) $(3,254)
State taxes, net of federal benefit.................. 15 (8) (287)
Future benefits not currently recognized............. -- 205 2,971
Nondeductible compensation........................... -- -- 570
Utilization of net loss carryforwards................ (102) -- --
----- ----- -------
$ -- $ -- $ --
===== ===== =======
</TABLE>
At December 31, 1998, the Company had approximately $7,200,000 of federal
and $3,300,000 of state net operating loss carryforwards available to offset
future taxable income which expire at various dates through
F-13
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2013. Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not
limited to, a cumulative ownership change of more than 50%, as defined, over a
three year period.
Deferred tax assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 197 $ 2,656
Accruals and allowances.................................... 34 492
Research credits........................................... 74 519
----- -------
Net deferred tax assets...................................... 305 3,667
Valuation allowance.......................................... (305) (3,667)
----- -------
$ -- $ --
===== =======
</TABLE>
The Company has incurred losses for the years ended December 31, 1997 and
1998. Management believes that, based on the history of such losses and other
factors, the weight of available evidence indicates that it is more likely than
not that the Company will not be able to realize its deferred tax assets and
thus a full valuation reserve has been recorded at December 31, 1997 and 1998.
Note 4--Government Grants:
During January 1996, the Company received a grant award from the National
Institute of Standards and Technology ("NIST") totaling $2,000,000 to conduct
research and provide technical and business reports on a project to create a
highly flexible technology to simplify the task of integrating and sharing
real-time data among many different planning, tracking and control systems. The
grant reimburses the Company's allowable expenses over a period of two years
with $1,011,000 and $990,000 budgeted for the grant years ended January 25,
1997 and 1998, respectively. NIST requires the Company to comply with certain
cost accounting and reporting requirements, as applicable. For the period
ending December 31, 1996 and 1997, the Company has been reimbursed for grant-
related expenditures in the amount of $984,000 and $1,016,000, respectively. In
October 1997, the Company received an additional NIST grant totaling $2,000,000
to investigate at least three categories of Model-Driven Components. The grant
reimburses the Company's allowable expenses over a period of two years with
$970,000 and $1,030,000 of amended budget for the grant years ending September
30, 1998 and 1999, respectively. Additionally, NIST requires the Company to
comply with certain cost accounting and reporting requirements, as applicable.
For the period ended December 31, 1997 and 1998, the Company has incurred costs
of $401,000 and $822,000, respectively, in grant-related expenditures. Also in
November 1997, the Company received a joint-venture NIST grant totaling
$1,300,000 to help develop technology to enable the building of integrated
manufacturing applications for multi-company supply chain planning and
execution. The grant reimburses the Company's allowable expenses over a period
of three years with $300,000, $500,000 and $500,000 of the amended budget for
the grant years ending December 31, 1998, 1999 and 2000, respectively.
Additionally, NIST requires the Company to comply with certain cost accounting
and reporting requirements, as applicable. For the periods ended December 31,
1997 and 1998, the Company has incurred costs of $30,000 and $638,000,
respectively, in grant-related expenditures.
The Company incurs costs in connection with the NIST grants and in some
cases, additional approval by the grant officer is required. Amounts received
subject to NIST grant approval are deferred, which are $258,000 and $323,000,
respectively, at December 31, 1997 and 1998. Such amounts will be recognized as
revenue or refunded, depending upon the outcome of the approval process.
F-14
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 5--Commitments and Contingencies:
Leases
The Company leases office space under noncancelable operating leases with
various expiration dates through 2003. The leases require payment of property
taxes, insurance, maintenance and utilities. The terms of the facility leases
provide for rental payments on a graduated scale. The Company recognizes rent
expense on a straight-line basis over the lease period, and has recognized
prepaid expense for rent expenditures not incurred but paid. Rent expense under
these leases are $158,000, $146,000, $546,000, $134,000 and $174,000 for the
years ended December 31, 1996, 1997 and 1998, and for the three months ended
March 31, 1998 and 1999 (unaudited), respectively.
Future net minimum lease payments, under noncancelable operating leases at
December 31, 1998, including the Company's new facility lease entered into in
April 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending Operating
December 31, Leases
------------ ---------
<S> <C>
1999.............................................................. $1,144
2000.............................................................. 1,942
2001.............................................................. 2,029
2002.............................................................. 2,072
2003.............................................................. 1,258
------
Total minimum lease payments.................................... $8,445
======
</TABLE>
Contingencies
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations or cash flows of the Company.
Employee benefits
In December 1998, the Company established a nonqualified, unfunded deferred
compensation plan for certain key executives providing for payments upon
retirement, death or disability. Under the plan, certain employees receive
payments equal to the employee's entire accrued benefit, the sum of all
deferred amounts and any corporate contributions credited to the plan and due
and owing to the employee, together with earning adjustments, minus any
distributions. Through December 31, 1998 and March 31, 1999 (unaudited), the
Company did not make any contributions to the plan.
The Company has recorded the assets and liabilities for the deferred
compensation at gross amounts in the accompanying balance sheet because such
assets are not protected from the Company's general creditors and, as such,
these assets could be used to meet the obligations of the Company in the event
of bankruptcy. The assets are recorded at fair value. Any changes in fair value
are recognized as a reduction or increase in compensation expense.
F-15
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 6--Convertible Preferred Stock:
Convertible Preferred Stock ("Convertible Preferred") at December 31, 1998,
consist of the following, except for shares authorized, which reflect the
Articles of Incorporation as amended in May 1999 (in thousands):
<TABLE>
<CAPTION>
Proceeds
Net of
Shares Liquidation Issuance
Series Authorized Outstanding Amount Costs
------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
A................................ 1,520 1,520 $ 540 $ 526
A1............................... 950 950 560 560
B................................ 6,000 5,238 9,500 9,468
C................................ 5,000 2,737 11,000 10,967
D................................ 1,200 -- -- --
Undesignated..................... 1,330 -- -- --
------ ------ ------- -------
16,000 10,445 $21,600 $21,521
====== ====== ======= =======
</TABLE>
In January 1999, the Company issued 107,213 shares of $0.001 par value
Series C Convertible Preferred Stock and received proceeds net of issuance
costs totaling $420,000. In May 1999, the Company issued 1,003,980 shares of
$0.001 par value Series D Convertible Preferred Stock and received proceeds net
of issuance costs totaling $4,500,000.
The holders of Convertible Preferred have various rights and preferences as
follows:
Voting
Each share of Convertible Preferred has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes
together as one class with the Common Stock.
As long as 150,000 shares of Convertible Preferred remain outstanding, the
Company must obtain approval from the holders of a majority of the shares of
Convertible Preferred in order to alter the Articles of Incorporation as
related to Convertible Preferred, change the authorized number of shares of
Common Stock or Convertible Preferred, create a new class of stock with rights
and preferences above those of Convertible Preferred, repurchase any shares of
Common Stock other than shares subject to the right of repurchase by the
Company, authorize a dividend on Common Stock or Convertible Preferred or
effect a merger, corporate reorganization, sale of control or any other
transaction in which all or substantially all of the assets of the Company are
sold, or increase the maximum authorized number of directors to greater than
seven.
Dividends
The holders of the Series C Convertible Preferred are entitled to receive
noncumulative dividends, in preference to any dividends on the Company's
outstanding Series A, A1, B and D Convertible Preferred and Common Stock, at
the per annum rate of 8% of the "Original Issue Price," when and as declared by
the Board of Directors. The holders of the Series A, A1, B and D Convertible
Preferred are entitled to receive, in preference to the holders of the Common
Stock, noncumulative dividends at the per annum rate of 8% of the original
issue price, when and as declared by the Board of Directors. The Original Issue
Price of Series A, Series A1, Series B, Series C and Series D is $0.3555,
$0.6101, $1.8135, $4.02 and $4.50 per share, respectively. The holders of
Convertible Preferred will also be entitled to participate in dividends on
Common Stock, when and if declared by the Board of Directors, based on the
number of shares of Common Stock held
F-16
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
on an as-if converted basis. No dividends on Convertible Preferred or Common
Stock have been declared by the Board from inception through March 31, 1999
(unaudited).
Liquidation
In the event of any liquidation or winding up of the Company, the holders of
Series C Convertible Preferred are entitled to receive, in preference to the
holders of the Common Stock and the other holder of Convertible Preferred, a
per share amount equal to the Original Issue Price, plus any declared but
unpaid dividends. The holders of Series A, A1, B and D Convertible Preferred
then receive their Original Issue Prices plus any declared but unpaid
dividends.
The holders of Series C Convertible Preferred then receive an additional
amount equal to the difference between two times its Original Issue Price less
the dollar amount received above. Then the remaining assets shall be
distributed ratably to the holders of all Common Stock and Convertible
Preferred on a common equivalent basis until each series has received three
times the Original Issue Price for such series. The additional dollar amount
which Series C receives from its distribution of the remaining assets shall be
reduced by its previously received dollar amount equal to two times its
Original Issue Price. A merger, acquisition, sale of voting control or sale of
substantially all of the assets of the Company in which the shareholders of the
Company do not own a majority (50% or more) of the outstanding shares of the
surviving corporation is deemed to be a liquidation.
Conversion
Each share of Convertible Preferred is convertible at the option of the
holder into shares of Common Stock by multiplying the appropriate conversion
rate in effect by the number of Convertible Preferred being converted. The
conversion rate is the quotient obtained by dividing the Original Issue Price
by the conversion price (which is initially the respective Original Issue
Price, until it is adjusted). Additionally, each share of Convertible Preferred
shall automatically be converted upon (i) an initial public offering of the
Company equal to or exceeding $8.04 per share with aggregate proceeds not less
than $20,000,000, or (ii) the written consent of a majority of the Convertible
Preferred holders then outstanding.
Note 7--Common Stock:
At December 31, 1997 and 1998, there were 13,249,498 and 15,268,180 shares
outstanding, respectively, of Common Stock issued to the founders of the
Company, affiliates and other nonrelated parties. At March 31, 1999 (unaudited)
there were 15,541,180 shares outstanding of Common Stock. A portion of the
shares sold are subject to a right of repurchase by the Company subject to
vesting, which is generally over a five year period from the earlier of grant
date or employee hire date, as applicable, until vesting is complete. At
December 31, 1997 and 1998 and March 31, 1999 (unaudited), there were
approximately 3,320,000, 3,056,000 and 2,739,000 shares, respectively, subject
to repurchase.
The Company issued 52,500 shares of Common Stock to consultants in exchange
for services. In connection with these issuances the Company recorded expenses
of $147,000 based on the fair value of the Common Stock on the date of grant.
F-17
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company had reserved shares of Common Stock for future issuance as
follows (in thousands):
<TABLE>
<CAPTION>
March 31,
1999
-----------
(unaudited)
<S> <C>
Conversion of Series A........................................... 1,520
Conversion of Series A1.......................................... 950
Conversion of Series B........................................... 5,238
Conversion of Series C........................................... 4,000
Common Stock issued.............................................. 15,541
Exercise of options under the Equity Incentive Plans............. 7,003
Undesignated..................................................... 16,748
------
51,000
======
</TABLE>
In May 1999, the Company reserved an additional 1,003,980 shares for the
conversion of Series D Convertible Preferred Stock.
Note 8--Employee Benefit Plans:
Equity Incentive Plans
In March 1995, the Company adopted the 1995 Equity Incentive Plan, which
provides for the granting of stock options, stock appreciation rights, stock
bonuses and restricted stock to employees, directors and consultants of the
Company. In October 1998, the Company adopted the 1998 Executive Incentive Plan
which provides for the granting of stock options to employees, directors and
consultants. Options granted under the 1995 Equity Incentive Plan and the 1998
Executive Incentive Plan (the "Plans") may be either incentive stock options
("ISO") or nonqualified stock options ("NSO"). ISO may be granted only to
employees (including officers and directors who are also employees) of the
Company. NSO may be granted to employees and consultants of the Company. For
the year ended December 31, 1998 and the three months ended March 31, 1999
(unaudited), the Company has reserved 4,992,000 and 7,003,000 shares,
respectively, of Common Stock for issuance under the Plans.
Options under the Plans may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively. Furthermore, under the 1998 Executive Incentive Plan, no employee
shall be eligible to be granted options covering more than 400,000 shares of
the Common Stock during any calendar year. Options are exercisable immediately
subject to repurchase options held by the Company which lapse over a maximum
period of five years at such times and under such conditions as determined by
the Board of Directors. To date, options granted generally vest over five
years.
F-18
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock option transactions
under the Plans (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31, Three Months
------------------------------------------------- Ended March 31,
1996 1997 1998 1999
--------------- ---------------- ---------------- ----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ -------- ------ --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 489 $0.10 1,627 $0.22 1,877 $0.36
Granted below fair
value.................. -- -- -- 0.25 3,258 0.31 463 0.70
Granted at fair value .. 489 0.10 1,583 0.25 -- -- -- --
Exercised............... -- -- (201) 0.11 (2,014) 0.24 (271) 0.53
Canceled................ -- -- (244) 0.25 (994) 0.22 (7) 0.25
--- ----- ------ -----
Outstanding at end
of period.............. 489 0.10 1,627 0.22 1,877 0.36 2,062 0.41
=== ===== ====== =====
Options vested.......... -- -- 60 67
=== ===== ====== =====
Weighted average fair
value of options
granted during the
period................. $0.03 $0.06 $0.10 $0.15
===== ===== ===== =====
</TABLE>
The following table summarizes the information about stock options
outstanding and exercisable as of December 31, 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Options Vested and
Options Outstanding Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Outstanding Price
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10................ 10 7.67 $0.10 5 $0.10
0.25................ 1,431 9.30 0.25 30 0.25
0.70................ 436 9.92 0.70 25 0.70
----- ---
1,877 60
===== ===
</TABLE>
The following table summarizes the information about stock options
outstanding and exercisable as of March 31, 1999 (unaudited) (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Options Vested and
Options Outstanding Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Outstanding Price
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10................ 10 7.42 $0.10 5 $0.10
0.25................ 1,324 9.04 0.25 37 0.25
0.70................ 728 9.67 0.70 25 0.70
----- ---
2,062 67
===== ===
</TABLE>
F-19
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair value disclosures
The Company applies the measurement principles of APB No. 25 in accounting
for its stock option plan. Had compensation expense for options granted for the
years ended December 31, 1996, 1997 and 1998 and the three months ended March
31, 1998 and 1999 (unaudited) been determined based on the fair value at the
grant dates as prescribed by SFAS No. 123, the Company's net income (loss) and
net income (loss) per share would have been increased or decreased to the pro
forma amounts indicated below.
<TABLE>
<CAPTION>
Year Ended December Three Months Ended
31, March 31,
--------------------- --------------------
1996 1997 1998 1998 1999
----- ------ ------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss):
As reported.................. $ 243 $ (580) $(9,569) $ (1,516) $ (2,711)
----- ------ ------- --------- ---------
Pro forma.................... $ 243 $ (636) $(9,572) $ (1,530) $ (2,738)
----- ------ ------- --------- ---------
Net income (loss) per share:
As reported:
Basic...................... $0.03 $(0.06) $ (0.80) $ (0.14) $ (0.21)
----- ------ ------- --------- ---------
Diluted.................... $0.02 $(0.06) $ (0.80) $ (0.14) $ (0.21)
----- ------ ------- --------- ---------
Pro forma:
Basic $0.03 $(0.06) $ (0.80) $ (0.15) $ (0.22)
----- ------ ------- --------- ---------
Diluted.................... $0.02 $(0.06) $ (0.80) $ (0.15) $ (0.22)
----- ------ ------- --------- ---------
</TABLE>
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
-------------------------- --------------------
1996 1997 1998 1998 1999
---- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Risk-free interest
rates................... 6.51% 5.55-6.20% 4.13-5.46% 5.43-5.46% 4.45-4.99%
Expected lives (in
years).................. 5 5 5 5 5
Dividend yield........... 0% 0% 0% 0% 0%
Expected volatility...... 0% 0% 0% 0% 0%
</TABLE>
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described in the preceding paragraph, the
above results may not be preventative of future periods.
Unearned stock-based compensation
In connection with certain stock option grants, during the year ended
December 31, 1998 and the three months ended March 31, 1999 (unaudited), the
Company recognized unearned compensation totaling $6,788,000 and $1,812,000,
respectively, which is being amortized over the five year vesting periods of
the related options using the multiple option approach. Amortization expense
recognized for the year ended December 31, 1998 and the three months ended
March 31, 1999 (unaudited) totaled approximately $1,277,000 and $867,000,
respectively. In determining the fair market value on each grant date, the
Company considered, among other things, the relative level of revenues and
other operating results, the absence of a public trading market for the
Company's securities and the competitive nature of the Company's market.
F-20
<PAGE>
VITRIA TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
401(k) Plan
In May 1996, the Board of Directors adopted an employee savings and
retirement plan (the "401(k) Plan") covering substantially all of the Company's
employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce
their current compensation by up to the statutory prescribed limit and have the
amount of such reduction contributed to the 401(k) Plan. The Company may make
contributions to the 401(k) Plan on behalf of eligible employees. The Company
has not made any contributions to the 401(k) Plan.
Note 9--Subsequent Events:
Reincorporation
In June 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the state of Delaware. Following the
reincorporation, the Company will continue to be authorized to issue
250,000,000 shares of $0.001 par value Common Stock and 5,000,000 shares of
$0.001 par value Preferred Stock. The Board of Directors has the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof.
Stock option grants
In May 1999, the Company granted incentive stock options to employees to
purchase 541,500 shares at $1.04 per share. In connection with the stock option
grants, the Company will record $2.4 million in unearned stock-based
compensation during the second quarter of 1999.
1999 Equity Incentive Plan and 1998 Executive Incentive Plan
In June 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Equity Incentive Plan, which amended the 1995 Equity
Incentive Plan, and amended the 1998 Executive Incentive Plan (the "Amended
Plans"). The Amended Plans provide for the granting of stock options, stock
appreciation rights, stock bonuses, and restricted stock purchase awards to
employees, including officers, directors or consultants. The Company has
reserved 10,000,000 shares of Common Stock for issuance under the Amended Plans
and on December 31 of each year for 10 years, starting with the year 1999, the
number of shares reserved will automatically increases by 6.5% of the
outstanding Common Stock on a fully-diluted basis, with the number of options
granted which qualify as incentive stock options, never to exceed 8,000,000
shares issued and available.
1999 Employee Stock Purchase Plan
In June 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan ("Purchase Plan") which
provides for the issuance of 1,500,000 shares of Common Stock pursuant to
purchase rights granted to employees. Under the plan, eligible employees can
have up to 10% of their earnings withheld to be used to purchase shares of
Common Stock on specified dates determined by the Board of Directors. The price
of Common Stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the Common Stock on the commencement date of
each offering period or the specified purchase date. On August 14 of each year
for 10 years, starting with the year 2000, the number of shares in the reserve
automatically increases by the greater of (i) 2% of the outstanding shares on a
fully-diluted basis, or (ii) the number of shares that have been issued under
the Purchase Plan during the prior 12-month period, so that the reserve
automatically is restored to 1,500,000 shares; never to exceed 16,500,000
shares issued and available.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO OF VITRIA TECHNOLOGY, INC.]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses Of Issuance And Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered hereby. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 20,850
NASD Filing Fee.................................................. 8,000
NASDAQ National Market Additional Listing Fee.................... 53,750
Printing......................................................... 150,000
Legal Fees and Expenses.......................................... 400,000
Accounting Fees and Expenses..................................... 250,000
Blue Sky Fees and Expenses....................................... 15,000
Transfer Agent and Registrar Fees................................ 10,000
Director's and Officer's Insurance............................... *
Miscellaneous.................................................... *
--------
Total.......................................................... *
========
</TABLE>
--------
*To be supplied by amendment.
We intend to pay all expenses of registration, issuance and distribution.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of duty of loyalty to us or to our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify its
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify
each director and officer for certain expenses including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of Vitria,
arising out of person's services as our director or officer, any subsidiary of
ours or any other company or enterprise to which the person provides services
at our request.
The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of Vitria, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.
II-1
<PAGE>
ITEM 15. Recent Sales of Unregistered Securities
Since inception, Vitria has sold and issued the following unregistered
securities:
(1) From January 1995 through June 1, 1999, Vitria has granted stock options
to purchase 6,330,740 shares of the common stock and 94,776 shares of Series C
preferred stock to employees, consultants and directors pursuant to its 1999
Equity Incentive Plan and 1998 Executive Incentive Plan. Of these stock
options, 1,266,308 shares have been canceled without being exercised, 2,760,532
shares have been exercised, 623,000 shares of which have been repurchased and
2,303,900 shares remain outstanding. From December 13, 1997 through June 1,
1999, Vitria has also granted restricted stock awards to purchase 1,005,000
shares of the common stock pursuant to the stock option plans, 30,000 shares of
which have been repurchased.
(2) In December 1994, Vitria issued an aggregate of 11,093,748 shares of
common stock to 7 purchasers at $0.004 per share, for an aggregate purchase
price of $49,552.
(3) In August 1996, Vitria issued an aggregate of 1,020,000 shares of common
stock to 3 purchasers at $0.10 per share, for an aggregate purchase price of
$102,000.
(4) In January 1995 and August 1996, Vitria issued an aggregate of 1,519,582
shares of Series A preferred stock to 6 purchasers at $0.36 per share, for an
aggregate purchase price of $540,202. Shares of Series A preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series A preferred stock owned.
(5) In May 1996, Vitria issued notes convertible into an aggregate of
950,163 shares of Series A1 preferred stock to 3 purchasers at a purchase price
of $0.61 per share for an aggregate purchase price of $579,599, which
conversion occurred in December 1997. Shares of Series A1 preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each shares of Series A1 preferred stock owned.
(6) From December 1997 to September 1998, Vitria issued an aggregate of
47,500 shares of common stock to 7 purchasers at $0.25 per share, for an
aggregate purchase price of $11,875.
(7) In October 1997, Vitria issued an aggregate of 5,238,357 shares of
Series B preferred stock to 8 purchasers at $1.81 per share, for an aggregate
purchase price of $9,499,970. Shares of Series B preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series B preferred stock owned.
(8) From October 1998 to January 1999, Vitria issued an aggregate of
2,843,533 shares of Series C preferred stock to 39 purchasers at a purchase
price of $4.02 per share, for an aggregate purchase price of $11,431,003.
Shares of Series C preferred stock are convertible into shares of common stock
at the rate of one share of common stock for each share of Series C preferred
stock owned.
(9) In January 1999, Vitria issued an aggregate of 7,500 shares of common
stock to 1 purchaser at $0.70 per share, for an aggregate purchase price of
$5,250.
(10) In May 1999, Vitria issued an aggregate of 1,003,980 shares of Series D
preferred stock to 17 purchasers at a purchase price of $4.50 per share for an
aggregate purchase price of $4,517,910. Shares of Series D preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series D preferred stock owned.
The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 of the Securities Act in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701.
The sales and issuances of securities described in paragraphs (2) through
(10) above were deemed to be exempt from registration under the Securities Act
by virtue of Rule 4(2), Regulation D or Regulation S promulgated thereunder.
With respect to the grant of stock options and restricted stock awards
described in
II-2
<PAGE>
paragraph (1), an exemption from registration was unnecessary in that none of
the transactions involved a "sale" of securities as such term is used in
Section 2(3) of the Securities Act.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with
any subsequent sales of any such securities. All recipients either received
adequate information about Vitria or had access, through employment or other
relationships, to such information.
II-3
<PAGE>
ITEM 16. Exhibits and Financial Schedules
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Agreement and Plan of Merger, dated June , 1999.
3.2 Amended and Restated Certificate of Incorporation of the Registrant to
be effective following the closing of this offering.
3.3 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 through 3.3.
4.2* Specimen Stock Certificate.
4.3 Second Amended and Restated Investor Rights Agreement, dated May 20,
1999.
5.1* Opinion of Cooley Godward LLP.
10.1* Form of Indemnity Agreement.
10.2 Amended and Restated 1999 Equity Incentive Plan.
10.3 1998 Executive Incentive Plan.
10.4 1999 Employee Stock Purchase Plan.
10.5 1998 Nonqualified Deferred Compensation Plan.
10.6 Standard Industrial/Commercial Single-Tenant Lease-Net by and between
Portola Land Company and the Registrant, dated January 28, 1997.
10.7 Sublease by and between Applied Materials, Inc. and the Registrant,
dated April 6, 1999.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. See Signature Page.
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
ITEM 17. Undertakings
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of this prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 15 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933, and will be
governed by the final adjudication of such issue.
(4) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denomination and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Palo Alto, state of
California, on June 22, 1999.
VITRIA TECHNOLOGY, INC.
/s/ JoMei Chang, Ph.D.
By: _____________________________________
JoMei Chang, Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints JoMei Chang, Ph.D., Paul Auvil, III and
Dale Skeen, Ph.D., and each of them, his or her true and lawful agent, proxy
and attorney-in-fact, with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all capacities,
to (i) act on, sign and file with the Securities and Exchange Commission any
and all amendments (including post-effective amendments) to this registration
statement together with all schedules and exhibits thereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, together with all schedules and exhibits thereto, (ii) act
on, sign and file such certificates, instruments, agreements and other
documents as may be necessary or appropriate in connection therewith, (iii) act
on and file any supplement to any prospectus included in this registration
statement or any such amendment or any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv)
take any and all actions which may be necessary or appropriate to be done, as
fully for all intents and purposes as he or she might or could do in person,
hereby approving, ratifying and confirming all that such agent, proxy and
attorney-in-fact or any of his substitutes may lawfully do or cause to be done
by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on these dates stated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JoMei Chang, Ph.D. President, Chief Executive June 22, 1999
______________________________________ Officer and Director
JoMei Chang, Ph.D. (Principal Executive
Officer)
/s/ Paul Auvil, III Vice President, Finance, June 22, 1999
______________________________________ Chief Financial Officer
Paul Auvil, III and Secretary (Principal
Financial and Accounting
Officer)
/s/ Dale Skeen, Ph.D. Chief Technology Officer June 22, 1999
______________________________________ and Director
Dale Skeen, Ph.D.
/s/ Robert M. Halperin Director June 22, 1999
______________________________________
Robert M. Halperin
/s/ William H. Younger, Jr. Director June 22, 1999
______________________________________
William H. Younger, Jr.
/s/ John L. Walecka Director June 22, 1999
______________________________________
John L. Walecka
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Agreement and Plan of Merger, dated June , 1999.
3.2 Amended and Restated Certificate of Incorporation of the Registrant to
be effective following the closing of this offering.
3.3 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 through 3.3.
4.2* Specimen Stock Certificate.
4.3 Second Amended and Restated Investor Rights Agreement, dated May 20,
1999.
5.1* Opinion of Cooley Godward LLP.
10.1* Form of Indemnity Agreement.
10.2 Amended and Restated 1999 Equity Incentive Plan.
10.3 1998 Executive Incentive Plan.
10.4 1999 Employee Stock Purchase Plan.
10.5 1998 Nonqualified Deferred Compensation Plan.
10.6 Standard Industrial/Commercial Single-Tenant Lease-Net by and between
Portola Land Company
and the Registrant, dated January 28, 1997.
10.7 Sublease by and between Applied Materials, Inc. and the Registrant,
dated April 6, 1999.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. See Signature Page.
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
Exhibit 3.2
AMENDED RESTATED CERTIFICATE OF INCORPORATION
OF
VITRIA TECHNOLOGY, INC.
JoMei Chang and Paul Auvil hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of Vitria Technology, Inc., a Delaware corporation.
TWO: The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
I.
The name of the corporation is VITRIA TECHNOLOGY, INC. (the "Corporation"
or the "Company").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
The name of the Corporation's registered agent at said address is
Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is two hundred
fifty five million (255,000,000) shares. Two hundred fifty million
(250,000,000) shares shall be Common Stock, each having a par value of one-tenth
of one cent ($.001). Five million (5,000,000) shares shall be Preferred Stock,
each having a par value of one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the
1.
<PAGE>
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. Management
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Board of Directors
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1993
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), this Section A.2.a of this
Article V shall not be effective and Section A.2.b of this Article shall apply.
b. In the event that the corporation is subject to Section
2115(b) of the CGCL, Section A.2.a of this Article V shall not apply and all
directors shall be shall be elected at each annual meeting of stockholders to
hold office until the next annual meeting.
2.
<PAGE>
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL and (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. Removal of Directors
a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A. 3. a. above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.
4. Vacancies
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in
3.
<PAGE>
office, even though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for which
the vacancy was created or occurred and until such director's successor shall
have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of fifty percent
(50%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. Bylaw Amendments
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except (i) at an annual or special meeting of stockholders called in accordance
with the Bylaws or (ii) by written consent of stockholders in accordance with
the Bylaws prior to the closing of the Initial Public Offering and following the
closing of the Initial Public Offering no action shall be taken by the
stockholders by written consent.
4.
<PAGE>
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, following the closing of
the Initial Public Offering the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock, voting together as a single class,
shall be required to alter, amend or repeal Articles.
* * * *
THREE: This Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this Corporation.
FOUR: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware by the Board of Directors
and the stockholders of the Corporation. The total number of outstanding shares
entitled to vote or act by written consent was 100 shares of Common Stock. A
majority of the outstanding shares of Common Stock approved this Restated
Certificate of Incorporation by written consent in accordance with Section
5.
<PAGE>
228 of the General Corporation Law of the State of Delaware and written notice
of such was given by the Corporation in accordance with said Section 228.
In Witness Whereof, Vitria Technology, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by the President and the
Secretary in Mountain View, California this _______ day of ____ 1999.
Vitria Technology, Inc.
By:________________________________
JoMei Chang
President
Attest:
By:______________________
Paul Auvil
Secretary
6.
<PAGE>
EXHIBIT 3.3
Exhibit C-2
BYLAWS
OF
VITRIA ACQUISITION CORPORATION
(A DELAWARE CORPORATION)
<PAGE>
BYLAWS
OF
VITRIA ACQUISITION CORPORATION
(A DELAWARE CORPORATION)
Article I
Offices
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. Other Offices. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
Article II
Corporate Seal
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Article III
Stockholders' Meetings
Section 4. Place Of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
Section 5. Annual Meetings.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought
1.
<PAGE>
before an annual meeting, business must be: (A) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the
2.
<PAGE>
corporation in accordance with the provisions of paragraph (b) of this Section
5. Such stockholder's notice shall set forth (i) as to each person, if any, whom
the stockholder proposes to nominate for election or re-election as a director:
(A) the name, age, business address and residence address of such person, (B)
the principal occupation or employment of such person, (C) the class and number
of shares of the corporation which are beneficially owned by such person, (D) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder, and (E) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) holders of fifty percent of
the Company's voting stock, or (iv) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption), and shall be held at such place, on such date, and at such time as
the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon
3.
<PAGE>
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
Section 7. Notice Of Meetings. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
4.
<PAGE>
Section 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
Section 11. Joint Owners Of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
Section 12. List Of Stockholders. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
5.
<PAGE>
Section 13. Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written consent has been given in
accordance with Section 228 of the General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if
6.
<PAGE>
any, the chairman of the meeting shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are necessary, appropriate or convenient for the
proper conduct of the meeting, including, without limitation, establishing an
agenda or order of business for the meeting, rules and procedures for
maintaining order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation and
their duly authorized and constituted proxies and such other persons as the
chairman shall permit, restrictions on entry to the meeting after the time fixed
for the commencement thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and closing of the polls
for balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
Article IV
Directors
Section 15. Number And Term Of Office. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
Section 16. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. Classes Of Directors. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II,
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the Closing of the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease
7.
<PAGE>
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 18. Vacancies. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
Section 19. Resignation. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
Section 20. Removal. Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of
8.
<PAGE>
Incorporation, regular meetings of the Board of Directors may also be held at
any place within or without the State of Delaware which has been designated by
resolution of the Board of Directors or the written consent of all directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) Telephone Meetings. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) Notice Of Meetings. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least twenty-
four (24) hours before the date and time of the meeting, or sent in writing to
each director by first class mail, charges prepaid, at least three (3) days
before the date of the meeting. Notice of any meeting may be waived in writing
at any time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(f) Waiver Of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
9.
<PAGE>
Section 22. Quorum And Voting.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 24. Fees And Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee.The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by
Delaware the General Corporation Law to be submitted to stockholders for
approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
10.
<PAGE>
(b) Other Committees. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) Term. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a
11.
<PAGE>
chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
Article V
Officers
Section 27. Officers Designated. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
Section 28. Tenure And Duties Of Officers.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) Duties Of Chairman Of The Board Of Directors. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) Duties Of President. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
12.
<PAGE>
(d) Duties Of Vice Presidents. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) Duties Of Secretary. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) Duties Of Chief Financial Officer. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
Section 29. Delegation Of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
13.
<PAGE>
Section 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
Article VI
Execution Of Corporate Instruments And Voting Of Securities Owned By The
Corporation
Section 32. Execution Of Corporate Instruments. The Board of Directors may,
in its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 33. Voting Of Securities Owned By The Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
14.
<PAGE>
Article VII
Shares Of Stock
Section 34. Form And Execution Of Certificates. Certificates for the shares
of stock of the corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the Chairman of the Board of Directors, or the President or
any Vice President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
Section 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
15.
<PAGE>
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
Section 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 38. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
Article VIII
Other Securities Of The Corporation
Section 39. Execution Of Other Securities. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall
16.
<PAGE>
have signed or attested any bond, debenture or other corporate security, or
whose facsimile signature shall appear thereon or on any such interest coupon,
shall have ceased to be such officer before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such bond,
debenture or other corporate security nevertheless may be adopted by the
corporation and issued and delivered as though the person who signed the same or
whose facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.
Article IX
Dividends
Section 40. Declaration Of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 41. Dividend Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
Article X
Fiscal Year
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
Article XI
Indemnification
Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents.
(a) Directors And Executive Officers. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and
17.
<PAGE>
executive officers; and, provided, further, that the corporation shall not be
required to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the Delaware General Corporation
Law or (iv) such indemnification is required to be made under subsection (d).
(b) Other Officers, Employees and Other Agents. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(c) Expenses. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
18.
<PAGE>
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
(e) Non-Exclusivity Of Rights. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) Survival Of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
19.
<PAGE>
(j) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
Article XII
Notices
Section 44. Notices.
20.
<PAGE>
(a) Notice To Stockholders. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) Notice To Directors. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) Affidavit Of Mailing. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) Methods Of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) Failure To Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) Notice To Person With Whom Communication Is Unlawful. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
21.
<PAGE>
(h) Notice To Person With Undeliverable Address. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
Article XIII
Amendments
Section 45. Amendments. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
Article XIII
Right Of First Refusal
Section 46. Right Of First Refusal. No holder of common stock shall sell,
assign, pledge, or in any manner transfer any of the shares of common stock of
the corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
requirements hereinafter set forth in this bylaw:
(a) If the holder of common stock desires to sell or otherwise
transfer any of his shares of stock, then the holder of common stock shall first
give written notice thereof to the corporation. The notice shall name the
proposed transferee and state the number of shares to be transferred, the
proposed consideration, and all other terms and conditions of the proposed
transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the holder of common stock,
the corporation shall have the option to purchase a lesser portion of the
22.
<PAGE>
shares specified in said notice at the price and upon the terms set forth
therein. In the event of a gift, property settlement or other transfer in which
the proposed transferee is not paying the full price for the shares, and that is
not otherwise exempted from the provisions of this Section 46, the price shall
be deemed to be the fair market value of the stock at such time as determined in
good faith by the Board of Directors. In the event the corporation elects to
purchase all of the shares or, with consent of the holder of common stock, a
lesser portion of the shares, it shall give written notice to the transferring
holder of common stock of its election and settlement for said shares shall be
made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring holder of common stock as
specified in said transferring holder of common stock's notice, the Secretary of
the corporation shall so notify the transferring holder of common stock and
settlement thereof shall be made in cash within thirty (30) days after the
Secretary of the corporation receives said transferring holder of common stock's
notice; provided that if the terms of payment set forth in said transferring
holder of common stock's notice were other than cash against delivery, the
corporation and/or its assignee(s) shall pay for said shares on the same terms
and conditions set forth in said transferring holder of common stock's notice.
(e) In the event the corporation and/or its assignees(s) do not
elect to acquire all of the shares specified in the transferring holder of
common stock's notice, said transferring holder of common stock may, within the
sixty-day period following the expiration of the option rights granted to the
corporation and/or its assignees(s) herein, transfer the shares specified in
said transferring holder of common stock's notice which were not acquired by the
corporation and/or its assignees(s) as specified in said transferring holder of
common stock's notice. All shares so sold by said transferring holder of common
stock shall continue to be subject to the provisions of this bylaw in the same
manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A holder of common stock's transfer of any or all shares
held either during such holder of common stock's lifetime or on death by will or
intestacy to such holder of common stock's immediate family or to any custodian
or trustee for the account of such holder of common stock or such holder of
common stock's immediate family or to any limited partnership of which the
holder of common stock, members of such holder of common stock's immediate
family or any trust for the account of such holder of common stock or such
holder of common stock's immediate family will be the general of limited
partner(s) of such partnership. "Immediate family" as used herein shall mean
spouse, lineal descendant, father, mother, brother, or sister of the holder of
common stock making such transfer.
(2) A holder of common stock's bona fide pledge or mortgage of
any shares with a commercial lending institution, provided that any subsequent
transfer of said shares by said institution shall be conducted in the manner set
forth in this bylaw.
23.
<PAGE>
(3) A holder of common stock's transfer of any or all of such
holder of common stock's shares to the corporation or to any other holder of
common stock of the corporation.
(4) A holder of common stock's transfer of any or all of such
holder of common stock's shares to a person who, at the time of such transfer,
is an officer or director of the corporation.
(5) A corporate holder of common stock's transfer of any or
all of its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate holder of common stock, or pursuant to a sale of all or substantially
all of the stock or assets of a corporate holder of common stock.
(6) A corporate holder of common stock's transfer of any or
all of its shares to any or all of its stockholders.
(7) A transfer by a holder of common stock which is a limited
or general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall receive and
hold such stock subject to the provisions of this bylaw, and there shall be no
further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, upon duly authorized action of its Board of
Directors, or by the holder of common stocks, upon the express written consent
of the owners of a majority of the voting power of the corporation (excluding
the votes represented by those shares to be transferred by the transferring
holder of common stock). This bylaw may be amended or repealed either by a duly
authorized action of the Board of Directors or by the holder of common stocks,
upon the express written consent of the owners of a majority of the voting power
of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on either
of the following dates, whichever shall first occur:
(1) On June 30, 2009; or
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
24.
<PAGE>
(j) The certificates representing shares of common stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS
ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION."
Article XIV
Loans To Officers
Section 47. Loans To Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
25.
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Article I Offices................................................................................................ 1
Section 1. Registered Office............................................................................ 1
Section 2. Other Offices................................................................................ 1
Article II Corporate Seal....................................................................................... 1
Section 3. Corporate Seal............................................................................... 1
Article III Stockholders' Meetings............................................................................... 1
Section 4 Place Of Meetings............................................................................ 1
Section 5 Annual Meetings.............................................................................. 1
Section 6 Special Meetings............................................................................. 3
Section 7 Notice Of Meetings........................................................................... 4
Section 8 Quorum....................................................................................... 4
Section 9 Adjournment And Notice Of Adjourned Meetings................................................. 5
Section 10. Voting Rights................................................................................ 5
Section 11. Joint Owners Of Stock........................................................................ 5
Section 12. List Of Stockholders......................................................................... 5
Section 13. Action Without Meeting....................................................................... 6
Section 14. Organization................................................................................. 6
Article IV Directors............................................................................................. 7
Section 15. Number And Term Of Office.................................................................... 7
Section 16. Powers....................................................................................... 7
Section 17. Classes Of Directors......................................................................... 7
Section 18. Vacancies.................................................................................... 8
Section 19. Resignation.................................................................................. 8
Section 20. Removal...................................................................................... 8
Section 21. Meetings..................................................................................... 8
(a) Annual Meetings.............................................................................. 8
(b) Regular Meetings............................................................................. 8
(c) Special Meetings............................................................................. 9
(d) Telephone Meetings........................................................................... 9
</TABLE>
i.
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
(e) Notice Of Meetings........................................................................... 9
(f) Waiver Of Notice............................................................................. 9
Section 22. Quorum And Voting............................................................................ 10
Section 23. Action Without Meeting....................................................................... 10
Section 24. Fees And Compensation........................................................................ 10
Section 25. Committees................................................................................... 10
(a) Executive Committee.......................................................................... 10
(b) Other Committees............................................................................. 11
(c) Term......................................................................................... 11
(d) Meetings..................................................................................... 11
Section 26. Organization................................................................................. 11
Article V Officers.............................................................................................. 12
Section 27. Officers Designated.......................................................................... 12
Section 28. Tenure And Duties Of Officers................................................................ 12
(a) General...................................................................................... 12
(b) Duties Of Chairman Of The Board Of Directors................................................. 12
(c) Duties Of President.......................................................................... 12
(d) Duties Of Vice Presidents.................................................................... 13
(e) Duties Of Secretary.......................................................................... 13
(f) Duties Of Chief Financial Officer............................................................ 13
Section 29. Delegation Of Authority...................................................................... 13
Section 30. Resignations................................................................................. 13
Section 31. Removal...................................................................................... 14
Article VI Execution Of Corporate Instruments And Voting Of Securities Owned By The Corporation................. 14
Section 32. Execution Of Corporate Instruments........................................................... 14
Section 33. Voting Of Securities Owned By The Corporation................................................ 14
Article VII Shares Of Stock...................................................................................... 15
Section 34. Form And Execution Of Certificates........................................................... 15
</TABLE>
ii.
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
Section 35. Lost Certificates............................................................................ 15
Section 36. Transfers.................................................................................... 15
Section 37. Fixing Record Dates.......................................................................... 16
Section 38. Registered Stockholders...................................................................... 16
Article VIII Other Securities Of The Corporation................................................................. 16
Section 39. Execution Of Other Securities................................................................ 16
Article IX Dividends............................................................................................ 17
Section 40. Declaration Of Dividends..................................................................... 17
Section 41. Dividend Reserve............................................................................. 17
Article X Fiscal Year............................................................................................ 17
Section 42. Fiscal Year.................................................................................. 17
Article XI Indemnification....................................................................................... 17
Section 43. Indemnification Of Directors, Executive Officers, Other Officers, Employees And Other Agents. 17
(a) Directors And Executive Officers............................................................. 17
(b) Other Officers, Employees and Other Agents................................................... 18
(c) Expenses..................................................................................... 18
(d) Enforcement.................................................................................. 18
(e) Non-Exclusivity Of Rights.................................................................... 19
(f) Survival Of Rights........................................................................... 19
(g) Insurance.................................................................................... 19
(h) Amendments................................................................................... 19
(i) Saving Clause................................................................................ 19
(j) Certain Definitions.......................................................................... 20
Article XII Notices............................................................................................. 20
Section 44. Notices...................................................................................... 20
(a) Notice To Stockholders....................................................................... 21
(b) Notice To Directors.......................................................................... 21
(c) Affidavit Of Mailing......................................................................... 21
</TABLE>
iii.
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
(d) Time Notices Deemed Given.................................................................... 21
(e) Methods Of Notice............................................................................ 21
(f) Failure To Receive Notice.................................................................... 21
(g) Notice To Person With Whom Communication Is Unlawful......................................... 21
(h) Notice To Person With Undeliverable Address.................................................. 22
Article XIII Amendments.......................................................................................... 22
Section 45. Amendments................................................................................... 22
Right Of First Refusal........................................................................................... 22
Section 46. Right Of First Refusal....................................................................... 22
Article XIV Loans To Officers.................................................................................... 25
Section 47. Loans To Officers............................................................................ 25
</TABLE>
iv.
<PAGE>
EXHIBIT 4.3
VITRIA TECHNOLOGY, INC.
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Second Amended and Restated Investor Rights Agreement (the
"Agreement") is entered into as of the 20/th/ day of May 1999, by and among
Vitria Technology, Inc., a California corporation (the "Company") and holders of
the Company's Series A Preferred Stock (the "Series A Stock"), holders of the
Company's Series A1 Preferred Stock (the "Series A1 Stock"), holders of the
Company's Series B Preferred Stock (the "Series B Stock"), the holders of the
Company's Series C Preferred Stock (the "Series C Stock") and the purchasers of
the Company's Series D Preferred Stock (the "Series D Stock") set forth on
Exhibit A of that certain Series D Preferred Stock Purchase Agreement of even
date herewith (the "Purchase Agreement"), all as set forth on Exhibit A hereto.
Such holders of Series A Stock, Series A1 Stock, Series B Stock, Series C Stock
and purchasers of the Series D Stock shall be referred to hereinafter,
collectively, as the "Investors" and each individually as an "Investor."
Recitals
Whereas, the Company has issued the Series A Stock, Series A1 Stock,
Series B Stock and Series C Stock to certain of the Investors;
Whereas, the Company issued Series C Stock to certain Investors and
signed the First Amended and Restated Investor Rights Agreement dated October
23, 1998 (the "Prior Agreement") entered into between the Company and the
holders of Series A Stock, Series A1 Stock, Series B Stock and Series C Stock.
The holders of Series A Stock, Series A1 Stock, Series B Stock and Series C
Stock possess certain registration rights, information rights and other rights
under such Prior Agreement;
Whereas, the Company and the undersigned holders of Series A Stock,
Series A1 Stock, Series B Stock and Series C Stock desire to terminate the Prior
Agreement and to accept the rights created pursuant hereto in lieu of the rights
granted to them under the Prior Agreement;
Whereas, the Company proposes to sell and issue certain shares of its
Series D Stock pursuant to the Purchase Agreement; and
Whereas, as a condition of entering into the Purchase Agreement, the
purchasers of Series D Stock have requested that the Company extend to them
registration rights, information rights and other rights as set forth below.
Now, Therefore, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
1. Amendment and Restatement of Prior Agreement.
1.1 Amendment and Restatement. The Prior Agreement is terminated in
its entirety and restated herein. Such termination and restatement is effective
upon execution of this Agreement by the Company and the holders of at least a
majority in interest of the Registrable Securities (as the term is defined in
the Prior Agreement). Upon such execution, all provisions of, rights granted and
covenants made in the Prior Agreement are hereby waived, released and terminated
in their entirety and shall have no further force or effect. The rights and
covenants contained in this Agreement set forth the sole and entire agreement
among the Company and the holders of Series A Stock, Series A1 Stock, Series B
Stock,
1.
<PAGE>
Series C Stock and Series D Stock on the subject matter hereof and supersede any
and all rights granted and covenants made under any prior agreements.
2. General.
2.1 Definitions. As used in this Agreement the following terms shall have
the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form S-3" means such form under the Securities Act (as hereinafter
defined) as in effect on the date hereof or any successor registration form
under the Securities Act subsequently adopted by the SEC (as hereinafter
defined) which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
"Holder" means any person owning of record Registrable Securities (as
hereinafter defined) or any assignee of record of such Registrable Securities in
accordance with Section 3.10 hereof that have not been sold to the public.
"Initial Offering" means the Company's first firm commitment
underwritten public offering of its common stock registered under the Securities
Act.
"Register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (a) common stock of the Company issued
or issuable upon conversion of the Shares (as hereinafter defined) and (b) any
common stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferor's rights under Section 3 of this Agreement
are not assigned.
"Registrable Securities then outstanding" shall be the number of
shares determined by calculating the total number of shares of the Company's
common stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 3.2, 3.3 and 3.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements not
to exceed Twenty Five Thousand Dollars ($25,000) of a single special counsel for
the Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2.
<PAGE>
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"Shares" shall mean the Series A Stock, Series A1 Stock, Series B
Stock, Series C Stock and Series D Stock, whose holders are parties hereto, all
as held by the Investors listed on Exhibit A hereto and their permitted assigns
pursuant to Section 3.10 hereof.
3. Registration; Restrictions on Transfer.
3.1 Restrictions on Transfer.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by the
terms of this Agreement, (B) such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by a Holder which is (A) a partnership to its partners or former
partners in accordance with partnership interests, (B) a corporation to its
shareholders in accordance with their interest in the corporation, (C) a limited
liability company to its members or former members in accordance with their
interest in the limited liability company, or (D) to such Holder's family member
or trust for the benefit of an individual Holder; provided that in each case the
transferee will be subject to the terms of this Agreement to the same extent as
if he were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable Securities
shall (unless otherwise permitted by the provisions of the Agreement) be stamped
or otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"), AS AMENDED, AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates with respect to Shares or Registrable Securities at the request of
any holder thereof if such holder shall have obtained an opinion of counsel
(which counsel may be counsel to the Company) reasonably acceptable to
3.
<PAGE>
the Company to the effect that the securities proposed to be disposed of may
lawfully be so disposed of without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
3.2 Demand Registration.
(a) Subject to the conditions of this Section 3.2, if the Company
shall receive a written request from the Holders of a majority of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Securities Act covering the
registration of Registrable Securities having an aggregate offering price to the
public of at least $5,000,000 (a "Qualified Public Offering"), then the Company
shall, within thirty (30) days of the receipt thereof, give written notice of
such request to all Holders, and subject to the limitations of this Section 3.2,
use its best efforts to effect, as soon as practicable, the registration under
the Securities Act of all Registrable Securities that the Holders request to be
registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 3.2
or any request pursuant to Section 3.4 and the Company shall include such
information in the written notice referred to in Section 3.2(a) or Section
3.4(a), as applicable. In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by the
Company (which underwriter or underwriters shall be reasonably acceptable to a
majority in interest of the Initiating Holders). Notwithstanding any other
provision of this Section 3.2 or Section 3.4, if the underwriter advises the
Company that marketing factors require a limitation of the number of securities
to be underwritten (including Registrable Securities) then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders), provided however
that the number of Shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 3.2:
(i) prior to the earlier of October 31, 2001 or one hundred and
eighty (180) days following the effective date of the registration statement
pertaining to the Initial Offering;
(ii) after the Company has effected two (2) registrations
pursuant to this Section 3.2, and such registrations have been declared or
ordered effective;
(iii) during the period starting with the date of filing of, and
ending on the date one hundred eighty (180) days following the effective date of
the registration statement pertaining to
4.
<PAGE>
the Initial Offering; provided that the Company makes reasonable good faith
efforts to cause such registration statement to become effective;
(iv) if within thirty (30) days of receipt of a written request
from Initiating Holders pursuant to Section 3.2(a), the Company gives notice to
the Holders of the Company's intention to make its Initial Offering within one
hundred and eighty (180) days; provided that the Company makes reasonable good
faith efforts to cause such registration statement to become effective; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 3.2, a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than one hundred eighty (180) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company not more than once in any twelve (12) month period.
3.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the initial
filing of any registration statement under the Securities Act for purposes of a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within twenty (20) days after the above-described notice from the
Company, so notify the Company in writing and the Company shall, subject to
Section 3.3(a), cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered. If
a Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) Underwriting. If the registration statement under which the
Company gives notice under this Section 3.3 is for an underwritten offering, the
Company shall so advise the Holders. In such event, the right of any such Holder
to be included in a registration pursuant to this Section 3.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders; and third, to any
shareholder of the Company (other than a Holder) on a pro rata basis. No such
reduction shall reduce the amount of securities of the selling Holders included
in the registration below twenty percent (20%) of the total amount of securities
included in such registration, unless such offering is the Initial Offering and
such registration does not include shares of any other selling shareholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event will
shares of any other selling shareholder be included in such registration which
would reduce the number of shares which may be included by Holders without
5.
<PAGE>
the written consent of Holders of not less than a majority of the Registrable
Securities proposed to be sold in such offering. For purposes of allocation in
this Section 3.3(a), for any selling shareholder that is a Holder of Registrable
Securities and that is a partnership or corporation, the partners, retired
partners and shareholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling Holder," and any
pro rata reduction with respect to such "selling Holder" shall be based upon the
aggregate amount of Registrable Securities owned by all such related entities
and individuals.
(b) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 3.3
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration. The Registration Expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 3.5 hereof.
3.4 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 or any similar short-form
registration statement and any related qualification or compliance with respect
to all or a part of the Registrable Securities owned by such Holder or Holders,
the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) use commercially reasonable efforts to effect as soon as
practicable, such registration and all such qualifications and compliances as
may be so requested and as would permit or facilitate the sale and distribution
of all or such portion of such Holder's or Holders' Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such request as
are specified in a written request given within twenty (20) days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 3.4 under the following circumstances:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $1,000,000;
(iii) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than one hundred twenty (120) days after receipt of the
request of the Holder or Holders under this Section 3.4; provided, that such
right to delay a request shall be exercised by the Company not more than once in
any twelve (12) month period;
(iv) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 3.4; or
6.
<PAGE>
(v) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 3.4 shall not be counted as requests for registration effected pursuant
to Section 3.2.
3.5 Expenses of Registration. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 3.2 or any registration under
Section 3.3 or Section 3.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 3.2 or
3.4, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request or (b) the Holders of a majority of Registrable Securities
agree to forfeit their right to one requested registration pursuant to Section
3.2 or Section 3.4, as applicable, in which event such right shall be forfeited
by all Holders. If the Holders are required to pay the Registration Expenses,
such expenses shall be borne by the holders of securities (including Registrable
Securities) requesting such registration in proportion to the number of shares
for which registration was requested. If the Company is required to pay the
Registration Expenses of a withdrawn offering pursuant to clause (a) above, then
the Holders shall not forfeit their rights pursuant to Section 3.2 or Section
3.4 to a demand registration.
3.6 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days or, if earlier,
until the Holder or Holders have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
7.
<PAGE>
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities, and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
(h) Cause the shares offered hereunder to be listed on each
securities exchange on which similar securities issued by the Company are then
listed.
(i) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
3.7 Termination of Registration Rights. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect four
(4) years after the date of the Company's Initial Offering. In addition, a
Holder's registration rights shall expire if (a) the Company has completed its
Initial Offering and is subject to the provisions of the Exchange Act and (b)
all Registrable Securities held by and issuable to such Holder (and its
affiliates, partners and former partners) may be sold under Rule 144 during any
ninety (90) day period.
3.8 Delay of Registration; Furnishing Information.
(a) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 3.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 3.2, 3.3 or 3.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
8.
<PAGE>
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 3.2 or Section 3.4 if, due to the
operation of subsection 3.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 3.2 or Section 3.4,
whichever is applicable.
3.9 Indemnification. In the event any Registrable Securities are included
in a registration statement under Sections 3.2, 3.3 or 3.4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto; (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading; or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, officer, director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this Section 3.9(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, officer,
director, legal counsel, underwriter or controlling person of such Holder;
provided further, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers, and each person, if
any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other
9.
<PAGE>
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director, or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 3.9(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 3.9(b)
exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
3.9 of notice of the commencement of any action (including any governmental
action),such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 3.9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 3.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 3.9.
(d) If the indemnification provided for in this Section 3.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
10.
<PAGE>
(f) The obligations of the Company and Holders under this Section 3.9
shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement. No indemnifying
party, in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
3.10 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 3 may be assigned by a
Holder to a transferee or assignee of Registrable Securities which (a) is a
subsidiary, parent, general partner, limited partner or retired partner of a
Holder, (b) is a Holder's family member or trust for the benefit of an
individual Holder or (c) acquires at least one hundred fifty thousand (150,000)
shares of Registrable Securities (as adjusted for stock splits, stock dividends,
combinations, recapitalizations and the like with respect to such shares);
provided, however, (i) the transferor shall, within fifteen (15) days after such
transfer, furnish to the Company written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned, (ii) such transferee shall agree in
writing to be subject to all restrictions set forth in this Agreement and (iii)
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee is restricted under
the Securities Act.
3.11 Amendment of Registration Rights. Any provision of this Section 3 may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 3.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 3, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
3.12 Limitation on Subsequent Registration Rights. After the date of this
Agreement, the Company shall not without the prior written consent of the
Holders of a majority of the Registrable Securities then outstanding enter into
any agreement with any holder or prospective holder of any securities of the
Company that would grant such holder registration rights senior to, or on parity
with, those granted to the Holders hereunder.
3.13 "Market Stand-Off" Agreement. Each Holder hereby agrees that it will
not, without the prior written consent of the managing underwriter, during the
period commencing on the date of the final prospectus relating to the Initial
Offering and ending on the date specified by the Company and the managing
underwriter (such period not to exceed one hundred eighty (l80) days) (a) lend,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock (whether such shares or any such securities are
then owned by the Holder or are thereafter acquired), or (b) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the common stock, whether any such
transaction described in clause (a) or (b) above is to be settled by delivery of
common stock or such other securities, in cash or otherwise. The foregoing
provisions of this Section 3.13 shall not apply to (i) the sale of any shares to
the underwriters pursuant to the underwriting agreement or (ii) transactions
relating to shares of common stock or other securities acquired in the Initial
Offering or in open market transactions after the completion of the Initial
Offering. The underwriters in connection with the Initial Offering are intended
third party beneficiaries of this Section 3.13 and shall have the right, power
and authority to enforce the provisions hereof as though they were a party
hereto. In order to enforce the foregoing covenant, the
11.
<PAGE>
Company may impose stop transfer instructions with respect to the Registrable
Securities of each Holder (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period.
3.14 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities furnish to
such Holder forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
4. Covenants of the Company.
4.1 Basic Financial Information and Reporting.
(a) The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied;
(b) As soon as practicable after the end of each fiscal year of the
Company, and in any event within one hundred twenty (120) days thereafter, the
Company will furnish each Investor a consolidated balance sheet of the Company,
as at the end of such fiscal year, and a consolidated statement of income and
statement of shareholder's equity as of the end of such year, and a consolidated
statement of cash flows of the Company, for such year, all prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail. Such financial statements shall be
accompanied by a report and opinion thereon by independent public accountants of
national standing selected by the Company's Board of Directors;
(c) The Company will furnish each Investor, as soon as practicable
after the end of the first, second and third quarterly accounting periods in
each fiscal year of the Company, and in any event within forty-five (45) days
thereafter, a consolidated balance sheet of the Company as of the end of each
such quarterly period, and a consolidated statement of income and a consolidated
statement of cash flows of the Company for such period and for the current
fiscal year to date, prepared in accordance with generally accepted accounting
principles, with the exception that no notes need be attached to such statements
and year-end audit adjustments may not have been made;
12.
<PAGE>
(d) As long as an Investor, together with its affiliates, holds five
hundred thousand shares (500,000) of Series B Stock, Series C Stock and/or
Series D Stock (as adjusted for stock splits, dividends, combinations,
recapitalizations and the like with respect to such shares) (the "Major
Investor"), as soon as practicable, but in any event at least thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets, income
statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
(e) Such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated under this subsection (e) or any other
subsection of Section 4.1 to provide information that it deems in good faith to
be a trade secret or similar confidential information.
4.2 Inspection Rights. Each Investor shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under this
Section 4.2 to provide such access for any competitor of the Company or to any
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
4.3 Confidentiality of Records. Each Investor agrees to use and to use its
best efforts to insure that its authorized representatives use the same degree
of care as such Investor uses to protect its own confidential information to
keep confidential any information furnished to it which the Company identifies
as being confidential or proprietary (so long as such information is not in the
public domain), except that such Investor may disclose such proprietary or
confidential information to any partner, subsidiary or parent of such Investor
for the purpose of evaluating its investment in the Company as long as such
partner, subsidiary or parent is advised of the confidentiality provisions of
this Section 4.3.
4.4 Reservation of Common Stock. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the conversion of the
Series A Stock, Series A1 Stock, Series B Stock, Series C Stock and/or Series D
Stock, all common stock issuable from time to time upon such conversion.
4.5 Termination of Covenants. All covenants of the Company contained in
Section 4 of this Agreement shall expire and terminate as to each Investor on
the effective date of the registration statement pertaining to the Initial
Offering.
5. Rights of First Refusal.
5.1 Subsequent Offerings. So long as an Investor (with its affiliates)
holds at least one hundred thousand shares (100,000) of preferred stock (as
adjusted for stock splits, stock dividends, combinations, recapitalizations and
the like with respect to such shares) (a "Major Investor"), such Major Investor
shall have a right of first refusal to purchase its pro rata share of all Equity
Securities, as defined below, that the Company may, from time to time, propose
to sell and issue after the date of this Agreement, other than the Equity
Securities excluded by Section 5.6 hereof. Each Major Investor's pro rata share
is equal to the ratio of (a) the number of shares of the Company's common stock
(including all shares of common stock issued or issuable upon conversion of the
Shares) which such Major Investor is deemed to be a holder immediately prior to
the issuance of such Equity Securities to (b) the total number
13.
<PAGE>
of shares of the Company's outstanding common stock (including all shares of
common stock issued or issuable upon conversion of the Shares or upon the
exercise of any outstanding warrants or options) immediately prior to the
issuance of the Equity Securities. The term "Equity Securities" shall mean (i)
any common stock, preferred stock or other security of the Company, (ii) any
security convertible, with or without consideration, into any common stock,
preferred stock or other security (including any option to purchase such a
convertible security), (iii) any security carrying any warrant, option or right
to subscribe to or purchase any common stock, preferred stock or other security
and (iv) any such warrant, option or right.
5.2 Exercise of Rights. If the Company proposes to issue any Equity
Securities, it shall give each Major Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Major Investor shall have
twenty (20) days from the giving of such notice to agree to purchase its pro
rata share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to any Major Investor who would cause the Company to
be in violation of applicable federal or state securities laws by virtue of such
offer or sale.
5.3 Issuance of Equity Securities to Other Persons. If not all of the
Major Investors elect to purchase their pro rata share of the Equity Securities,
then the Company shall promptly notify in writing the Major Investors who do so
elect and shall offer such Major Investors the right to acquire such
unsubscribed shares. The Major Investors shall have ten (10) days after receipt
of such notice to notify the Company of its election to purchase all or a
portion thereof of the unsubscribed shares. If the Major Investors fail to
exercise in full the rights of first refusal, the Company shall have one hundred
twenty (120) days thereafter to sell the Equity Securities in respect of which
the Major Investor's rights were not exercised at a price and upon general terms
and conditions materially no more favorable to the purchasers thereof than
specified in the Company's notice to the Major Investors pursuant to Section 5.2
hereof. If the Company has not sold such Equity Securities within one hundred
twenty (120) days of the notice provided pursuant to Section 5.2, the Company
shall not thereafter issue or sell any Equity Securities without first offering
such securities to the Major Investors in the manner provided above.
5.4 Termination and Waiver of Rights of First Refusal. The rights of first
refusal established by this Section 5 shall not apply to and shall terminate
upon the effective date of the registration statement pertaining to the
Company's Initial Offering. The rights of first refusal established in this
Section 5 may be amended or any provision waived with the written consent of the
Major Investors holding a majority of the Registrable Securities held by all
Major Investors outstanding on the date of such amendment or such waiver.
5.5 Transfer of Rights of First Refusal. The rights of first refusal of
each Major Investor under this Section 5 may be transferred to the same parties,
subject to the same restrictions as any transfer of registration rights pursuant
to Section 3.10.
5.6 Excluded Securities. The rights of first refusal established by this
Section 5 shall have no application to any of the following Equity Securities:
(a) shares of common stock (and/or options, warrants or other common
stock purchase rights issued pursuant to such options, warrants or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary for the primary purpose of soliciting
or retaining their services, pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board of Directors;
14.
<PAGE>
(b) stock issued pursuant to any rights or agreements outstanding as
of the date of this Agreement, options and warrants outstanding as of the date
of this Agreement; and stock issued pursuant to any such rights or agreements
granted after the date of this Agreement, provided that the rights of first
refusal established by this Section 5 applied with respect to the initial sale
or grant by the Company of such rights or agreements;
(c) any Equity Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business combination
that are approved by the Board of Directors;
(d) shares of common stock issued in connection with any stock split,
stock dividend or recapitalization by the Company;
(e) shares of common stock issued upon conversion of the Shares;
(f) any Equity Securities issued pursuant to any equipment leasing
arrangement, or commercial credit arrangement from a bank or similar financial
institution or in connection with development of licensing transactions with
third party operating companies;
(g) any Equity Securities that are issued by the Company in its
Initial Offering; and
(h) any shares of Series D Stock sold pursuant to the Purchase
Agreement.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
6.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
6.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of and be binding upon the
successors, assigns, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of Registrable Securities from time to time; provided, however, that
prior to the receipt by the Company of adequate written notice of the transfer
of any Registrable Securities specifying the full name and address of the
transferee, the Company may deem and treat the person listed as the holder of
such shares in its records as the absolute owner and holder of such shares for
all purposes, including the payment of dividends or any redemption price.
6.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto,
the Purchase Agreement and the other documents delivered pursuant thereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
15.
<PAGE>
6.5 Severability. In case any provision of the Agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
6.6 Amendment and Waiver. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding; provided, however, that in the event
that such amendment or waiver adversely affects the obligations and/or rights of
any such Holders in a different manner than the other Holders, such amendment or
waiver shall also require the written consent of a majority in interest of such
Holders adversely affected. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities,
each future holder of all such Registrable Securities, and the Company.
6.7 New Investors. Notwithstanding anything herein to the contrary, if
pursuant to Section 2.3 of the Purchase Agreement, additional parties purchase
shares of Series D Stock, then each such new investor shall become a party to
this Agreement as an "Investor" hereunder, without the need for any consent,
approval or signature of any Investor when such new investor has both: (a)
purchased shares of Series D Stock under the Purchase Agreement and paid the
Company all consideration payable for such shares; and (b) executed one or more
counterpart signature pages to this Agreement as an "Investor" with the
Company's consent.
6.8 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power or remedy nor shall it be construed to be a waiver of any such
breach, default or noncompliance nor any acquiescence therein nor of any similar
breach, default or noncompliance thereafter occurring. It is further agreed that
any waiver, permit, consent or approval of any kind or character on any Holder's
part of any breach, default or noncompliance under the Agreement or any waiver
on such Holder's part of any provisions or conditions of this Agreement must be
in writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, by law or otherwise
afforded to Holders shall be cumulative and not alternative.
6.9 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day; (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on Exhibit A hereto with regard to
the Investors, the address as set forth on the signature page hereto with regard
to the Company or at such other address as such party may designate by ten (10)
days advance written notice to the other parties hereto.
6.10 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
6.11 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
16.
<PAGE>
6.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.13 Aggregation of Stock. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
17.
<PAGE>
In Witness Whereof, the parties hereto have executed this Second Amended
and Restated Investor Rights Agreement as of the date set forth in the first
paragraph hereof.
COMPANY: INVESTORS:
Vitria Technology, Inc. __________________________________
500 Ellis Street [Name of Investor]
Mountain View, CA 94043
By:_______________________________
By:________________________________ Title:____________________________
JoMei Chang, President
Weston Presidio Capital II, L.P.
By:_______________________________
Title:____________________________
Sutter Hill Ventures, A California
Limited Partnership
By:_______________________________
General Partner of the General
Partner
Sutter Hill Associates, L.P.
By:_______________________________
General Partner
Wells Fargo Bank, Trustee
SHV M/P/T Sherryl W. Hossack
By:_______________________________
Title:____________________________
Second Amended and Restated Investors Rights Agreement
Signature Page
<PAGE>
Brentwood Associates VIII, L.P.
By Brentwood VIII Ventures, L.L.C.
Its General Partner
By:_______________________________
General Partner
Brentwood Affiliates Fund, L.P.
By Brentwood VIII Ventures, L.P.
Its General Partner
By:_______________________________
General Partner
Integral Capital Partners III, L.P.
By Integral Capital Management III,
L.P.
Its General Partner
By:_______________________________
a General Partner
Integral Capital Partners
International III, L.P.
By Integral Capital Management III,
L.P.
Its Investment General Partner
By:_______________________________
a General Partner
Second Amended and Restated Investors Rights Agreement
Signature Page
<PAGE>
Stanford University
By:_______________________________
Title:____________________________
__________________________________
JoMei Chang
__________________________________
Dale Skeen
__________________________________
Robert Halperin
__________________________________
Peggy Halperin Dow
__________________________________
Mark R. Halperin
__________________________________
Sarah Ruth Halperin Trust
__________________________________
Mariah Shores Halperin Trust
__________________________________
Robert Joshua Halperin Trust
__________________________________
Wells Fargo Bank, Trustee
SHV M/P/T FBO Tench Coxe
Second Amended and Restated Investors Rights Agreement
Signature Page
<PAGE>
TOW Partners, A California Limited
Partnership
By:_______________________________
Title:____________________________
Paul M. and Marsha R. Wythes,
Trustees of the Wythes Living Trust
By:_______________________________
Title:____________________________
David L. Anderson, Trustee, The
Anderson Living Trust, U/A/D
1/22/98
By:_______________________________
Title:____________________________
Anvest, L.P.
By:_______________________________
Title:____________________________
__________________________________
G. Leonard Baker, Jr.
William H. Younger, Jr., Trustee,
The Younger Living Trust, U/A/D
1/20/95
By:_______________________________
Title:____________________________
Second Amended and Restated Investors Rights Agreement
Signature Page
<PAGE>
__________________________________
Gregory P. Sands
Saunders Holdings, L.P.
By:_______________________________
Title:____________________________
Tench Coxe, Trustee, The Coxe/Otus
Revocable Trust
By:_______________________________
Title:____________________________
__________________________________
Michele Phua
ML IBK Positions, Inc.
By:_______________________________
Title:____________________________
Second Amended and Restated Investors Rights Agreement
Signature Page
<PAGE>
VITRIA TECHNOLOGY, INC.
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
Dated: May 20, 1999
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Amendment and Restatement of Prior Agreement.1
1.1 Amendment and Restatement.................................... 1
2. General........................................................... 2
2.1 Definitions.................................................. 2
3. Registration; Restrictions on Transfer............................ 3
3.1 Restrictions on Transfer.................................... 3
3.2 Demand Registration......................................... 4
3.3 Piggyback Registrations..................................... 5
3.4 Form S-3 Registration....................................... 6
3.5 Expenses of Registration.................................... 7
3.6 Obligations of the Company.................................. 7
3.7 Termination of Registration Rights.......................... 8
3.8 Delay of Registration; Furnishing Information............... 8
3.9 Indemnification............................................. 9
3.10 Assignment of Registration Rights........................... 11
3.11 Amendment of Registration Rights............................ 11
3.12 Limitation on Subsequent Registration Rights................ 11
3.13 "Market Stand-Off" Agreement................................ 11
3.14 Rule 144 Reporting.......................................... 12
4. Covenants of the Company.......................................... 12
4.1 Basic Financial Information and Reporting................... 12
4.2 Inspection Rights........................................... 13
4.3 Confidentiality of Records.................................. 13
4.4 Reservation of Common Stock................................. 13
4.5 Termination of Covenants.................................... 13
5. Rights of First Refusal........................................... 13
5.1 Subsequent Offerings........................................ 13
5.2 Exercise of Rights.......................................... 14
5.3 Issuance of Equity Securities to Other Persons.............. 14
5.4 Termination and Waiver of Rights of First Refusal........... 14
5.5 Transfer of Rights of First Refusal......................... 14
5.6 Excluded Securities......................................... 14
</TABLE>
i.
<PAGE>
Table of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
6. Miscellaneous..................................................... 15
6.1 Governing Law............................................... 15
6.2 Survival.................................................... 15
6.3 Successors and Assigns...................................... 15
6.4 Entire Agreement............................................ 15
6.5 Severability................................................ 16
6.6 Amendment and Waiver........................................ 16
6.7 New Investors............................................... 16
6.8 Delays or Omissions......................................... 16
6.9 Notices..................................................... 16
6.10 Attorneys' Fees............................................. 16
6.11 Titles and Subtitles........................................ 17
6.12 Counterparts................................................ 17
6.13 Aggregation of Stock........................................ 17
</TABLE>
ii.
<PAGE>
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
Exhibit A
SCHEDULE OF INVESTORS
Name
- ----
David L. Anderson, Trustee, The Anderson
Living Trust, U/A/D 1/22/98
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Anvest, L.P.
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
G. Leonard Baker, Jr.
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Brentwood Affiliates Fund, L.P.
3000 Sand Hill Road
Building 1, Suite 260
Menlo Park, CA 94025
Brentwood Associates VIII, L.P.
3000 Sand Hill Road
Building 1, Suite 260
Menlo Park, CA 94025
JoMei Chang
3826 Magnolia Drive
Palo Alto, CA 94301
GC&H Investments
One Maritime Plaza
20/th/ Floor
San Francisco, CA 94111
Peggy Halperin Dow
c/o Robert M. Halperin, Attorney-in-fact
80 Reservoir Road
Atherton, CA 94027
Second Amended and Restated Investors Rights Agreement
Exhibit A
<PAGE>
SCHEDULE OF INVESTORS
Name
- ----
Mariah Shores Halperin Trust
c/o Robert M. Halperin, Attorney-in-fact
80 Reservoir Road
Atherton, CA 94027
Mark R. Halperin
c/o Robert M. Halperin, Attorney-in-fact
80 Reservoir Road
Atherton, CA 94027
Robert Halperin
80 Reservoir Road
Atherton, CA 94027
Robert Joshua Halperin Trust
c/o Robert M. Halperin, Attorney-in-fact
80 Reservoir Road
Atherton, CA 94027
Sarah Ruth Halperin Trust
c/o Robert M. Halperin, Attorney-in-fact
80 Reservoir Road
Atherton, CA 94027
Integral Capital Partners III, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025
Integral Capital Partners International III, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025
ML IBK Positions, Inc.
3300 Hillview Avenue, Suite 150
Palo Alto, CA 94304
Gregory P. Sands
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Dale Skeen
3826 Magnolia Drive
Palo Alto, CA 94301
Second Amended and Restated Investors Rights Agreement
Exhibit A
<PAGE>
SCHEDULE OF INVESTORS
Name
- ----
Stanford University
2770 Sand Hill Road
Menlo Park, CA 94025
Sutter Hill Ventures, A California Limited Partnership
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Sutter Hill Associates, L.P.
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
TOW Partners, A California Limited Partnership
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Wells Fargo Bank, Trustee SHV M/P/T Tench Coxe
420 Montgomery Street, 2/nd/ Floor
San Francisco, CA 94163
Attention: Vicki Bandel
Wells Fargo Bank, Trustee SHV M/P/T Sherryl W. Hossack
MAC #0101-021
420 Montgomery Street, 2/nd/ Floor
San Francisco, CA 94163
Attention: Vicki Bandel
Weston Presidio Capital II, L.P.
343 Sansome Street
Suite 1210
San Francisco, CA 94104-1316
Paul M. and Marsha R. Wythes, Trustees,
The Wythes Living Trust
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Second Amended and Restated Investors Rights Agreement
Exhibit A
<PAGE>
SCHEDULE OF INVESTORS
Name
- ----
William H. Younger, Jr., Trustee,
The Younger Living Trust, U/A/D 1/20/95
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Saunders Holdings, L.P.
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Tench Coxe, Trustee
The Coxe/Otus Revocable Trust
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Michele Phua
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Second Amended and Restated Investors Rights Agreement
Exhibit A
<PAGE>
EXHIBIT 10.2
Vitria Technology, Inc.
1999 EQUITY INCENTIVE PLAN
Adopted on _______________, 1999
Approved by the Stockholders on _______________, 1999
Termination Date: _______________, 2009
1. Purposes.
(a) The Plan initially was established as the Vitria Technology, Inc. 1995
Equity Incentive Plan, effective as of March 10, 1995 (the "Initial Plan"). The
Initial Plan hereby is amended and restated in its entirety as the Vitria
Technology, Inc. 1999 Equity Incentive Plan, effective as of its adoption by the
Board. The terms of the Initial Plan (other than the aggregate number of shares
issuable thereunder) shall remain in effect and apply to all Stock Awards
granted pursuant to the Initial Plan.
(b) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(c) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(d) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
1.
<PAGE>
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Vitria Technology, Inc., a Delaware corporation.
(g) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a
right granted pursuant to subsection 8(b)(ii) of the Plan.
(h) "Consultant" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(i) "Continuous Service" (formerly, "Continuous Status as an Employee,
Director or Consultant") means that the Participant's service with the Company
or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(j) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(k) "Director" means a member of the Board.
(l) "Disability" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
2.
<PAGE>
(m) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows and in each case in a manner consistent with Section
260.140.50 of Title 10 of the California Code of Regulations:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the bid and asked prices for
the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
(iv) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(p) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "Independent Stock Appreciation Right" or "Independent Right" means a
right granted pursuant to subsection 8(b)(iii) of the Plan.
(r) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
3.
<PAGE>
(s) "Non-Employee Director" means a Director of the Company who either (i)
is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(t) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(u) "Officer" means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
(w) "Option Agreement" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(x) "Optionholder" means an Employee, Director or Consultant who holds an
outstanding Option.
(y) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(z) "Participant" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(aa) "Plan" means this 1999 Equity Incentive Plan.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(cc) "Securities Act" means the Securities Act of 1933, as amended.
4.
<PAGE>
(dd) "Stock Appreciation Right" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(ee) "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(ab) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cd) "Tandem Stock Appreciation Right" or "Tandem Right" means a right
granted pursuant to subsection 8(b)(i) of the Plan.
(ff) "Ten Percent Stockholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. Administration.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c). Any
interpretation of the Plan by the Board and any decision by the Board under the
Plan shall be final and binding on all persons.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
a Stock Appreciation Right, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 13.
5.
<PAGE>
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee may be, in the discretion of the Board, Non-Employee
Directors and also may be, in the discretion of the Board, Outside Directors. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board (and references in this Plan to the Board shall thereafter be to
the Committee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, and notwithstanding anything to the contrary contained herein, the
Board may delegate administration of the Plan to any person or persons and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. Notwithstanding anything in this Section 3 to the contrary, the
Board or the Committee may delegate to a committee of one or more members of the
Board the authority to grant Stock Awards to eligible persons who (1) are not
then subject to Section 16 of the Exchange Act and/or (2) are either (i) not
then Covered Employees and are not expected to be Covered Employees at the time
of recognition of income resulting from such Stock Award, or (ii) not persons
with respect to whom the Company wishes to avoid the application of Section
162(m) of the Code.
4. Shares Subject To The Plan.
(a) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock and the provisions of subsection 4(a)(iii) relating to
automatic increases, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate Ten Million (10,000,000) shares less shares issued
or issuable pursuant to the exercise or award of Stock Awards under the
Company's 1998 Executive Incentive Plan on the date hereof or as such Stock
Awards are issued or become issuable from time to time under such 1998 Executive
Incentive Plan (as adjusted from time to time provided herein, the "Reserved
Amount").
(i) Until such time as the shares of the Company's Series C
Preferred Stock are converted into shares of Common Stock, the Reserved Amount
shall consist of Nine Million Nine Hundred Two Thousand Seven Hundred Twenty-
four (9,902,724) shares of Common Stock and Ninety-seven Thousand Two Hundred
Seventy-six (97,276) shares of the Company's Series C Preferred Stock.
(ii) On and after such date that the shares of the Company's Series C
Preferred Stock are converted into shares of Common Stock, the entire Reserved
Amount shall consist of shares of Common Stock.
(iii) For a period of ten (10) years, commencing on December 31, 1999
and ending on December 31, 2008, the aggregate number of shares of stock
specified in subsection
6.
<PAGE>
4(a) hereof automatically shall be increased each December 31 (the "Calculation
Date") by six and one half percent (6.5%) of the Diluted Shares Outstanding on
the Calculation Date.
(iv) For purposes of subsection 4(a)(iii), "Diluted Shares
Outstanding" means the number of outstanding shares of Common Stock on the
Calculation Date, plus the number of shares of Common Stock issuable upon the
Calculation Date assuming the conversion of all outstanding Preferred Stock and
convertible notes, plus the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the prior 12-month period, calculated using the treasury
stock method.
(v) If any Stock Award shall for any reason expire, be repurchased
or otherwise terminate, in whole or in part, the stock under such Stock Award
shall revert to and again become available for issuance under the Plan.
(vi) Shares subject to Stock Appreciation Rights exercised in
accordance with Section 8 of the Plan shall not be available for subsequent
issuance under the Plan.
(vii) In no event shall Stock Awards qualifying as Incentive Stock
Options exceed Eight Million (8,000,000) shares.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
(c) Prior to the Listing Date and to the extent then required by Section
260.140.45 of Title 10 of the California Code of Regulations, the total number
of shares of Common Stock issuable upon exercise of all outstanding Options and
the total number of shares of Common Stock provided for under any stock bonus or
similar plan of the Company shall not exceed the applicable percentage as
calculated in accordance with the conditions and exclusions of Section
260.140.45 of Title 10 of the California Code of Regulations, based on the
shares of Common Stock that are outstanding at the time the calculation is
made./1/
5. Eligibility.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
__________________________
/1/ Section 260.140.45 generally provides that the total number of shares
issuable upon exercise of all outstanding options (exclusive of certain rights)
and the total number of shares called for under any stock bonus or similar plan
shall not exceed a number of shares which is equal to 30% of the then
outstanding shares of the issuer (convertible preferred or convertible senior
common shares counted on an as if converted basis), exclusive of shares subject
to promotional waivers under Section 260.141, unless a percentage higher than
30% is approved by at least two-thirds of the outstanding shares entitled to
vote.
7.
<PAGE>
(b) Ten Percent Stockholders.
(i) A Ten Percent Stockholder shall not be granted an Incentive
Stock Option unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of the Common Stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(ii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a Nonstatutory Stock Option unless the exercise price of such Option
is at least (i) one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
(iii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a restricted stock award unless the purchase price of the restricted
stock is at least (i) one hundred percent (100%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
(c) Section 162(m) Limitation. Subject to the provisions of Section 12
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options and/or Stock Appreciation Rights
covering more than One Million Two Hundred Thousand (1,200,000) shares of Common
Stock during any calendar year. This subsection 5(c) shall not apply prior to
the Listing Date and, following the Listing Date, this subsection 5(c) shall not
apply until (i) the earliest of: (1) the first material modification of the Plan
(including any increase in the number of shares of Common Stock reserved for
issuance under the Plan in accordance with Section 4); (2) the issuance of all
of the shares of Common Stock reserved for issuance under the Plan; (3) the
expiration of the Plan; or (4) the first meeting of stockholders at which
Directors are to be elected that occurs after the close of the third calendar
year following the calendar year in which occurred the first registration of an
equity security under Section 12 of the Exchange Act; or (ii) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated
thereunder.
(d) Consultants.
(i) Prior to the Listing Date, a Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, either the offer or the
sale of the Company's securities to such Consultant is not exempt under Rule 701
of the Securities Act ("Rule 701") because of the nature of the services that
the Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule 701 and
will satisfy another exemption under the Securities Act as well as comply with
the securities laws of all other relevant jurisdictions.
8.
<PAGE>
(ii) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, a Form S-8
Registration Statement under the Securities Act ("Form S-8") is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(B) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (ii) that such
grant complies with the securities laws of all other relevant jurisdictions.
(iii) Rule 701 and Form S-8 generally are available to consultants and
advisors only if (i) they are natural persons; (ii) they provide bona fide
services to the issuer, its parents, its majority-owned subsidiaries or (for
Rule 701 purposes only) majority-owned subsidiaries of the issuer's parent; and
(iii) the services are not in connection with the offer or sale of securities in
a capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the issuer's securities.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions
regarding Ten Percent Stockholders, the exercise price of each Incentive Stock
Option shall be not less than one hundred percent (100%) of the Fair Market
Value of the Common Stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Exercise Price of a Nonstatutory Stock Option. Subject to the
provisions regarding Ten Percent Stockholders, the exercise price of each
Nonstatutory Stock Option granted prior to the Listing Date shall be not less
than eighty-five percent (85%) of the Fair Market Value of the Common Stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option granted on or after the Listing Date shall be not
less than eighty-five percent (85%) of the Fair Market Value of the Common Stock
subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
9.
<PAGE>
(d) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock, (B) according to a
deferred payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other Common Stock) with the person to
whom the Option is granted or to whom the Option is transferred pursuant to
subsection 6(f), or (C) in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) Transferability of an Incentive Stock Option. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option granted prior to the Listing Date shall not be transferable except by
will or by the laws of descent and distribution and, to the extent provided in
the Option Agreement, to such further extent as permitted by Section
260.140.41(d) of Title 10 of the California Code of Regulations at the time of
the grant of the Option, and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or
after the Listing Date shall be transferable to the extent provided in the
Option Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) Vesting Generally. The total number of shares of Common Stock subject
to periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
10.
<PAGE>
(h) Minimum Vesting Prior to the Listing Date. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California Code
of Regulations at the time of the grant of the Option, then:
(i) Options granted prior to the Listing Date to an Employee who is
not an Officer, Director or Consultant shall provide for vesting of the total
number of shares of Common Stock at a rate of at least twenty percent (20%) per
year over five (5) years from the date the Option was granted, subject to
reasonable conditions such as continued employment; and
(ii) Options granted prior to the Listing Date to Officers, Directors
or Consultants may be made fully exercisable, subject to reasonable conditions
such as continued employment, at any time or during any period established by
the Company.
(i) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period shall not be less than thirty (30) days for Options
granted prior to the Listing Date unless such termination is for cause), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall terminate.
(j) Extension of Termination Date. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(k) Disability of Optionholder. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
11.
<PAGE>
(l) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death, but only within the period ending on the
earlier of (1) the date eighteen (18) months following the date of death (or
such longer or shorter period specified in the Option Agreement, which period
shall not be less than six (6) months for Options granted prior to the Listing
Date) or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.
(m) Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Subject to the "Repurchase Limitation" in subsection 11(h), any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
(n) Right of Repurchase. Subject to the "Repurchase Limitation" in
subsection 11(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option.
(o) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option. Except as expressly provided in this
subsection, such right of first refusal shall otherwise comply with any
applicable provisions of the Bylaws of the Company.
(p) Re-Load Options. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionholder to a further
Option (a "Re-Load Option") in the event the Optionholder exercises the Option
evidenced by the Option Agreement, in whole or in part, by surrendering other
shares of Common Stock in accordance with this Plan and the terms and conditions
of the Option Agreement. Any such Re-Load Option (i) shall be for a number of
shares equal to the number of shares surrendered as part or all of the exercise
price of such Option; (ii) shall have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such Re-
Load Option; and (iii) shall have an exercise price which is equal to one
hundred percent (100%) of the Fair Market Value of the Common Stock subject to
the Re-Load Option on the date of exercise of the original Option or, in the
case of a
12.
<PAGE>
Re-Load Option which is an Incentive Stock Option and which is granted to a Ten
Percent Stockholder shall have an exercise price which is equal to one hundred
ten percent (110%) of the Fair Market Value of the stock subject to the Re-Load
Option on the date of exercise of the original Option.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 11(c) of the Plan and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares under subsection 4(a)
and the "Section 162(m) Limitation" on the grants of Options under subsection
5(c), and shall be subject to such other terms and conditions as the Board or
Committee may determine.
7. Provisions of Stock Bonuses and Purchases of Restricted Stock.
(a) Stock Bonus Awards. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) Consideration. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(ii) Vesting. Subject to the "Repurchase Limitation" in subsection
11(h), shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participant's Continuous Service. Subject to the
"Repurchase Limitation" in subsection 11(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) Transferability. For a stock bonus award made before the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a stock bonus award made on or after the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall be transferable by the Participant only upon such terms and conditions as
are set forth in the stock bonus agreement, as the Board shall determine in its
discretion, so long as
13.
<PAGE>
Common Stock awarded under the stock bonus agreement remains subject to the
terms of the stock bonus agreement.
(b) Restricted Stock Awards. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) Purchase Price. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the Common Stock's Fair Market Value on the date
such award is made or at the time the purchase is consummated. For restricted
stock awards made on or after the Listing Date, the purchase price shall not be
less than eighty-five percent (85%) of the Common Stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated.
(ii) Consideration. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) Vesting. Subject to the "Repurchase Limitation" in subsection
11(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iv) Termination of Participant's Continuous Service. Subject to the
"Repurchase Limitation" in subsection 11(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) Transferability. For a restricted stock award made before the
Listing Date, rights to acquire shares of Common Stock under the restricted
stock purchase agreement shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award made on or
after the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms
14.
<PAGE>
and conditions as are set forth in the restricted stock purchase agreement, as
the Board shall determine in its discretion, so long as Common Stock awarded
under the restricted stock purchase agreement remains subject to the terms of
the restricted stock purchase agreement.
8. Stock Appreciation Rights.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time subject to
Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock Award
Agreement of grant shall incorporate all the terms and conditions at the time
necessary to assure that the subsequent exercise of such right shall qualify for
the safe-harbor exemption from short-swing profit liability provided by Rule
16b-3 promulgated under the Exchange Act (or any successor rule or regulation).
No limitation shall exist on the aggregate amount of cash payments the Company
may make under the Plan in connection with the exercise of a Stock Appreciation
Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) Tandem Stock Appreciation Rights. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionholder is vested over (B) the aggregate exercise price payable for
such vested shares.
(ii) Concurrent Stock Appreciation Rights. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested
15.
<PAGE>
shares of stock purchased under the underlying Option which have Concurrent
Rights appurtenant to them over (B) the aggregate exercise price paid for such
shares.
(iii) Independent Stock Appreciation Rights. Independent Rights will
be granted independently of any Option and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions applicable
to Nonstatutory Stock Options as set forth in Section 6. They shall be
denominated in share equivalents. The appreciation distribution payable on the
exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (on the date of the grant
of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be in
cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.
9. Covenants Of The Company.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
10. Use Of Proceeds From Stock.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. Miscellaneous.
(a) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred shall be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to such Stock
Award unless and until such person has satisfied all requirements for exercise
of the Stock Award pursuant to its terms.
(b) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards
16.
<PAGE>
any right to continue in the employ of the Company or any Affiliate (or to
continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment or relationship as a
Director or Consultant of any Employee, Director, Consultant or other holder of
Stock Awards with or without cause.
(c) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options granted
after 1986 are exercisable for the first time by any Optionholder during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(d) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred, as a condition of exercising
or acquiring stock under any Stock Award, (1) to give written assurances
satisfactory to the Company as to such person's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Stock Award; and (2) to give written assurances satisfactory to
the Company stating that such person is acquiring the stock subject to the Stock
Award for such person's own account and not with any present intention of
selling or otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (iii)
the issuance of the shares upon the exercise or acquisition of stock under the
Stock Award has been registered under a then currently effective registration
statement under the Securities Act, or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(e) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock.
(f) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest in accordance with the Plan, notwithstanding the provisions in
the Stock Award stating the time at which it may first be exercised or the time
during which it will vest.
17.
<PAGE>
(g) Prior to the Listing Date, to the extent required by Section
260.140.46 of Title 10 of the California Code of Regulations, the Company shall
deliver financial statements to Participants at least annually. This subsection
11(g) shall not apply to key Employees whose duties in connection with the
Company assure them access to equivalent information.
(h) The terms of any repurchase option shall be specified in the Stock
Award and may be either at Fair Market Value at the time of repurchase or at not
less than the original purchase price. To the extent required by Section
260.140.41 and Section 260.140.42 of Title 10 of the California Code of
Regulations at the time a Stock Award is made, any repurchase option contained
in a Stock Award granted prior to the Listing Date to a person who is not an
Officer, Director or Consultant shall be upon the terms described below:
(i) If the repurchase option gives the Company the right to
repurchase the shares of Common Stock upon termination of employment at not less
than the Fair Market Value of the shares of Common Stock to be purchased on the
date of termination of Continuous Service, then (i) the right to repurchase
shall be exercised for cash or cancellation of purchase money indebtedness for
the shares of Common Stock within ninety (90) days of termination of Continuous
Service (or in the case of shares of Common Stock issued upon exercise of Stock
Awards after such date of termination, within ninety (90) days after the date of
the exercise) or such longer period as may be agreed to by the Company and the
Participant (for example, for purposes of satisfying the requirements of Section
1202(c)(3) of the Code regarding "qualified small business stock") and (ii) the
right terminates when the shares of Common Stock become publicly traded.
(ii) If the repurchase option gives the Company the right to
repurchase the shares of Common Stock upon termination of Continuous Service at
the original purchase price, then (i) the right to repurchase at the original
purchase price shall lapse at the rate of at least twenty percent (20%) of the
shares of Common Stock per year over five (5) years from the date the Stock
Award is granted (without respect to the date the Stock Award was exercised or
became exercisable) and (ii) the right to repurchase shall be exercised for cash
or cancellation of purchase money indebtedness for the shares of Common Stock
within ninety (90) days of termination of Continuous Service (or in the case of
shares of Common Stock issued upon exercise of Options after such date of
termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Company and the Participant (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code regarding "qualified small business stock").
12. Adjustments Upon Changes In Stock.
(a) If any change is made in the Common Stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and the maximum
18.
<PAGE>
number of securities subject to award to any person pursuant to subsection 5(c),
and the outstanding Stock Awards will be appropriately adjusted in the class(es)
and number of securities and price per share of Common Stock subject to such
outstanding Stock Awards. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) In the event of a dissolution or liquidation of the Company, then all
outstanding Stock Awards shall terminate immediately prior to such event.
(c) In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar stock
awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 12(c) for those
outstanding under the Plan. In the event any surviving corporation or acquiring
corporation refuses to assume such Stock Awards or to substitute similar stock
awards for those outstanding under the Plan, then the vesting of outstanding
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the Stock Awards shall terminate if
not exercised (if applicable) at or prior to such event. Stock Awards shall
terminate if not exercised (if applicable) prior to such event.
(d) After the Listing Date, in the event of an acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Exchange
Act, or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or an Affiliate)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of Directors, then the vesting of outstanding Stock
Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full.
13. Amendment Of The Plan and Stock Awards.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards under
the Plan;
19.
<PAGE>
(ii) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires stockholder approval in order
for the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with the requirements of Rule 16b-3 or any
Nasdaq or securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
14. Termination Or Suspension Of The Plan.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier.. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
15. Effective Date Of Plan.
The Plan shall become effective upon adoption by the Board.
20.
<PAGE>
Exhibit 10.3
Vitria Technology, Inc.
1998 Executive Incentive Plan
Adopted October 16, 1998
Amended by the Board of Directors on December 2, 1998
Approved by the Shareholders on December 23, 1998
Termination Date: October 15, 2008
1. Purposes.
(a) Eligible Option Recipients. The persons eligible to receive Options
are the Employees, Directors and Officers of the Company and its Affiliates.
(b) Available Options. The purpose of the Plan is to provide a means by
which eligible recipients of Options may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of the following
Options: (i) Incentive Stock Options and (ii) Nonstatutory Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Options, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c).
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Vitria Technology, Inc., a California corporation.
(g) "Consultant" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(h) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in
1
<PAGE>
the capacity in which the Optionholder renders service to the Company or an
Affiliate as an Employee or Consultant or a change in the entity for which the
Optionholder renders such service, provided that there is no interruption or
termination of the Optionholder's Continuous Service. For example, a change in
status from an Employee of the Company to a Consultant of an Affiliate of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system.
(q) "Non-Employee Director" means a Director of the Company who either (i)
is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which
2
<PAGE>
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "Officer" means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.
(t) "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "Outside Director" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "Plan" means this Vitria Technology, Inc. 1998 Executive Incentive
Plan.
(y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "Securities Act" means the Securities Act of 1933, as amended.
(aa) "Ten Percent Shareholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how each Option shall be
granted; what type of Option shall be granted; the provisions of each Option
granted (which need not be identical), including the time or times when a
3
<PAGE>
person shall be permitted to receive stock pursuant to an Option; and the number
of shares with respect to which an Option shall be granted to each such person.
(ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 11.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) Delegation to Committee.
(i) General. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more Non-
Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Options to eligible persons who are either (a) not then Covered Employees and
are not expected to be Covered Employees at the time of recognition of income
resulting from such Option or (b) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code and/or (2) delegate to a
committee of one or more members of the Board who are not Non-Employee Directors
the authority to grant Options to eligible persons who are not then subject to
Section 16 of the Exchange Act.
4. Shares Subject to the Plan.
(A) Share Reserve. Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate Ten Million (10,000,000) shares of
Common Stock less shares issued or issuable pursuant to the exercise or award of
Stock Awards granted under the Company's 1995 Equity Incentive Plan on the date
hereof or as such Stock Awards are issued or become issuable from time to time
under such 1995 Equity Incentive Plan.
(i) Until such time as the shares of the Company's Series C
Preferred Stock are converted into shares of Common Stock the Reserved Amount
shall consist of Nine Million Nine Hundred Two Thousand SEven Hundred Twenty-
four (9,902,724) shares of Common Stock and Ninety-seven Thousand Two Hundred
Seventy-six (97,276) shares of the company's Series C Preferred Stock.
(ii) On and after such date that the share of the Company's Series
C Preferred Stock are converted into shares of Common Stock, the entire Reserved
Amount shall consist of shares of Common Stock.
(iii) For a period of ten (10) years, commencing on December 31,
1999 and ending on December 31, 2008, the aggregate number of shares of stock
specified in subsection 4a) hereof automatically shall be increased each
December 31 (the "Calculation Date") by six and one-half percent (6.5%) of the
Diluted Shares Outstanding on the Calculation Date.
(iv) For purposes of subsection 4(a)(iii), "Diluted Shares
Outstanding" means the number of outstanding shares of Common Stock on the
Calculation Date, plus the number of shares of Common Stock issuable upon the
Calculation Date assuming the conversion of all outstanding Preferred Stock and
convertible notes, plus the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the prior 12-month period, calculated using the treasury
stock method.
(B) Reversion of Shares to the Share Reserve. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Option shall revert to and
again become available for issuance under the Plan. However, if
4
<PAGE>
any Common Stock acquired pursuant to the exercise of an Option shall for any
reason be reacquired by the Company, the reacquired stock (having already been
issued) shall not revert to and again become available for reissuance under the
Plan.
(c) Source of Shares. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5. Eligibility.
(a) Eligibility for Specific Options. Incentive Stock Options may be
granted only to Employees. Nonstatutory Stock Options may be granted to
Employees, Directors and Consultants.
(b) Ten Percent Shareholders. No Ten Percent Shareholder shall be eligible
for the grant of an Incentive Stock Option unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
(c) Investment Criteria Prerequisite for Eligibility. Persons who satisfy
the following criteria are eligible to receive an Option pursuant to this Plan:
Optionholder has either (i) preexisting personal or business relationships, with
the Company or any of its Officers, Directors or controlling persons, or (ii)
the capacity to protect his or her own interests in connection with the purchase
of the Common Stock by virtue of the business or financial expertise of himself
or herself or of professional advisors to Optionholder who are unaffiliated with
and who are not compensated by the Company or any of its Affiliates, directly or
indirectly, and Optionholder is purchasing for the Optionholder's own account
and not with a view to or for sale in connection with any distribution of Common
Stock of the Company.
(d) Section 162(m) Limitation. Subject to the provisions of Section 10
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than One Million Two Hundred Thousand
(1,200,000) shares of the Common Stock during any calendar year. This subsection
5(c) shall not apply prior to the Listing Date and, following the Listing Date,
this subsection 5(c) shall not apply until (i) the earliest of: (1) the first
material modification of the Plan (including any increase in the number of
shares reserved for issuance under the Plan in accordance with Section 4); (2)
the issuance of all of the shares of Common Stock reserved for issuance under
the Plan; (3) the expiration of the Plan; or (4) the first meeting of
shareholders at which Directors of the Company are to be elected that occurs
after the close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under Section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code and
the rules and regulations promulgated thereunder.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. Subject to the provisions of subsection 5(b) regarding Ten
Percent Shareholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
5
<PAGE>
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions
of subsection 5(b) regarding Ten Percent Shareholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the stock subject to the Option on the date the Option
is granted. Notwithstanding the foregoing, an Incentive Stock Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Optionholder or (3) in any
other form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) Transferability of an Incentive Stock Option. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(e) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(f) Vesting Generally. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(g) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months
6
<PAGE>
following the termination of the Optionholder's Continuous Service (or such
longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate.
(h) Extension of Termination Date. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.
(i) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement) or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(j) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement) or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.
(k) Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to an unvested share repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
(l) Right of Repurchase. The Option may, but need not, include a provision
whereby the Company may elect, prior to the Listing Date, to repurchase all or
any part of the vested shares acquired by the Optionholder pursuant to the
exercise of the Option.
(m) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares received upon the exercise
of the Option. Except as expressly provided in this subsection 6(n), such right
of first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company.
7
<PAGE>
(n) Re-Load Options. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (ii) have an expiration date which is the same as the expiration date of
the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load
Option shall be subject to the same exercise price and term provisions
heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option [or a
Nonstatutory Stock Option,] as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 9(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. Covenants of the Company.
(a) Availability of Shares. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Options and to issue and sell shares of Common Stock
upon exercise of the Options; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Option or
any stock issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.
8. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. Miscellaneous.
(a) Acceleration of Exercisability and Vesting. The Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Option stating the time at which it
may first be exercised or the time during which it will vest.
8
<PAGE>
(b) Shareholder Rights. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Option granted pursuant thereto shall confer upon any
Optionholder any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Option was granted or shall affect the right
of the Company or an Affiliate to terminate (i) the employment of an Employee
with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(f) Withholding Obligations. To the extent provided by the terms of an
Option Agreement, the Optionholder may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an
Option by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Optionholder by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionholder as a result of the exercise or acquisition of stock
under the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
(g) Cancellation and Re-Grant of Options.
(i) Authority to Reprice. The Board shall have the authority to
effect, at any time and from time to time, (1) the repricing of any outstanding
Options under the Plan and/or (2) with the
9
<PAGE>
consent of any adversely affected holders of Options, the cancellation of any
outstanding Options under the Plan and the grant in substitution therefor of new
Options under the Plan covering the same or different numbers of shares of
Common Stock. The exercise price per share shall be not less than that specified
under the Plan for newly granted Options. Notwithstanding the foregoing, the
Board may grant an Option with an exercise price lower than that set forth above
if such Option is granted as part of a transaction to which Section 424(a) of
the Code applies.
(ii) Effect of Repricing under Section 162(m) of the Code. Shares
subject to an Option which is amended or canceled in order to set a lower
exercise price per share shall continue to be counted against the maximum award
of Options permitted to be granted pursuant to subsection 5(c). The repricing
of an Option under this subsection 9(g) resulting in a reduction of the exercise
price shall be deemed to be a cancellation of the original Option and the grant
of a substitute Option; in the event of such repricing, both the original and
the substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c). The provisions of this
subsection 9(g)(ii) shall be applicable only to the extent required by Section
162(m) of the Code.
10. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and the maximum number of securities subject to award to any
person pursuant to subsection 5(c), and the outstanding Options will be
appropriately adjusted in the class(es) and number of securities and price per
share of stock subject to such outstanding Options. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a transaction "without receipt of consideration" by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of: (i) a sale of all or substantially all of the assets of
the Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise then to the
extent permitted by applicable law: (i) any surviving corporation shall assume
any Options outstanding under the Plan or shall substitute similar Options for
those outstanding under the Plan, or (ii) such Options shall continue in full
force and effect. In the event any surviving corporation refuses to assume or
continue such Options, or to substitute similar Options for those outstanding
under the Plan, then vesting under any such awards shall be accelerated and such
Options shall be terminated if not exercised prior to such event. In the event
of a dissolution or liquidation of the Company, any Options outstanding under
the Plan shall terminate if not exercised prior to such event.
(d) Change in Control--Securities Acquisition. After the Listing Date, in
the event of an acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust,
10
<PAGE>
sponsored or maintained by the Company or an Affiliate) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of Directors, then with respect to Options held by Optionholders whose
Continuous Service has not terminated, the vesting of such Options shall be
accelerated in full.
(e) Change in Control--Change in Incumbent Board. After the Listing Date,
in the event that the individuals who, as of the date of the adoption of this
Plan, are members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least fifty percent (50%) of the Board, then with respect to
Options held by persons whose Continuous Service has not terminated, the vesting
of such Options shall be accelerated in full. If the election, or nomination
for election, by the Company's shareholders of any new Director was approved by
a vote of at least fifty percent (50%) of the Incumbent Board, such new Director
shall be considered as a member of the Incumbent Board.
11. Amendment of the Plan and Options.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) Shareholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for shareholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) Contemplated Amendments. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(e) Amendment of Options. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
12. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the shareholders of the Company, whichever is earlier. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.
11
<PAGE>
(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
13. Effective Date of Plan.
The Plan shall become effective as determined by the Board, but no Option
shall be exercised unless and until the Plan has been approved by the
shareholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
14. Choice of Law
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
12
<PAGE>
EXHIBIT 10.4
VITRIA TECHNOLOGY, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY BOARD OF DIRECTORS _______________ , 1999
APPROVED BY STOCKHOLDERS _______________ , 1999
TERMINATION DATE: NONE
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
(c) The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an "employee stock purchase plan,"
as that term is defined in Section 423(b) of the Code.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the United States Internal Revenue Code of 1986, as
amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.
(e) "Company" means Vitria Technology, Inc., a Delaware corporation.
(f) "Director" means a member of the Board.
(g) "Eligible Employee" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
(h) "Employee" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.
-1-
<PAGE>
(i) "Employee Stock Purchase Plan" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.
(j) "Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
(k) "Fair Market Value" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal or such other source as the Board deems reliable.
(l) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.
(m) "Offering" means the grant of Rights to purchase Shares under the
Plan to Eligible Employees.
(n) "Offering Date" means a date selected by the Board for an Offering to
commence.
(o) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(p) "Participant" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.
-2-
<PAGE>
(q) "Plan" means this 1999 Employee Stock Purchase Plan.
(r) "Purchase Date" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.
(s) "Right" means an option to purchase Shares granted pursuant to the
Plan.
(t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(u) "Securities Act" means the United States Securities Act of 1933, as
amended.
(v) "Share" means a share of the common stock of the Company.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how Rights to purchase Shares shall be
granted and the provisions of each Offering of such Rights (which need not be
identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.
(c) The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the
-3-
<PAGE>
Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to adjustments upon
changes in securities, the Shares that may be sold pursuant to Rights granted
under the Plan shall not exceed in the aggregate One Million Five Hundred
Thousand (1,500,000) Shares. If any Right granted under the Plan shall for any
reason terminate without having been exercised, the Shares not purchased under
such Right shall again become available for the Plan.
(b) The aggregate number of Shares that may be sold pursuant to Rights
granted under the Plan as specified in subparagraph 4(a) shall automatically be
increased as follows:
(i) For a period of ten (10) years, commencing on August 14, 2000 and
ending on August 14, 2009, the aggregate number of Shares specified in
subparagraph 4(a) hereof automatically shall be increased each August 14 (the
"Calculation Date") by the greater of (1) two percent (2%) of the Diluted Shares
Outstanding on the Calculation Date, or (2) that number of Shares that the
number of Shares available for issuance under the Plan shall be to One Million
Five Hundred Thousand (1,500,000) Shares.
(ii) For purposes of subparagraph 4(a)(i), "Diluted Shares
Outstanding" means the number of outstanding Shares on the Calculation Date,
plus the number of Shares issuable upon the Calculation Date assuming the
conversion of all outstanding Preferred Stock and convertible notes, plus the
additional number of dilutive Common Stock equivalent Shares outstanding as the
result of any options or warrants outstanding during the prior 12-month period,
calculated using the treasury stock method.
(iii) The automatic Share reserve increase specified in subparagraph
4(a)(i) in the aggregate may not exceed Sixteen Million Five Hundred
(16,500,000) Shares over the 10-year period.
(c) The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.
5. GRANT OF RIGHTS; OFFERING.
(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall
-4-
<PAGE>
contain such terms and conditions as the Board shall deem appropriate, which
shall comply with the requirements of Section 423(b)(5) of the Code that all
Employees granted Rights to purchase Shares under the Plan shall have the same
rights and privileges. The terms and conditions of an Offering shall be
incorporated by reference into the Plan and treated as part of the Plan. The
provisions of separate Offerings need not be identical, but each Offering shall
include (through incorporation of the provisions of this Plan by reference in
the document comprising the Offering or otherwise) the period during which the
Offering shall be effective, which period shall not exceed twenty-seven (27)
months beginning with the Offering Date, and the substance of the provisions
contained in paragraphs 6 through 9, inclusive.
(b) If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an earlier-
granted Right (or a Right with a lower exercise price, if two Rights have
identical grant dates) will be exercised to the fullest possible extent before a
later-granted Right (or a Right with a higher exercise price if two Rights have
identical grant dates) will be exercised.
6. ELIGIBILITY.
(a) Rights may be granted only to Employees of the Company or, as
the Board may designated as provided in subparagraph 3(b), to Employees of an
Affiliate. Except as provided in subparagraph 6(b), an Employee shall not be
eligible to be granted Rights under the Plan unless, on the Offering Date, such
Employee has been in the employ of the Company or the Affiliate, as the case may
be, for such continuous period preceding such grant as the Board may require,
but in no event shall the required period of continuous employment be equal to
or greater than two (2) years.
(b) The Board may provide that each person who, during the course
of an Offering, first becomes an Eligible Employee will, on a date or dates
specified in the Offering which coincides with the day on which such person
becomes an Eligible Employee or which occurs thereafter, receive a Right under
that Offering, which Right shall thereafter be deemed to be a part of that
Offering. Such Right shall have the same characteristics as any Rights
originally granted under that Offering, as described herein, except that:
(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of the
exercise price of such Right;
(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes
an Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
-5-
<PAGE>
(c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such Employee.
(d) An Eligible Employee may be granted Rights under the Plan only if such
Rights, together with any other Rights granted under all Employee Stock Purchase
Plans of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such Eligible Employee's rights to purchase Shares of
the Company or any Affiliate to accrue at a rate which exceeds twenty five
thousand dollars ($25,000) of the fair market value of such Shares (determined
at the time such Rights are granted) for each calendar year in which such Rights
are outstanding at any time.
(e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
7. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to the
number of Shares purchasable either:
(i) with a percentage designated by the Board not exceeding fifteen
percent (15%) of such Employee's base Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering; or
(ii) with a maximum dollar amount designated by the Board that, as
the Board determines for a particular Offering, (1) shall be withheld, in whole
or in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(b) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of Shares carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering.
-6-
<PAGE>
In addition, in connection with each Offering that contains more than one
Purchase Date, the Board may specify a maximum aggregate amount of Shares which
may be purchased by all Participants on any given Purchase Date under the
Offering. If the aggregate purchase of Shares upon exercise of Rights granted
under the Offering would exceed any such maximum aggregate amount, the Board
shall make a pro rata allocation of the Shares available in as nearly a uniform
manner as shall be practicable and as it shall deem to be equitable.
(d) The purchase price of Shares acquired pursuant to Rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a Participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial institution designated by the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.
(b) At any time during an Offering, a Participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board in the Offering. Upon such withdrawal from the Offering by
a Participant, the Company shall distribute to such Participant all of his or
her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire Shares for the Participant) under the
Offering, without interest unless otherwise specified in the Offering, and such
Participant's interest in that Offering shall be automatically terminated. A
Participant's withdrawal from an Offering will have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
-7-
<PAGE>
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating Employee's employment with the
Company or a designated Affiliate for any reason (subject to any post-employment
participation period required by law) or other lack of eligibility. The Company
shall distribute to such terminated Employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire Shares for the terminated Employee) under the Offering, without
interest unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.
9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of Shares up to the maximum amount of Shares
permitted pursuant to the terms of the Plan and the applicable Offering, at the
purchase price specified in the Offering. No fractional Shares shall be issued
upon the exercise of Rights granted under the Plan unless specifically provided
for in the Offering.
(b) Unless otherwise specifically provided in the Offering, the amount,
if any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of Shares that is equal to the amount required to purchase
one or more whole Shares on the final Purchase Date of the Offering shall be
distributed in full to the Participant at the end of the Offering, without
interest. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial institution as
provided in subparagraph 8(a), then the distribution shall be made from the
separate account, without interest unless otherwise specified in the Offering.
(c) No Rights granted under the Plan may be exercised to any extent unless
the Shares to be issued upon such exercise under the Plan (including Rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act and the Plan is in material compliance with all applicable
state, foreign and other securities and other laws applicable to the Plan. If on
a Purchase Date in any Offering hereunder the Plan is not so registered or in
such compliance, no Rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the Plan is subject
-8-
<PAGE>
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If, on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no Rights granted under the Plan or any Offering shall be exercised and all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire Shares) shall be distributed to
the Participants, without interest unless otherwise specified in the Offering.
If the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subparagraph 8(a), then the distribution shall be made from the separate
account, without interest unless otherwise specified in the Offering.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights unless and until
such authority is obtained.
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of Shares pursuant to Rights granted under the Plan
shall constitute general funds of the Company.
12. RIGHTS AS A STOCKHOLDER.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, Shares subject to Rights granted under
the Plan unless and until the Participant's Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.
13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(a) If any change is made in the Shares subject to the Plan, or subject
to any Right, without the receipt of consideration by the Company (through merge
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
-9-
<PAGE>
Company), the Plan will be appropriately adjusted in the class(es)
and maximum number of Shares subject to the Plan pursuant to subparagraph
4(a), and the outstanding Rights will be appropriately adjusted in the
class(es), number of Shares and purchase limits of such outstanding Rights.
The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a transaction that does
not involve the receipt of consideration by the Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the Shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then: (1)
any surviving or acquiring corporation shall assume Rights outstanding under the
Plan or shall substitute similar rights (including a right to acquire the same
consideration paid to Stockholders in the transaction described in this
subparagraph 13(b)) for those outstanding under the Plan, or (2) in the event
any surviving or acquiring corporation refuses to assume such Rights or to
substitute similar rights for those outstanding under the Plan, then, as
determined by the Board in its sole discretion such Rights may continue in full
force and effect or the Participants' accumulated payroll deductions (exclusive
of any accumulated interest which cannot be applied toward the purchase of
Shares under the terms of the Offering) may be used to purchase Shares
immediately prior to the transaction described above under the ongoing Offering
and the Participants' Rights under the ongoing Offering thereafter terminated.
14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:
(i) Increase the amount of Shares reserved for Rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
-10-
<PAGE>
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.
(c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.
15. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is
to receive any Shares and/or cash, if any, from the Participant's account under
the Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.
(b) The Participant may change such designation of beneficiary at any
time by written notice. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such Shares and/or
cash to the executor or administrator of the estate of the Participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its sole discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the Shares subject to the Plan's reserve, as increased and/or adjusted from time
to time, have been issued under the terms of the Plan. No Rights may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
-11-
<PAGE>
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Rights
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board, which date may be prior to the
effective date set by the Board.
-12-
<PAGE>
EXHIBIT 10.5
DEFERRED COMPENSATION PLAN
Vitria Technology, Inc. a California Corporation (hereinafter referred to as the
"Corporation"), hereby establishes the Deferred Compensation Plan (the "Plan")
effective as of November 1, 1998.
The plan is intended to provide a mechanism whereby certain of the highly
compensated and select management employees of the company may defer
compensation and have such amounts, together with credited earnings, if
applicable, paid out upon the participants retirement, death, disability or
other termination of service with the company and upon certain other specified
events. In addition the company intends that this Plan provide the eligible
employees with deferred compensation benefits in addition to the benefits
provided under the Vitria Technology, Inc. Savings Plan (the "401(k) Plan") in
cases where the benefits under the 401(k) Plan may be limited by applicable
provisions of the Internal Revenue Code of 1986 (the "Code"), as amended. The
company intends that the Plan shall not be treated as "funded" plan for purposes
of either the Code or the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
1. DEFINITION OF TERMS
-------------------
Certain words and phrases are defined when first used in later paragraphs of
this Agreement. In addition, the following words and phrases when used herein,
unless the context clearly requires otherwise, shall have the following
respective meanings:
(a) Accrued Benefit: The sum of all Deferred Amounts and any corporate
---------------
Contributions credited to the Employee's Retirement Plan Account and due
and owing to the Employee or any beneficiaries pursuant to this Agreement,
together with Earnings Adjustments thereto calculated as set forth in
paragraph 4 hereof, minus any distributions hereunder.
-1-
<PAGE>
(b) Affiliate: Any corporation, partnership, joint venture, association, or
---------
similar organization or entity, the employees of which would be treated as
employed by the Corporation under Section 414(b) and 414(c) of the Code.
(c) Agreement: this Agreement, together with any and all amendments or
---------
supplements thereto.
(d) Code: The Internal Revenue Code of 1986, as amended or as it may be amended
----
from time to time.
(e) Compensation: Total salary and bonus of the Employee paid or accrued by the
------------
Corporation.
(f) Corporate Match: Additional amounts credited to the Employee's Retirement
---------------
Account by the Corporation the timing and amount of which is subject to the
Corporations discretion.
(g) Deferred Amounts: The portion of Compensation the employee has elected to
----------------
defer.
(h) Early Retirement Date: The date the Employee attains Sixty (60) years of
---------------------
age.
(i) Effective Date: The date of the execution of this Agreement.
--------------
(j) Employee: An eligible highly compensated and or a key employee of the
--------
company selected by the Company to participate in the plan.
(k) Plan Year: The Calendar year.
---------
(l) Investment Indices: The portfolios chosen by the Corporation to determine
------------------
the Earnings Adjustments to Employee's Retirement Account.
-2-
<PAGE>
(m) Normal Retirement Date: The date the Employee attains sixty-five (65) years
----------------------
of age.
(n) Retirement Account: Book entries maintained by the Corporation reflecting
------------------
Deferred Amounts, Corporate Contributions and Earnings Adjustments thereon;
provided, however, that the existence of such book entries and the
Retirement Account shall not create and shall not be deemed to create a
trust of any kind, or a fiduciary relationship between the Corporation and
the Employee, designated beneficiary, or other beneficiaries under this
Agreement.
2. DEFERRED COMPENSATION
---------------------
Commencing on the Effective Date, and continuing through the date on which the
Employee's employment terminates for any reason or no reason, the Employee shall
be entitled to elect to defer up to 70% of the salary Compensation that the
Employee would otherwise be entitled to receive from the Corporation in each
Plan Year subject to such minimum deferral amounts that may be imposed by the
corporation for a given plan year.
In addition, the Employee shall be entitled to elect to defer up to 100% of any
bonus Compensation that the Corporation may award during or for any Plan Year.
The maximum percentage of salary and bonus Compensation that can be deferred, as
set forth in this paragraph, are hereinafter referred to collectively as the
"Maximum Annual Deferred Sum". The amounts selected for deferral by the Employee
pursuant to an Election of Deferral is referred to as the "Annual Deferral Sum".
The amounts of salary and bonus Compensation actually deferred, taking into
account discontinuance of deferral pursuant to a Notice of Discontinuance, are
hereinafter collectively referred to as "Deferred Amounts". The Employee's
Deferred Amounts shall be credited to the Employee's Retirement Account as of
the dates such Deferred Amounts would, but for such deferral, be payable to the
Employee.
-3-
<PAGE>
3. DEFERRAL IN PARTIAL PLAN YEAR
-----------------------------
If the Effective Date of this Agreement is not the first day of a Plan Year, the
Employee shall be entitled to elect to defer a portion of the Maximum Annual
Deferral Sum under paragraph 2 hereof.
4. ADJUSTMENTS TO DEFERRED AMOUNTS
-------------------------------
The Corporation hereby agrees that it will adjust Deferred Amounts and Corporate
Contributions in the Employee's Retirement Account from and after the dates that
the Deferred Amounts or Corporate Contributions are credited to the Retirement
Account. Adjustments to Deferred Amounts and Corporate Matches shall accrue
commencing on the date the Retirement Account first has a positive balance and
shall continue up to the date Retirement Benefits, Disability Retirement
Benefits, Death Benefits, or a Termination Benefit, whichever applies, deplete
the Retirement Account Balance hereunder.
Adjustments shall be calculated at a rate computed as if the Deferred Amounts
and Corporate Contributions had been invested in whole and fractional shares of
various indices identified by the Corporation. For purposes of computing these
Earnings Adjustments, Deferral Accounts and corporate Contributions in the
Retirement Account shall be assumed to have been invested in shares of the
Investment Indices on each date the transaction is credited to the Employee's
Retirement Account, at the trading price of the Investment Indices on such date
or the first business day thereafter. Earnings Adjustments shall be computed as
if all dividends paid on the Investment indices were reinvested in whole or
fractional shares on the date paid. The Employee shall have the right, at the
beginning of each quarter, to designate different Indices on which Earnings
Adjustments shall be calculated, provided, however, that satisfactory notice is
given ten (10) days prior to the end of the quarter. Any designation of new
Investment Indices will result in the "sale" of shares in the current Investment
Indices and "purchase" of alternative Investment Indices on the first day of the
quarter or the first business day thereafter.
-4-
<PAGE>
Earnings Adjustments will cause the value of the Retirement Account to increase
or decrease in proportion to the change in value of the selected Investment
Indices.
5. ELECTION TO DEFER COMPENSATION
------------------------------
The Employee may elect an Annual Deferral Sum hereunder by filing an Election of
Deferral. The initial Election of Deferral must be filed within twenty (20) days
of the Effective Date of this Agreement. Such initial Election of Deferral, if
any, shall be effective commencing with the first day of the first month after
it is filed. Thereafter, an Election of Deferral must be filed at least twenty
(20) days prior to the beginning of the Plan year to which it pertains and shall
be effective on the first day of the Plan Year following the filing thereof.
6. IN-SERVICE WITHDRAWALS
----------------------
At the time the Employee makes an election to defer income in accordance with
Article 5 the Employee may also elect to receive a portion of the Deferred
Amounts and Earnings Adjustments thereon after a period of five years. If an
Employee makes such an election, then the amounts deferred under Article 5 with
respect to such Plan Year, together with the Earnings Adjustment thereon, shall
be paid in four substantially equal installments commencing as soon as
administratively feasible in the first in the first calendar quarter of the year
elected by the Employee.
7. RETIREMENT BENEFIT
------------------
The Corporation agrees that, from and after the retirement of the Employee from
the service of the Corporation upon reaching his Early Retirement Date or Normal
Retirement Date, the Corporation shall thereafter pay as a retirement benefit
("Retirement Benefit") to the Employee the Employee's entire Accrued Benefit,
payable in substantially equal annual installments of up to fifteen (15) years,
or in a lump sum, as elected by the Employee in the Employee's election of
Deferral, commencing with the first day of the quarter following the Employee's
retirement.
-5-
<PAGE>
8. DISABILITY RETIREMENT
---------------------
In the event of an Employee's total and permanent disability while participating
in the Plan, as determined by the Corporation, the employee will be treated as a
terminated participant pursuant to section 10 below.
9. DEATH BENEFIT
-------------
In the event of the Employee's death while benefits are still owed under this
plan, the Corporation shall pay the Accrued Benefit in the Employee's Retirement
Account as of the date of death in one lump sum payout to the Employee's
designated beneficiary, in accordance with the last such designation received by
the Corporation from the Employee prior to death. If no such designation has
been received by the Corporation from the Employee prior to death, said payments
shall be made to the Employee's then living spouse; if the Employee is not
survived by a spouse, then said payments shall be made to the then living
children of the Employee, if any, in equal shares, and if none, any balance
thereof in one lump sum; to the estate of the Employee. Such payments shall be
made on the first day of the month following the Employee's death.
10. TERMINATION BENEFIT
-------------------
In the event of the Employee's termination of employment with the Corporation
before Early Retirement Date for any reason, the Corporation shall pay to the
Employee, as compensation for services rendered prior to such termination, a
single sum equal to the total Deferred Amounts, subject to earnings adjustments,
plus the vested portion of the Corporate match, subject to earnings adjustments.
11. CALL PROVISION
--------------
In lieu of receiving a distribution of the Employee's Retirement Account at the
time and in the manner otherwise specified in this agreement, an Employee may
elect to receive the entire
-6-
<PAGE>
Retirement Account shall be reduced by 15% as a penalty for early distribution
and the amount of his Retirement Account as of the last day of the month prior
to the receipt by the Company of the Employee's election under this section,
reduced by the 15% penalty amount, shall be paid to the Employee in a cash
lump sum within 30 days after receipt by the Company of the Employee's election.
An Employee who makes such an election shall no longer be eligible to
participate in the Plan. All elections under this section shall be made in
writing, shall be effective when delivered to the Company and shall be
irrevocable once made.
12. HARDSHIP BENEFIT
----------------
In the event the Employee suffers a financial hardship (as hereinafter defined),
the Corporation may, if it deems advisable in its sole and absolute discretion,
distribute to or utilize on behalf of the Employee as a hardship benefit (the
"Hardship Benefit"), any portion of the Employee's Retirement Account up to, but
not in excess of, the Termination Benefit to which the Employee would have been
entitled as of the date the Hardship Benefit is distributed or utilized. Any
Hardship Benefit shall be distributed or utilized at such times as the
Corporation shall determine, and the Accrued Benefit in the Employee's
Retirement Account shall be reduced by the amount so distributed and/or
utilized. Financial Hardship shall mean dire financial need of the Employee
caused by temporary or permanent disability or incapacity, medical expenses, a
material reduction in family income, or other determination, as the Corporation
may deem appropriate.
13. OFFSET FOR OBLIGATIONS TO CORPORATION
-------------------------------------
If, at such time as the Employee becomes entitled to benefit payments hereunder,
the Employee has any debt, obligation or other liability representing an amount
owed to the Corporation or an Affiliate of the Corporation, and if such debt,
obligation, or other liability is due and owing at the time benefit payments are
payable hereunder, the Corporation may offset the amount owed it or an Affiliate
against the amount of benefits otherwise distributable hereunder.
14. BENEFICIARY DESIGNATION
-----------------------
-7-
<PAGE>
The Employee shall have the right, at any time, to submit in substantially the
form attached hereto as Exhibit A, a written designation of primary and
secondary beneficiaries to whom payment under this Agreement shall be made in
the event of the Employee's death prior to complete distribution of the benefits
due and payable under the Agreement. Each beneficiary designation shall become
effective only when receipt thereof as acknowledged in writing by the
Corporation.
15. NO TRUST CREATED
----------------
Nothing contained in this Agreement, and no action taken pursuant to its
provisions by either party hereto shall create, or be construed to create, a
trust of any kind, or a fiduciary relationship between the Corporation and the
Employee, the designated beneficiary, other beneficiaries of the Employee or any
other person.
16. BENEFITS PAYABLE ONLY FROM GENERAL CORPORATE ASSETS;
----------------------------------------------------
UNSECURED GENERAL CREDITOR STATUS OF EMPLOYEE
- ---------------------------------------------
a. The payments to the Employee or the designated beneficiary or any
other beneficiary hereunder shall be made from assets which shall continue, for
all purposes, to be a part of the general, unrestricted assets of the
Corporation; no person shall have any interest in any such assets by virtue of
the provisions of this Agreement. The Corporation's obligation hereunder shall
be an unfunded an unsecured promise to pay money in the future. To the extent
that any person acquires a right to receive payments from the Corporation under
the provisions hereof, such right shall be no greater than the right of any
unsecured general creditor of the Corporation; no such person shall have nor
require any legal or equitable right, interest or claim in or to any property or
assets of the Corporation.
b. In the event that, in its discretion, the Corporation purchases an
insurance policy or policies insuring the life of the Employee (or any other
property), to allow the Corporation to recover the cost of providing benefits,
in whole or in part, hereunder, neither the Employee, his or her designated
beneficiary nor any other beneficiary shall have any rights whatsoever therein
or in the proceeds therefrom. The Corporation shall be the sole owner and
beneficiary of any
-8-
<PAGE>
such insurance policy and shall possess and any exercise all incidents of
ownership therein. No such policy, policies or other property shall be held in
any trust for the Employee or any other person nor as collateral security for
any obligation of the Corporation hereunder.
17. NO CONTRACT OF EMPLOYMENT
-------------------------
Nothing contained herein shall be construed to be a contract of employment for
any term of years, nor as conferring upon the Employee the right to continue to
be employed by the Corporation in his or her present capacity, or in any
capacity. It is expressly understood by the parties hereto that this Agreement
relates to the payment of deferred compensation for the Employee's services,
payable after termination of his or her employment with the Corporation, and is
not intended to be an employment contract.
18. BENEFITS NOT TRANSFERABLE
-------------------------
Neither the Employee, designated beneficiary nor any other beneficiary under
this Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate or otherwise encumber any part or all of the amounts payable
hereunder. No such amounts shall be subject to seizure by any creditor of any
such beneficiary, by a proceeding at law or in equity, nor shall such amounts be
transferable by operation of law in the event of bankruptcy, insolvency or death
of the Employee, designated beneficiary, or any other beneficiary hereunder.
19. DETERMINATION OF BENEFITS
-------------------------
a. Claim.
------
Any person who believes that he/she is being denied a benefit to which he or she
is entitled under the Plan (hereinafter referred to as a "Claimant") may file a
written request for such benefit with the Corporation, setting forth his or her
claim. The request must be addressed to the President of the Corporation at its
then principal place of business.
b. Claim Decision.
---------------
-9-
<PAGE>
Upon receipt of a claim, the Corporation shall advise the Claimant that a reply
will be forthcoming within ninety (90) days and shall, in fact, deliver such
reply within such period. The Corporation may, however, extend the reply period
for an additional ninety (90) days for reasonable cause.
If the claim is denied in whole or in part, the Corporation shall adopt a
written opinion, using language calculated to be understood by the Claimant,
setting forth:
(a) The specific reason or reasons for such denial;
(b) The specific reference to pertinent provisions of this Agreement on
which such denial is based;
(c) A description of any additional material or information necessary for
the Claimant to perfect his or her claim and an explanation why such
material or such information is necessary;
(d) Appropriate information as to the steps to be taken if the Claimant
wishes to submit the claim for review; and
(e) The time limits for requesting a review under the subsection (C) and
for review under subsection (d) hereof.
c. Request for Review.
-------------------
Within sixty (60) days after the receipt by the Claimant of the written opinions
described above, the Claimant may request in writing that the Secretary of the
Corporation review the determination of the Corporation. Such request must be
addressed to the Secretary of the Corporation, at its then principal place of
business. The Claimant or his or her duly authorized representative may, but
need not, review the pertinent documents and submit issues and comments in
writing for consideration by the Corporation. If the Claimant does not request a
review of the Corporation's determination by the Secretary of the Corporation
within such sixty (60) day period, he or she shall be barred an estopped from
challenging the Corporation's determination.
d. Review of Decision.
-------------------
-10-
<PAGE>
Within sixty (60) days after the Secretary's receipt of a request for review, he
or she will review the Corporation's determination. After considering all
material presented by the Claimant, the Secretary will render a written opinion,
written in a manner calculated to be understood by the Claimant, setting forth
the specific reasons for the decision and containing specific references to the
pertinent provisions of this Agreement on which the decision is based. If
special circumstances require that the sixty (60) day time period be extended,
the Secretary will so notify the Claimant and will render the decision as soon
as possible, but no later than one hundred twenty (120) days after receipt of
the request for review.
20. AMENDMENT
---------
The Company may amend this plan at any time and from time to time, but no
amendment shall reduce any benefit that has accrued on the effective date of the
amendment subject to Earnings Adjustments as otherwise set forth herein.
21. INUREMENT
---------
This Agreement shall be binding upon and inure to the benefit of the Corporation
and its successors and assigns, and the Employee, successors, heirs, executors,
administrators and beneficiaries.
22. NOTICE
------
Any notice, consent or demand required or permitted to be given under the
provisions of this Agreement shall be in writing, and shall be signed by the
party giving or making the same. If such notice, consent or demand is mailed to
a party hereto, it shall be sent by United States certified mail, postage
prepaid, addressed to such party's last known address as shown on the records of
the Corporation. The date of such mailing shall be deemed the date of notice,
consent or demand. Either party may change the address to which notice is to be
sent by giving notice of the change of address in the manner aforesaid.
-11-
<PAGE>
23. GOVERNING LAW
- --- -------------
This Agreement and the rights of the parties hereunder, shall be governed by and
construed in accordance with the laws of the State of California.
Dated: ___________________
ATTEST: Vitria Technology, Inc.
By: ______________________ By: _________________________
Title: ______________________
-12-
<PAGE>
EXHIBIT 10.6
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
January 28, 1997, is made by and between Portola Land Company ("Lessor") and
Vitria Technology Incorporated ("Lessee"), (collectively, the "Parties," or
individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lesser under the terms of this Lease, and commonly
known by the street address 500 Ellis Street, Mountain View, located in the
County of Santa Clara, State of California, and generally described as (describe
briefly the nature of the property) approximately 18,100 square feet in a
freestanding single story office/R&D building ("Premises"). (See Paragraph 2 for
further provisions.)
1.3 Term: Six (6) years and one (1) months ("Original Term") commencing
April 1, 1997 ("Commencement Date") and ending April 30, 2003 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: N/A ("Early Possession Date"). (See Paragraphs
3.2 and 3.3. for further provisions)
1.5 Base Rent: See Addendum _______ per month ("Base Rent"), payable on
the 1st day of each month commencing see Addendum (See Paragraph 4 for further
provisions.)
[_] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid upon Occupancy: $30,770 as Base Rent for the period May
1, 1997 - May 31, 1997; Base Rent for the period of April 1, 199__ -- April 30
1997 shall be rent-free.
1.7 Security Deposit: $61,540.00 ("Security Deposit"). (See Paragraph 5
for further provisions.)
1.8 Permitted Use: Office, Research, Development and Storage of
communication and application servers. (See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
Cornish & Carey Commercial
[X] represents both Lessor and Lessee. (See Paragraph 15 for further
provisions.)
1.11 Guarantor: The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda: Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 57 and Exhibit A, all of which constitute a part of this
Lease.
2. Premises.
2.1 Letting: Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning and heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lesser shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranty, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable law as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use; (b) that Lessee has made such investigation as it
deems necessary with reference to such matters, and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
terms of this Lease; and (c) that neither Lessor, nor any of Lessor's agents,
has made any oral or written representations or warranties with respect to said
matters other than as set forth in this Lease.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
1.
<PAGE>
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within thirty (30) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice of Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to the period to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor sufficient to maintain the same ratio between the
security deposit and the base rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease. Upon Lessee's completion of tenant
improvements, Lessor, at Lessor's sole discretion, may refund one month of the
security deposit provided Lessee is not in default, Lessor will . . .
6. Use.
6.1 Permitted Use.
Lessee shall use and occupy the Premises only for the Permitted Use
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessee's assignees or subtenants, and by prospective
assignees and subtenants of Lessee, its assignees and subtenants, for a
modification of said Permitted purpose for which the premises are to be used or
occupied, so long as the same will not impair the structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises and the improvements thereon,
and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products or by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the premises so long as such use
is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including but
not limited to the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action, or proceeding given to, or received from, any
governmental authority or private party or persons entering or occupying the
Premises concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or by
anyone under Lessee's control. Lessee's obligations under this Paragraph 6 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultant's and attorney's fees and testing),
removal, remediation,
2.
<PAGE>
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances or storage tanks, unless specifically so agreed by Lessor
in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill, or release of any Hazardous Substance or storage
tanks, now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy, Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including but not limited to
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law by Lessor, and shall
immediately upon receipt, notify Lessor in writing (with copies of any documents
involved) of any threatened or actual claim, notice, citation, warning,
complaint or report pertaining to or involving failure by Lessee or the Premises
to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a) shall have the right to enter the Premises at any time in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease by Lessee, violation of Applicable Law,
or a contamination, caused or materially contributed to by Lessee is found to
exist or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expanse and at all
times, keep the Premises and every part thereof in good order, condition and
repair (whether or not such portion of the Premises requiring repairs, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about or adjacent
to the Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including through the
plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take
all investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair subject to addendum. If Lessee occupies the Premises for seven (7) years
or more, Lessor may require Lessee to repaint the exterior of the buildings on
the Premises as reasonably required, but not more frequently than once every
seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in the Addendum Paragraphs 2.2 (relating to condition of the
Premises), 2.3 (relating to compliance with covenants, restrictions and building
code), 9 (relating to destruction of the Premises) and 14 (relating to
condemnation of the Premises), it is intended by the Parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises, the improvements located thereon, or the equipment therein, all of
which obligations are intended to be that of the Lessee under Paragraph 7.1
hereof. It is the intention of the Parties that the terms of this Lease govern
the respective obligations of the Parties as to maintenance and repair of the
Premises. Lessee and Lessor expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease with respect to, or which affords Lessee the right to make repairs at the
expense of Lessor or to terminate this Lease by reason of any needed repairs.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee-Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications therefor. Lessee has the right to
choose the licensed contractor to perform any improvement work to the building
base.
3.
<PAGE>
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried by Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 82(a)
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned and
Utility Installations shall be insured by Lessee under Paragraph 8.4 rather than
by Lessor. If the coverage is available and commercially appropriate, such
policy or policies shall insure against all risks of direct physical loss or
damage (except the perils of flood and/or earthquake unless required by a
Lender), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Premises required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
cause of loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall
be liable for such deductible amount in the event of an Insured Loss, as defined
in Paragraph 9.1(c).
(b) Rental Value. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, real
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable to any deductible amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or such building or buildings if
said increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
4.
<PAGE>
(d) Tenant's Improvements. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide Lessor
with written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancelable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the
Insuring Party shall fail to procure and maintain the insurance required to be
carried by the Insuring Party under this Paragraph 8, the other Party may, but
shall not be required to, procure and maintain the same, but at Lessee's
expense.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of this
Lease, Lessee shall indemnify, protect, defend and hold harmless the Premises,
Lessor and its agents, Lessor's master or ground lessor, partners and Lenders,
from and against any and all claims, loss of rents and/or damages, costs, liens,
judgments, penalties, permits, attorney's and consultant's fees, expenses and/or
liabilities arising out of, involving, or in dealing with the occupancy of the
Premises by Lessee, the conduct of Lessee's business, any act, omission or
neglect of Lessee, its agents, contractors, employees or invitees, and out of
any Default or Breach by Lessee in the performance in a timely manner of any
obligation on Lessee's part to be performed under this Lease. The foregoing
shall include, but not be limited to, the defense or pursuit of any claim or any
action or proceeding involved therein, and whether or not (in the case of claims
made against Lessor) litigated and/or reduced to judgment and whether well
founded or not. In case any action or proceeding be brought against Lessor by
reason of any of the foregoing matters, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessor need not have
first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required the complete said
repairs. In the event, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available. Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does so elect, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
5.
<PAGE>
9.3 Partial Damage--Uninsured Loss. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the date of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period") (i) exercising such option, and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage-
Insured), whether or not Lessor or Lessee repairs or restores the Premises, the
Base Rent, Real Property Taxes, insurance premiums and other charges, if any,
payable by Lessee hereunder for the period during which such damage or its
repair, or the restoration continues (not to exceed the period for which rental
value insurance is required under Paragraph 8.3(b)) shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lender
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is caused it to be present (in which case Lessee shall
make the investigation and remediation thereof required by Applicable Law and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds of assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a).
9.8 Termination - Advance Payments. Upon termination of this Paragraph 9,
an equitable adjustment shall be made concerning advance Base Rent and any other
advance payments made by Lessee to Lessor. Lessor shall, in addition, return to
Lessee so much of Lessee's Security Deposit as has not been, or is not then
required to be, used by Lessor under the terms of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover a period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys
6.
<PAGE>
paid to Lessor under this Paragraph may be intermingled with other moneys of
Lessor and shall not bear interest. In the event of a Breach by Lessee in the
performance of the obligations of Lessee under this Lease, then any balance of
funds paid to Lessor under the provisions of this Paragraph may, subject to
proration as provided in Paragraph 10.1(a) at the option of Lessor, be treated
as an additional Security Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment, general
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Premises or in the real property of which the Premises are a part, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein imposed by reason of events
occurring, or changes in applicable law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Premises or
in the improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
to all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor if any of
Lessee's said personal property shall be assessed with Lessor's real property.
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b)
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor of all charges jointly metered with other premises.
12. Assignment and Subletting. See Addendum Paragraph 55.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36, except as set forth in the Addendum.
(d) An assignment or subletting of Lessee's interest in this Lease
other than a Permitted Transfer without Lessor's specific prior written consent
shall, at Lessor's option, be a Default curable after notice per Paragraph
13.1(c), or a noncurable Breach without the necessity of any notice and grace
period. If Lessor elects to treat such unconsented to assignment or subletting
as a noncurable Breach, Lessor shall have the right to either: (i) terminate
this Lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice"),
increase the monthly Base Rent to fair market rental value or one hundred ten
percent (110%) of the Base Rent then in effect, whichever is greater. Pending
determination of the new fair market rental value, if disputed by Lessee, Lessee
shall pay the amount set forth in Lessor's Notice, with any overpayment credited
against the next installment(s) of Base Rent coming due, and any underpayment
for the period retroactively to the effective date of the adjustment being due
and payable immediately upon the determination thereof. Further, in the event
of such Breach and market value adjustment, (i) the purchase price of any option
to purchase the Premises held by Lessee shall be subject to similar adjustment
to the then fair market value (without the Lease being considered an encumbrance
or any deduction for depreciation or obsolescence, and considering the Premises
at its highest and best use and in good condition), or one hundred ten percent
(110%) of the price previously in effect, whichever is greater, (ii) any index-
oriented rental or price adjustment formulas contained in this Lease shall be
adjusted to require that the base index be determined with reference to the
index applicable to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new market rental bears to the Base Rent in effect
immediately prior to the market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
7.
<PAGE>
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease.
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease,
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as
a failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" is defined as the occurrence of any one or more of the following
Defaults and where a grace period for cure after notice is specified herein the
failure by Lessee to cure such Default prior to the expiration of the applicable
grace period, shall entitle Lessor to pursue the remedies set forth in
Paragraphs 13.2 and/or 13.3.
(b) Except as expressly otherwise provided in this Lease, the
future by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) or (i) if compliance with Applicable Law
per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the recission of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessees obligations
under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution
of any document requested under Paragraph 42 (easements), or (viii) any other
documentation or information which Lessor may reasonably require of Lessee under
the terms of this Lease, where any such failure continues for a period of ten
(10) days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, completed with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The
making by lessee of any general arrangement or assignment for the benefit of
creditors, (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or
any successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a guarantor; (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty; (iii) a guarantor's becoming insolvent or the
subject of a bankruptcy filing; (iv) a guarantor's refusal to honor the
guaranty; or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurance or security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the guarantors that existed at the
time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of
8.
<PAGE>
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of the leasing commission paid by Lessor applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the prior sentence shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph. If termination of
this Lease is obtained through the provisional remedy of unlawful detainer,
Lessor shall have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve therein the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grade period required under subparagraphs 13.1(b), (c) or (d)
was not previously given, a notice to pay rent or quit, or to perform or quit,
as the case may be, given to Lessee under any statute authorizing the forfeiture
of leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951 4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the L essee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture In Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary. Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises or more than twenty ______ ___________ land area not
occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining except that the Base Rent reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the building located on ________. No reduction of Base Rent shall occur if
the only portion of the Premises taken is land on which there is no building
_________________________________ the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Lessor ________ such award shall be made as compensation for
dimunition in value of the leasehold or for the taking of the fee or as
severance damaged provided however that Lessee shall be entitled to any
compensation separately awarded to Lessee for Lessee's relocation expenses
and/or loss of _________ the event that this Lease is not terminated by reason
of such condemnation Lessor shall to the extent of its net severance damages
received the legal and other expenses incurred by Lessor in the condemnation
matter repair any damage to the Premises caused by such condemnation
_____________ extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall be responsible for the payment of any
_______________________ net severance damages required to complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Broker's jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $____________________) for brokerage
services rendered by said Brokers to Lessor in this transaction.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
9.
<PAGE>
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, of the building of which the Premises are a part, Lessee and a
Guarantor's of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee
and such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee tittle to the Premises or if
there is a sublease of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease.
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or assignment
and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of a liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than changes, not received Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the thirty-
first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deeme4d to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to the Lease and as to
the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing and delivering notices
to Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt or
of if no delivery date is shown, the postmark thereon. If sent by regular mail
the notice shall be deemed given forty-eight (48) hours after the same addressed
as required herein and mailed with postage prepaid. Notices delivered by United
States Express Mail or overnight courier that guarantees next day delivery shall
be deemed given twenty-four (24) hours after delivery of the same to the United
States Postal Service or courier
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition here ___.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preced__ Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor, Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by lessee in connection
therewith, which such statements and/or conditions shall be of no force or
effect whatsoever unless specifically agreed to in writing by Lessor at or
before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of ______
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessor has not right to retain possession of the
Premises or any party thereof beyond the expiration or earlier termination
of the Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effects; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county of which the Premises are located.
30. Subordination; Attornment; Non-Disturbances.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and sub ordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice to the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Optio____ granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
10.
<PAGE>
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquire
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease. Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-distribution agreement") from
the Lender that lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in Breach
hereof and attorns to the record owner of the Premises.
30.4 Self-Executing. This agreement contained in this Paragraph 30 shall
be effective without the execution of any further documents, provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may bed reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. Auctions. Lessee shall not conduct, nor permitted to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Features and Alterations). Unless otherwise expressly agreed herein.
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the premises,
including the roof, as do not reasonably interfere with the conduct of Lessee's
business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lessor estate __ the
Premises; provided, however, lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lessor interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to a___ act by
or for the other party, such consent shall not be unreasonably withheld or
delayed, Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for an___
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of
a Hazardous Substance, practice or storage tank, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation thereto Subject
to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require the __ Lessee
deposit with Lessor an amount of money (in addition to the Security Deposit held
under paragraph 5) reasonably calculated by Lessor to represent the cost
Lessor will incur in considering and responding to Lessee's request. Except as
otherwise provided, any unused portion of said deposit shall be refunded
to Lessee without interest. Lessor's consent to any act, assignment of this
Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgement that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify here__ any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given. *In the event Lessor shall not have responded within ten (10) days,
Lessor's consent shall be deemed given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be __ the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporation Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sing on its behalf, (b) current financial statements of Guarantor as may from
time to time by requested by Lessor, (c) a Tenancy Statement, or (d( written
confirmation that the guaranty is still in effect.
38. Quite Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
11.
<PAGE>
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph __ hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease by
any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provisions in the grant of Option to the contrary (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee) or (iii) during the time Lessee is in
Breach of the Lease, or (iv) in the event that lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1 whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provision of an Option shall
terminate and be of no further fore or effect notwithstanding lessee's due and
timely exercise of the Option, if, after such exercise and during the terms of
this Lease (i) Lessee fails to pay to Lessor monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice __________ or (ii) Lessor _____ to Lessee
three (3) or more notices of Default under Paragraph 13.1 during any twelve (12)
month period whether or ____________ Lessee commits a Breach of this lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do no unreasonably interfere with the use of the Premises by
Lessee. lessee agrees to assign any documents reasonably requested by lessor to
effectuate any such easement rights, education, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnerships, Lessee shall, within thirty (3) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided therein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities names herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS
SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS
TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS
SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR
THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE. IF THE
12.
<PAGE>
SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY
FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
Executed at: Palo Alto Executed at:___________________________
on February 5, 1997 on February 4, 1997
By LESSOR: Portola Land Company By Lessee: Vitria Technology
Incorporated
______________________________________ _______________________________________
______________________________________ _______________________________________
By: /s/ William J. Hurwick By: /s/ Jo Mei Chang
Name Printed: William J. Hurwick Name Printed: Ms. Jo Mei Chang
Title: Partner Title: President & CEO
By: /s/ Allan E. Brown By:___________________________________
Name Printed: Allan E. Brown Name Printed:_________________________
Title: General Partner Title:________________________________
Address:______________________________ Address:______________________________
______________________________________ ______________________________________
Tel. No.( ) Tel. No.( )
______________________________ ______________________________
Fax No: ( ) Fax No: ( )
______________________________ ______________________________
13.
<PAGE>
Lease Addendum
ADDENDUM TO THE LEASE DATED JANUARY 28, 1997, BY AND BETWEEN PORTOLA LAND
COMPANY, LESSOR, AND VITRIA TECHNOLOGY INCORPORATED, LESSEE, FOR THE PREMISES
LOCATED AT 500 ELLIS STREET, MOUNTAIN VIEW, CALIFORNIA.
THIS LEASE ADDENDUM SHALL OVERRULE AND TAKE PRECEDENCE OVER ANY CONFLICT WITH
THE MASTER LEASE DATED JANUARY 28, 1997.
49. Compliance with Building Code:
Notwithstanding anything to the contrary contained in this Lease, Lessee
shall have no obligation to comply with any laws relating to Hazardous
Substances unless Lessee shall have caused such Hazardous substances to be
present on the Premises.
Notwithstanding anything to the contrary contained in this Lease, Lessee
shall not be responsible for compliance with any Applicable Law where such
compliance is not related specifically to Lessee's use and occupancy of the
Premises. For example, but not by way of limitation, if any governmental
authority should require the Building or the Premises to be structurally
strengthened against earthquake and such measures are imposed as a general
requirement applicable to all tenants rather than as a condition to
Lessee's specific use or occupancy of the premises, such work shall be
performed by and at sole cost of Lessor.
50. Rent Schedule:
<TABLE>
<CAPTION>
Months/Dates NNN Base Rent/Sq. Ft./Mo. NNN Base Monthly Rent
<S> <C> <C>
04/01/97 - 04/30/97 0 0
05/01/97 - 04/30/98 $1.70 $30,770
05/01/98 - 04/30/99 $1.76 $31,856
05/01/99 - 04/30/00 $1.82 $32,942
05/01/00 - 04/30/01 $1.88 $34,028
05/01/01 - 04/30/02 $1.94 $35,114
05/01/02 - 04/30/03 $2.00 $36,200
</TABLE>
51. NNN Expense:
Lessee shall pay for real estate taxes, insurance including earthquake
coverage, landscape maintenance, HVAC maintenance and all utilities and
janitorial services provided to the Premises. Lessee shall be responsible
for paying a portion of the cost of the replacement of capital items (HVAC
equipment, parking lot), amortized over the useful life of the equipment.
52. Roof Maintenance:
Lessee shall be responsible for all roof maintenance repair costs (other
than Lessee caused) during the Lease term. Replacement of roof if needed
shall also be Lessor's sole cost and expense.
53. Improvements to Premises:
Lessor, at Lessor's sole cost and expense shall warrant that all electric,
HVAC, and plumbing shall be in working order on the Commencement Date and
shall pay for repairing them, at its sole costs and expense, if such
warranty is inaccurate. Lessor shall be responsible for any costs of
replacing HVAC equipment during the first twelve (12) months of the Lease,
if necessary. Lessor, at Lessor's expense, shall also repaint exterior of
the building a neutral color. Additionally, Lessor, at Lessor's cost,
shall replace all missing or defective ceiling tiles. Except as set forth
in this Lease and Addendum, Lessee will assume space in an "as is"
condition.
If Lessee, at any time or times during the term of this Lease, shall desire
to make any alterations, or improvements on the Premises, or any part of
parts thereof, the same shall be constructed without cost or expense to
Lessor, in accordance with the requirements of all laws, ordinances, codes,
orders, rules, and regulations of all governmental authorities having
jurisdiction over the Premises. In particular, Lessee shall have the right
to modify the building interiors. Should any modifications require a
building permit, such work shall be done by a licensed contractor.
Premises shall be returned to lessor in "clean" condition.
54. Hazardous Materials Indemnification:
Lessor shall indemnify, defend and hold Lessee, its agents, employees and
lenders, harmless from and against any and all losses, costs, claims,
damages, liabilities and causes of action including attorney's fees and
costs and consultants' fees arising out of or in any way connected with any
Hazardous Substance located on the Premises including the soils and
groundwaters thereof, except those caused to be on the Premises by Lessee.
Lessee is only responsible for Hazardous Substances which Lessee, its
agents, employees and lenders have brought directly to the Premises.
Lessor's obligations under this provision shall survive the expiration or
early termination of the Lease.
Notwithstanding anything to the contrary contained in this Lease, Lessee
shall have no obligation to comply with any laws relating to Hazardous
Substances unless Lessee shall have caused such Hazardous Substances to be
present on the Premises.
55. Free from Liens:
Lessee shall keep the premises and the property in which the premises are
situated, free from any liens arising out of any work performed, materials
furnished, or obligations incurred by Lessee.
55. Sublease/Assignment:
Lessee shall have the right to assign or sublease the premises, subject to
Lessor's approval, which shall not be unreasonably withheld. Any bonus
rents resulting from the subleasing shall be split 50/50 between Lessor and
Lessee after subtracting the cost of Sublease commissions.
Notwithstanding the foregoing, Lessee may assign or sublet pursuant to any
of the following (each a "Permitted Transfer"): transfer, assignment or
subletting of the Premises (or any portion thereof) to any entity which
controls, is controlled by, or is under common control with Lessee; to any
entity which results from a merger of or consolidation with Lessee; or to
any entity which acquires substantially all of the assets of lessee, as a
going concern, with respect to the business that is being conducted in the
Premises; any transfer of the beneficial ownership or effective voting
control of Lessee from the person(s) having effective voting
1.
<PAGE>
control as of the date of Lessee's execution of this Lease, where such
transfer occurs in connection with any bona fide financing or
capitalization for the benefit of Lessee.
57. Real Estate Leasing Commissions:
Lessor to pay Cornish & Carey Commercial the leasing commission per listed
schedule. It is noted that the agents of Cornish & Carey Commercial
involved in this Lease transaction are acting as both Brokers and
Principals.
2.
<PAGE>
EXHIBIT 10.7
SUBLEASE
OAKMEAD WEST BUILDINGS PROJECT
BUILDING C
945 STEWART DRIVE
Between
APPLIED MATERIALS, INC.
(Sublandlord)
And
VITRIA TECHNOLOGY, INC.
(Subtenant)
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Sublease Agreement........................................ 3
2. Rent...................................................... 4
3. Construction Of Interior Improvements And Possession...... 8
4. Services And Utilities.................................... 9
5. Alterations............................................... 9
6. Use Of Premises........................................... 12
7. Governmental Requirements And Building Rules.............. 14
8. Repair And Maintenance.................................... 14
9. Waiver Of Claims; Indemnification; Insurance.............. 15
10. Fire And Other Casualty................................... 18
11. Eminent Domain............................................ 19
12. Rights Reserved To Landlord And Sublandlord............... 19
13. Subtenant's Default....................................... 21
14. Sublandlord Remedies...................................... 21
15. Surrender................................................. 23
16. Holdover.................................................. 24
17. Subordination To Ground Leases And Mortgages.............. 24
18. Assignment And Sublease................................... 25
19. Conveyance By Sublandlord Or Landlord..................... 27
20. Estoppel Certificate...................................... 27
21. Financial Statements...................................... 27
22. Lease Deposit............................................. 28
23. Force Majeure............................................. 28
24. Notices................................................... 28
25. Quiet Possession.......................................... 29
26. Real Estate Broker........................................ 29
27. Miscellaneous............................................. 30
28. Unrelated Business Income................................. 32
29. Hazardous Substances...................................... 32
30. Exculpation............................................... 34
</TABLE>
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
31. Sublandlord Obligations................................... 34
32. Sublandlord's Representations And Warranties.............. 34
33. Subtenant Cure Right...................................... 35
34. Landlord Consent.......................................... 35
</TABLE>
ii
<PAGE>
SUBLEASE
This Sublease (the "Sublease") is made as of April 6th, 1999 (dated for
reference purposes only and referred to herein as the "Effective Date") between
Applied Materials, Inc., a Delaware corporation (the "Sublandlord") and Vitria
Technology, Inc., a California corporation ("Subtenant"). The term "Project"
means the seven (7) buildings ("Buildings") and other improvements commonly
known as the "Oakmead West" located on the land (the "Land") in Sunnyvale,
California, as more particularly described on EXHIBIT A. "Premises" or
"Building" means the building designated 945 Stewart Drive or Building C.
Sublandlord is lessee of the Project pursuant to the Lease dated September
9, 1997 ("Master Lease") between Sublandlord as Tenant and CarrAmerica Realty
Corporation as Landlord.
The following schedule (the "Schedule") is an integral part of this
Sublease. Terms defined in this Schedule shall have the same meaning throughout
the Sublease.
Schedule
1. Subtenant: Vitria Technology, Inc.
2. Premises: Building C (the "Building"), 945 Stewart Drive, Sunnyvale,
California, as described in EXHIBIT A attached hereto.
3. Rentable Square Footage of the Premises: 63,781 sq. ft.
4. Subtenant's Proportionate Share: 100% for Operating Costs and Taxes
allocated to the Building and 14.97% for Operating Costs and Taxes charged to
the Project but not allocated to specific Buildings by Landlord.
5. Lease Deposit: $83,135.10 due upon execution of this Sublease,
representing advance payment of the first month's rent ("Advance Rent Deposit"),
plus a security deposit in cash in the amount of twice the last month's rent
- ----
($283,773.10) ("Security Deposit").
6. Permitted Use: Office; storage and shipping of equipment and parts;
assembly (using parts manufactured elsewhere), repair and testing of machinery
and equipment; research, testing and demonstration laboratory; and ancillary
uses permitted under applicable laws.
7. Subtenant's Real Estate Broker for this Lease: CB Richard Ellis
8. Sublandlord's Real Estate Broker for this Lease: Wayne Mascia
Associates
9. Tenant Improvement Allowance: $1,594,525.00 Base Allowance plus an
Additional Allowance of up to $446,467.
10. Commencement Date: Approximately August 1, 1999; See Paragraph 1.A.
1
<PAGE>
11. Term: Commencing on the Commencement Date and expiring August 31, 2003
("Termination Date").
12. Guarantor: None
13. Base Rent:
Monthly/Square
Foot prior to Monthly
Months Amortization Base Rent
------ ------------ ---------
1-6 $ 1.85 * ** $ 85,135.50* **
6-12 1.85** 129,130.35**
13-24 1.90** 132,319.40**
25-36 1.95** 135,508.45**
37-48 2.00** 138,697.50**
49 2.05** 141,886.55**
* Base Rent for months one (1) - six (6) is calculated upon 40,000
sq.ft. of the Premises.
** The total monthly Base Rent reflects $7.00 per square foot of the
Additional Allowance utilized for Tenant Improvements (amortized at
ten percent (10%) over 49 months). The portion of the monthly Base
Rent in the amount of $11,135.50 to amortize the Additional Allowance
is charged to the actual square footage of the Premises in months 1-6.
14. Master Lease: Lease dated September 9, 1997 between Applied Materials,
Inc. as Tenant and CarrAmerica Realty Corporation as Landlord
15. Landlord or Master Landlord: CarrAmerica Realty Corporation
2
<PAGE>
1. Sublease Agreement. On the terms stated in this Sublease, Sublandlord
subleases the Premises to Subtenant, and Subtenant leases the Premises from
Sublandlord, for the Term beginning on the Commencement Date and ending on the
Termination Date unless sooner terminated pursuant to this Sublease.
A. Commencement Date. The Commencement Date shall the date
established pursuant to this section, and the Sublease shall expire on the
Termination Date set forth in the Schedule. Subject to Section 1B below, the
Commencement Date shall be the earliest occurring of the following:
(i) The date of Substantial Completion of the Tenant
Improvements, as such term is defined in the Work Letter Agreement attached
hereto as EXHIBIT C ("Work Letter Agreement"); or
(ii) August 1, 1999.
B. Subtenant Delays. If the Commencement Date has not occurred on or
before August 1, 1999 due to Subtenant delays, the Commencement Date shall be
the date on which the Commencement Date would have occurred but for Subtenant
Delays. Subtenant agrees that if Sublandlord is unable to deliver possession of
the Premises to Subtenant by August 1, 1999 (the anticipated Commencement Date
of the Sublease term), this Sublease shall not be void or voidable, nor shall
Sublandlord be liable to Subtenant for any loss or damage resulting therefrom,
but in such event the obligation to pay Rent shall be suspended from the
anticipated Commencement Date until the actual Commencement Date except to the
extent such delay is due to the fault of Subtenant. Delays "due to the fault of
Subtenant" shall be as set forth in Paragraph 15 of the Work Letter Agreement
and shall also include interference with Sublandlord's work caused by Subtenant
or Subtenants employees or contractors. If the Commencement Date has not
occurred on or before November 1, 1999 ("First Termination Date"), Subtenant may
terminate this Sublease by written notice to Sublandlord on or before November
15, 1999; provided, however, that the First Termination Date shall be extended
by a period of time equal to any delays due to the fault of Subtenant or due to
causes beyond the reasonable control of Sublandlord ("force majeure") such as
rain, flooding, fire or other casualty, labor disputes, civil disturbance, war,
war-like operations, invasions, rebellion, hostilities, sabotage, governmental
regulations or control, inability to obtain materials, services or governmental
permits despite diligent efforts to do so, or acts of God. If the Commencement
Date has not occurred by February 1, 2000 ("Final Delivery Date"), through no
fault of the terminating party, either party may terminate this Sublease by
written notice to the other on or before February 15, 2000. If this Sublease is
terminated pursuant to either of the two (2) preceding sentences, Sublandlord
shall return the Advance Rent Deposit and the Security Deposit within ten (10)
business days.
C. Early Occupancy. During the period beginning thirty (30) days
prior to the anticipated Commencement Date (the "Early Occupancy Period"),
provided that Subtenant's occupancy does not interfere with or cause delays to
Sublandlord's construction obligations, Subtenant shall be permitted to enter
the Building upon reasonable notice to Sublandlord and its general contractor
for the sole purpose of installation of its benchwork, equipment calibration,
network cabling, telecommunications, furniture systems, and other installations
necessary for the conduct of Subtenant's business and use adjacent parking and
loading areas in connection
3
<PAGE>
therewith. Notwithstanding any other provision herein to the contrary,
Subtenant's occupancy of the Building during the Early Occupancy Period shall be
subject to all of the terms, covenants and conditions of this Sublease
(including Subtenant's obligations regarding indemnity and insurance), provided,
however, that Subtenant's obligation to pay Rent during the Early Occupancy
Period shall be waived. In any event, Subtenant shall be responsible for any
additional utility charges incurred by Landlord or Sublandlord which is caused
by Subtenant's use of the Building during the Early Occupancy Period.
2. Rent.
A. Types of Rent. Subtenant shall pay the following Rent in the form
of a check (or via wire transfer) to Sublandlord pursuant to instructions to be
given by Sublandlord to Subtenant prior to the Commencement Date.
(1) Base Rent in monthly installments in advance, the first
monthly installment due on or prior to the first day of the second (2nd) month
following the Commencement Date (the Advance Rent Deposit shall be applied
against the first month's Base Rent), and thereafter on or before the first day
of each month of the Term in the amount set forth on the Schedule, as adjusted.
(2) Operating Costs Share Rent in an amount equal to (a)
$4,800.00 annual management fee charged by Sublandlord, plus (b) Subtenant's
Proportionate Share of the Landlord Operating Costs for the applicable fiscal
year of the Sublease, charged to Sublandlord by Landlord ("Landlord Operating
Costs"). Operating Costs Share Rent shall be due monthly in advance in an
estimated amount commencing with the Commencement Date, and thereafter on or
before the first day of each month of the Term. Definitions of Landlord's
Operating Costs and Subtenant's Proportionate Share, and the method for billing
and payment of Operating Costs Share Rent are set forth in Sections 2B, 2C and
2D.
(3) Tax Share Rent in an amount equal to Taxes for the
applicable fiscal year of this Sublease allocated to the Premises, paid semi-
annually as set forth in Section 2B(1) below. A definition of Taxes and the
method for billing and payment of Tax Share Rent are set forth in Sections 2B,
2C and 2D.
(4) Additional Rent in the amount of all costs, expenses,
liabilities, and amounts which Subtenant is required to pay under this Sublease,
excluding Base Rent, Operating Costs Share Rent, and Tax Share Rent, but
including any interest for late payment of any item of Rent.
(5) Rent as used in this Sublease means Base Rent, Operating
Costs Share Rent, Tax Share Rent, and Additional Rent. Subtenant's agreement to
pay Rent is an independent covenant, with no right of setoff, deduction or
counterclaim of any kind.
B. Payment of Operating Costs Share Rent and Tax Share Rent.
(1) Payment of Estimated Operating Costs Share Rent and Tax
Share Rent. Pursuant to the Master Lease, Landlord shall estimate the Landlord
Operating Costs and Taxes (defined in Section 2A(2) by reference to the term
"Operating Costs" defined in
4
<PAGE>
the Master Lease, which definition shall be used hereinafter) by April 1 of each
fiscal year, or as soon as reasonably possible thereafter. Landlord may revise
these estimates whenever it obtains more accurate information, such as an
increase in utility or maintenance costs for the Project common areas; provided
in no event shall the estimate be revised more than once in any calendar year.
Sublandlord shall deliver such estimates to Subtenant promptly upon receipt from
Landlord. Within ten (10) days after receiving the original or revised estimate
from Sublandlord, Subtenant shall pay Sublandlord one-twelfth (1/12th) of
Subtenant's Proportionate Share of this estimate, 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 Subtenant
for the months elapsed. On the first day of each month thereafter, Subtenant
shall pay Sublandlord one-twelfth (1/12th) of Subtenant's Proportionate Share of
this estimate, until a new estimate becomes applicable. Notwithstanding the
foregoing, Landlord's estimate excludes the portion of the Taxes payable semi-
annually to the County of Santa Clara pursuant to property tax bills for the
Project (the "Property Tax Bills"). With respect to Taxes payable in connection
with Property Tax Bills, Sublandlord shall deliver copies of such bills to
Subtenant at least thirty (30) days prior to the Delinquency Date set forth
therein, and Subtenant shall pay to Sublandlord, at least fifteen (15) days
prior to the Delinquency Date, Subtenant's Proportionate Share of the amount
payable thereunder. Any interest or penalties payable by Sublandlord as a result
of Subtenant's failure to timely pay such Taxes to Sublandlord shall be deemed
Additional Rent payable by Subtenant hereunder.
(2) Correction of Operating Costs Share Rent. Sublandlord shall
deliver to Subtenant a report for the previous fiscal year (the "Operating Costs
Report") promptly after receipt from Landlord, which pursuant to the Master
Lease shall be April 1 of each year, or as soon as reasonably possible
thereafter, setting forth (a) the actual Operating Costs incurred and charged to
Sublandlord, (b) the amount of Operating Costs Share Rent due from Subtenant,
and (c) the amount of Operating Costs Share Rent paid by Subtenant. Within
thirty (30) days after such delivery, Subtenant shall pay to Sublandlord the
amount due minus the amount paid. If the amount paid exceeds the amount due
(including credit for any refunds from Landlord to Sublandlord as correction of
Operating Costs Share Rent), Sublandlord shall apply the excess to Subtenant's
payments of Operating Costs Share Rent next coming due.
(3) Correction of Tax Share Rent. Sublandlord shall deliver to
Subtenant a report for the previous fiscal year (the "Tax Report") by April 1 of
each year, or as soon as reasonably possible thereafter, setting forth (a) the
actual Taxes, (b) the amount of Tax Share Rent due from Subtenant, and (c) the
amount of Tax Share Rent paid by Subtenant. Within thirty (30) days after such
delivery, Subtenant shall pay to Sublandlord the amount due from Subtenant minus
the amount paid by Subtenant. If the amount paid exceeds the amount due,
Sublandlord shall apply any excess as a credit against Subtenant's payments of
Tax Share Rent next coming due.
C. Definitions.
(1) Included Operating Costs. "Landlord Operating Costs" means
all Operating Costs as defined in the Master Lease.
5
<PAGE>
(2) 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 or Sublandlord 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, transit taxes, ad valorem
taxes, and any tax levied on the rents hereunder or the interest of Landlord or
Sublandlord under this Sublease (the "Rent Tax"). Taxes shall also include all
--------
fees and other costs and expenses paid by Landlord in seeking a refund or
reduction of any Taxes, whether or not the Landlord is ultimately successful;
provided that the amount paid by Landlord in any calendar year shall not exceed
the greater of (i) $5,000, or (ii) thirty five percent (35%) of the annual
savings achieved during that taxable year as a result of such refund or
reassessment. Taxes shall also include any assessments or fees paid to any
business park owners association, or similar entity, which are imposed against
the Project pursuant to any Covenants, Conditions and Restrictions ("CC&R's")
------
recorded against the Land and any installments of principal and interest
required to pay annual debt service for any existing or future general or
special assessments for public improvements, services or benefits, and any
increases resulting from reassessments imposed in connection with any change in
ownership or new construction.
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) 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), 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.
(4) Lease Year. "Lease Year" means each consecutive twelve-month
period beginning with the Commencement Date, prorated for partial years.
(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) "Project Common Areas" means the areas and facilities within
the Project, exclusive of the Buildings and their interiors, provided and
designated by Landlord for the general use of the tenants of the Project,
including plazas, benches, landscape areas, parking areas, sidewalks, service
areas, and trash disposal facilities, subject to the reasonable rules and
regulations promulgated from time to time by Landlord.
D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If this Sublease begins on a day other than the
first day of a month, the Base Rent, Operating Costs Share Rent and Tax Share
Rent shall be prorated for such partial month based on the actual number of days
in such month. If this Sublease begins
6
<PAGE>
on a day other than the first day, or ends on a day other than the last day, of
the fiscal year, Operating Costs Share Rent and Tax Share Rent shall be prorated
for the applicable fiscal year.
(2) Default Interest. Any sum due from Subtenant to Sublandlord
or Landlord not paid when due shall bear interest from the date due until paid
at a rate ("Interest Rate") equal to the lesser of twelve percent (12%) per
annum or the maximum rate permitted by law.
(3) Rent Adjustments. The square footage of the Building set
forth in the Schedule is conclusively deemed to be the actual square footage
thereof, without regard to any subsequent remeasurement of the Building. If any
Operating Costs paid in one fiscal year relates to more than one fiscal year,
Landlord may proportionately allocate such Operating Costs among the related
fiscal years.
(4) Books and Records. Pursuant to the Master Lease, Landlord
shall maintain books and records reflecting the Operating Costs and Taxes in
accordance with sound accounting and management practices. Sublandlord shall
maintain books and records reflecting the Landlord Operating Costs and Taxes
charged to and paid by Sublandlord. Subtenant and its certified public
accountant shall have the right to inspect Sublandlord's books and records
regarding such matters at Sublandlord's offices in Santa Clara, California
during the ninety (90) days following the delivery of the Operating Costs
Report. If Sublandlord makes such inspection of Landlord's books and records at
Subtenant's request, Subtenant shall reimburse Sublandlord for its out-of-pocket
costs in connection therewith within thirty (30) days after invoice therefor.
Sublandlord may, at its sole discretion, and upon reasonable request from
Subtenant shall, exercise any right Sublandlord may have to inspect Landlord's
books and records under the Master Lease. Subtenant shall use good faith,
reasonable efforts and due diligence to keep confidential the results of any
such inspection of which Subtenant is informed. Unless Subtenant sends to
Sublandlord any written exception to either such report within thirty (30) days
prior to expiration of said ninety (90) day period, such report shall be deemed
final and accepted by Subtenant. Subtenant shall pay the amount shown on both
reports in the manner prescribed in this Sublease, whether or not Subtenant
takes any such written exception, without any prejudice to such exception. If
Subtenant makes a timely exception, Sublandlord, on behalf of Subtenant, shall
exercise its right, with Landlord, to choose an independent certified public
accountant or another firm with at least five (5) years of experience in
auditing the books and records of commercial office projects to issue a final
and conclusive resolution of Subtenant's exception. Subtenant shall pay the cost
of such certification unless Landlord is required to pay such cost pursuant to
the Master Lease.
(5) Miscellaneous. So long as Subtenant is in default of any
obligation under this Sublease, Subtenant shall not be entitled to any refund of
any amount from Sublandlord or Landlord. If this Sublease is terminated for any
reason prior to the annual determination of Operating Costs Share Rent or Tax
Share Rent, either party shall pay the full amount due to the other within
fifteen (15) days after Sublandlord's notice to Subtenant of the amount when it
is determined (including credit for any refunds from Landlord to Sublandlord as
correction of Operating Costs Share Rent). Sublandlord may commingle any
payments made with respect to Operating Costs Share Rent or Tax Share Rent,
without payment of interest. Any costs charged to Sublandlord pursuant to
Section 8A of the Master Lease due to the negligence,
7
<PAGE>
willful misconduct or breach of the Master Lease by Sublandlord or for damage
caused in the performance of any work by Sublandlord, shall not be included in
Operating Costs charged to Subtenant.
3. Construction Of Interior Improvements And Possession.
A. Building Shell. As of the date hereof, Subtenant has received and
approved final drawings, plans and specifications (the "Shell Final Plans") for
the Building and the improvements described in 3.A.(1) below (the "Shell Upgrade
Plans").
(1) The "Building Shell" shall mean the Building structure,
exterior walls, glass, floor slab, utilities (phone, gas, electric, plumbing,
fire, and water) to the Building, and roof, and shall include the parking lot,
landscaping and the base for the street monument sign. Landlord is responsible
for bringing phone, electrical, gas and plumbing service to the Building (i.e.,
stubbed but not distributed) and for installing the main fire sprinkler trunks
(i.e., installed but not distributed or "dropped"). The Building Shell does not
include any elevators, stairs, HVAC, roof screens or thermal insulation.
Notwithstanding the foregoing, Landlord has installed all elevators, and
Sublandlord has installed the improvements listed on EXHIBIT E (the "Shell
Upgrades").
(2) Sublandlord represents that:
i. The Building Shell (including the related landscaping
and hard scape), elevator, and the Shell Upgrades have been constructed in
accordance the Shell Final Plans and Shell Upgrade Plans delivered to and
approved by Subtenant.
ii. The Building Shell and elevator and Shell Upgrades have
been designed and constructed in accordance with applicable Building codes and
laws, including the Americans With Disabilities Act ("ADA") as interpreted by
the applicable governmental authority which issues the building permit.
iii. The Building Shell and elevator and Shell Upgrades have
been constructed in a good and workmanlike manner, and of materials in
accordance with specifications delivered to and approved by Subtenant.
iv. To the best of Sublandlord's actual knowledge, the
Building and its in-place operating systems are in good working order and
condition.
Notwithstanding anything to the contrary herein, Sublandlord's warranties
in (i) through (iii) herein with respect to the Building Shell and elevator are
not warranties independent from Landlord's warranties under the Master Lease,
and Sublandlord's sole obligation under this section, and Subtenant's sole
remedy for breach of such warranties, shall be that Sublandlord shall diligently
pursue its remedies against Landlord for breach of its warranties under the
Master Lease and shall provide to Subtenant any benefit of recovery from
Landlord. Sublandlord shall cooperate with Subtenant in enforcing for
Subtenant's benefit any warranties available to Sublandlord covering the Tenant
Improvements, Building Shell, elevators, and Shell Upgrades.
8
<PAGE>
B. Construction of Interior Improvements. Except for Sublandlord's
obligation to install the Tenant Improvements in accordance with the Work Letter
Agreement, Sublandlord is leasing the Premises to Subtenant "as is" and subject
to the warranties set forth in Section 3A(2) above, without any obligation to
alter, remodel, improve, or decorate any part of the Premises or Project.
Sublandlord shall cause the Tenant Improvements to be completed in accordance
with the terms, conditions and limitations set forth in the Work Letter
Agreement. The Tenant Improvement Allowance shall be in the amount stated in
the Schedule, subject to all terms and conditions of the Work Letter Agreement.
C. Subtenant's Possession/Condition of Premises and Project.
Sublandlord shall deliver the Premises on the Commencement Date broom-clean and
free of debris or construction materials. Subtenant's taking possession of any
portion of the Premises shall be conclusive evidence that the Premises were in
good order, repair and condition, subject only to those "punch list items" noted
in writing to Sublandlord within the thirty (30) day period immediately
following the date on which Subtenant takes possession of such portion of the
Premises.
4. Services And Utilities. As of the Commencement Date (and, if
applicable, during the Early Occupancy Period), Subtenant shall promptly pay, as
the same become due, all charges for water, gas, electricity, telephone, sewer
service, waste pick-up and any other utilities, materials and services furnished
directly to or used by Subtenant on or about the Premises during the Term,
including without limitation, (i) meter, use and/or connection fees, hook-up
fees, or standby fees (excluding any connection fees or hook-up fees which
relate to making the existing electrical, gas, and water service available to
the Premises as of the Commencement Date), and (ii) penalties for discontinued
interrupted service. If any utility service is not separately metered to the
Premises, then Subtenant shall pay Subtenant's proportionate share of the cost
of such utility service with all others served by the service not separately
metered. However, if Sublandlord or Landlord reasonably determine that
Subtenant is using a disproportionate amount of any utility service not
separately metered, then Landlord or Sublandlord at its election may (i)
periodically charge Subtenant, as Additional Rent, a sum equal to Landlord's or
Sublandlord's reasonable estimate of the cost of Subtenant's excess use of such
utility service, or (ii) install, at Subtenant's expense, a separate meter to
measure the utility service supplied to the Premises. Any interruption or
cessation of utilities resulting from any causes, including any entry for
repairs pursuant to this Sublease, and any renovation, redecoration or
rehabilitation of any area of the Project shall not render Sublandlord or
Landlord liable for damages to either person or property or for interruption or
loss to Subtenant's business, nor be construed as an eviction of Subtenant, nor
work an abatement of any portion of Rent, nor relieve Subtenant from fulfillment
of any covenant or agreement hereof; provided, however, in the event that an
interruption of the Project services causes the Premises to be untenantable for
a period of at least ten (10) consecutive business days, monthly Rent shall be
abated proportionately.
5. Alterations.
A. Landlord's Consent and Conditions. Subtenant shall not make any
improvements or alterations to the Premises (the "Work") without in each
instance submitting plans and specifications for the Work to Landlord and
Sublandlord and obtaining Landlord's and Sublandlord's prior written consent,
which shall not be unreasonably withheld, unless (a) the
9
<PAGE>
cost thereof is less than $50,000 per occurrence, (b) such Work does not impact
the base structural components or systems of the Building, (c) such Work will
not impact any other tenant's premises, and (d) such Work is not visible from
outside the Building. Provided that Sublandlord receives all necessary
information and plans from Subtenant, Sublandlord agrees to respond to
Subtenant's request for Sublandlord's prior written consent to such alterations
within seven (7) business days in the case of Work costing between $50,000 and
$100,000, and within ten (10) business days for Work costing over $100,000. For
purposes of the $50,000 and $100,000 thresholds, Subtenant may exclude costs
associated with performing alterations which are solely cosmetic in nature, such
as recarpeting and repainting the Premises. However, even if Sublandlord's or
Landlord's prior written consent is not required, Subtenant shall provide
Sublandlord and Landlord with prior written notice at least seven (7) days in
advance of commencing the Work so that Sublandlord and Landlord may post and
record a notice of nonresponsibility or other notices deemed appropriate before
the commencement of such Work. Subtenant shall pay Landlord's and Sublandlord's
actual out-of-pocket costs incurred for reviewing of all of the plans and all
other items submitted by Subtenant. Landlord and/or Sublandlord will be deemed
to be acting reasonably in withholding its consent for any Work which (a)
impacts the base structural components or systems of the Building, and (b)
impacts any other tenant's premises.
Subtenant shall pay for the cost of all Work, including the cost of any and
all approvals, permits, fees and other charges which may be required as a
condition of performing such Work. Upon completion all Work shall become the
property of Landlord, except for Subtenant's trade fixtures and for items which
Landlord requires Subtenant to remove at Subtenant's cost at the termination of
the Sublease pursuant to Section 5E.
The following requirements shall apply to all Work:
(1) Prior to commencement, Subtenant shall furnish to Sublandlord and
Landlord building permits, certificates of insurance satisfactory to Landlord
and Sublandlord, and, at Landlord's and Sublandlord's reasonable request,
security for payment of all costs.
(2) Subtenant shall perform all Work so as to maintain peace and
harmony among other contractors serving the Project and shall avoid 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) Subtenant shall perform all Work so as to minimize or prevent
disruption to other tenants of the Project, and Subtenant shall comply with all
reasonable requests of Landlord or Sublandlord in response to complaints from
other tenants.
10
<PAGE>
(5) Subtenant shall perform all Work in compliance with any
"Policies, Rules and Procedures for Construction Projects" which may be in
effect at the time the Work is performed.
(6) Subtenant shall permit Landlord and Sublandlord to observe
all Work.
(7) Upon completion, Subtenant shall furnish Landlord and
Sublandlord with contractor's affidavits and full and final statutory waivers of
liens covering all labor and materials, as-built plans and specifications, and
all other close-out documentation related to the Work, including any other
information required under any "Policies, Rules and Procedures for Construction
Projects" which may be in effect at such time.
B. Damage to Systems. If any part of the mechanical, electrical or
other systems in the Premises (e.g., HVAC, life safety or automatic fire
extinguisher/sprinkler system) shall be damaged during the performance of the
Work, Subtenant shall promptly notify Sublandlord, and Sublandlord, or Landlord
at its election, shall repair such damage at Subtenant's expense. Landlord may
also at any reasonable time make any repairs or alterations which Landlord deems
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. The
cost of any repairs made by Landlord or Sublandlord on account of Subtenant's
default, or on account of the mis-use or neglect by Subtenant or its invitees,
contractors or agents anywhere in the Project, shall become Additional Rent
payable by Subtenant on demand.
C. No Liens. Subtenant has no authority to cause or permit any lien
or encumbrance of any kind to affect Landlord's or Sublandlord's interests in
the Building or the Project; any such lien or encumbrance shall attach to
Subtenant's interest only. If any mechanic's lien shall be filed or claim of
lien made for work or materials furnished to Subtenant, then Subtenant shall at
its expense within ten (10) days thereafter either discharge or contest the lien
or claim. If Subtenant contests the lien or claim, then Subtenant shall (i)
within such ten (10) day period, provide Landlord or Sublandlord adequate
security for the lien or claim, (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
Subtenant does not comply with these requirements, Landlord or Sublandlord may
discharge the lien or claim, and the amount paid, as well as attorney's fees and
other expenses incurred by Landlord or Sublandlord, as the case may be, shall
become Additional Rent payable by Subtenant on demand.
D. Ownership of Improvements. All Work as defined in this Section 5,
Building hardware, equipment and machinery serving the Premises, and all other
improvements and all fixtures except trade fixtures, constructed in the Premises
by either Landlord, Sublandlord or Subtenant, (i) shall become Landlord's
property upon installation without compensation to Subtenant, unless Landlord
consents otherwise in writing, and (ii) shall at Landlord's option (which shall
be stated at the time Landlord and Sublandlord consent to such Work) either (a)
be surrendered to Landlord with the Premises at the termination of the Sublease
or of Subtenant's right to possession, or (b) be removed in accordance with
Subsection 5E below (unless Landlord and Sublandlord at the time each gives its
consent to the performance of such construction
11
<PAGE>
expressly waives in writing the right to require such removal). Notwithstanding
the foregoing, all Tenant Improvements installed by Sublandlord and financed in
whole or in part by Landlord or Sublandlord from the Improvement Allowance
described in the Schedule shall be the property of Landlord, Sublandlord, and
Subtenant during the term of this Sublease in the proportions that each has
financed the cost thereof, and shall become the property of Landlord upon
expiration of this Sublease. In the event that this Sublease is terminated prior
to the scheduled expiration date due to a default by Subtenant, Sublandlord
shall have the right to remove all Work, other than the Tenant Improvements to
be constructed in accordance with the Work Letter Agreement ("Initial Tenant
Improvements") at Subtenant's expense.
E. Removal Upon Termination. Upon the termination of this Sublease
or Subtenant's right of possession, Subtenant shall remove from the Premises its
trade fixtures, furniture, moveable equipment and other personal property, any
improvements which Landlord or Sublandlord elects shall be removed by Subtenant
pursuant to Section 5D, and any improvements to any portion of the Project other
than the Premises made by or on behalf of Subtenant. If Subtenant does not
timely remove such property, then Subtenant shall be conclusively presumed to
have, at Sublandlord's election (i) conveyed such property to Sublandlord
without compensation or (ii) abandoned such property, and Sublandlord may
dispose of or store any part thereof in any manner at Subtenant's sole cost,
without waiving Sublandlord's right to claim from Subtenant all expenses arising
out of Subtenant's failure to remove the property, and without liability to
Subtenant or any other person. Neither Landlord nor Sublandlord shall have any
duty to be a bailee of any such personal property. If Sublandlord elects
abandonment, Subtenant shall pay to Sublandlord, upon demand, any expenses
incurred for disposition. Notwithstanding the foregoing, Subtenant shall have no
obligation to remove the Initial Tenant Improvements.
6. Use Of Premises .
A. Limitation on Use. Subtenant shall use the Premises only for the
Permitted Use stated in the Schedule. Subtenant shall not allow any use of the
Premises which will negatively affect the cost of coverage of Landlord's or
Sublandlord's insurance on the Project, unless Subtenant pays any additional
premiums as a result of such use. Subtenant shall not allow any inflammable or
explosive liquids or materials to be kept on the Premises, other than those
materials reasonably required for Subtenant's Permitted Use under this Lease;
provided that such materials are handled in strict accordance with all
applicable governmental requirements. Subtenant shall not allow any use of the
Premises which would cause the value or utility of any part of the Premises to
diminish or would interfere with any other tenant or with the operation of the
Project by Landlord or Sublandlord. Subtenant shall not permit any nuisance or
waste upon the Premises, or allow any offensive noise or odor in or around the
Premises. At the end of each business day, or more frequently if necessary,
Subtenant shall deposit all garbage and other trash (excluding any inflammable,
explosive and/or hazardous materials) in trash bins or containers approved by
Landlord in locations designated by Landlord from time to time. 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 Subtenant's peculiar use, Subtenant 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 under
such laws.
12
<PAGE>
B. Signs. Subtenant shall not place on any portion of the Premises
any sign, placard, lettering, banner, displays or other advertising or
communicative material which is visible from the exterior of the Building
without the prior written approval of Landlord or Sublandlord. Sublandlord
hereby agrees that so long as Subtenant leases one-hundred percent (100%) of the
leasable space in the Building that Subtenant shall have the right (i) to place
its standard name and logo sign on a Landlord-installed street monument base (as
described in the Shell Final Plans) in front of the Building and, subject to
Landlord's and Sublandlord's reasonable approval, (ii) to place its name and
divisional occupant in an appropriate location on the Building. Any approved
signs shall strictly conform to all Governmental Requirements, any CC&R's
recorded against the Project, and any sign criteria which may be established by
Landlord and in effect at the time, and shall be installed (and removed upon the
Termination Date) at Subtenant's expense. Subtenant, at its sole cost and
expense, shall maintain such signs in good condition and repair, including the
repair of any damage caused to the Building and/or Project upon the removal of
such signs).
C. Parking. Subtenant shall have the non-exclusive use of two
hundred fifty-five (255) parking spaces in the Project's parking facilities upon
terms and conditions as may from time to time be established by Landlord.
Subtenant agrees not to overburden the parking facilities (i.e., use more than
its pro rata share of the unallocated parking stalls available) and agrees to
cooperate with Landlord and other tenants in the Project in the use of the
parking facilities. Under the Master Lease, Landlord has reserved the right in
its discretion to determine whether the parking facilities are becoming crowded
and to allocate and assign parking spaces among Subtenant and the other tenants
in the Project. Neither Landlord nor Sublandlord shall be liable to Subtenant,
nor shall this Sublease be affected, if any parking is impaired by moratorium,
initiative, referendum, law, ordinance, regulation or order passed, issued or
made by any governmental or quasi-governmental body.
D. Prohibition Against Use of Roof and Structure of Building.
Subtenant shall be prohibited from using any all or any portion of the roof of
the Building or any portion of the structure of the Building during the Term of
this Sublease for any purposes (including without limitation for the
installation, maintenance and repair of a satellite dish and/or other
telecommunications equipment), without the prior written consent of Landlord and
Sublandlord, which consent Landlord and Sublandlord may withhold in their
reasonable discretion. Notwithstanding the foregoing, Subtenant shall have the
right to penetrate the roof, subject to all of the requirements for Work as set
forth in Section 5A (e.g., submission of plans for Landlord's and Sublandlord's
prior written consent), and to install antennae or satellite dishes for
communication purposes, subject to Landlord's and Sublandlord's reasonable
consent and Subtenant's compliance with all applicable Governmental Requirements
and any reasonable installation and screening requirements imposed by Landlord
or Sublandlord. Subtenant shall be solely responsible for repairing any damage
to the roof and or Building caused by Subtenant's installation, operation or
removal of such communications equipment. Upon the termination of this Sublease
for any reason, Subtenant, at its sole cost and expense, shall remove the
communications equipment from the Building and repair any damage cause to the
roof or Building during such removal.
E. Outside Area. Subject to Landlord's approval of location and
design and ancillary Work requirements, Subtenant may install outside tables and
chairs, the materials and
13
<PAGE>
design of which are consistent with design and materials of the Project, outside
the Building on the side opposite the main entrance on Stewart Drive; this
installation may involve rearrangement of landscaping, hardscape, and parking.
7. Governmental Requirements And Building Rules. Subtenant shall comply
with all Governmental Requirements applying to its use of the Premises.
Subtenant shall also comply with all reasonable rules for the Project which may
be established and amended from time to time by Landlord or Sublandlord. The
present rules and regulations promulgated by Landlord are contained in EXHIBIT
B. Failure by another tenant to comply with the rules or failure by Landlord or
Sublandlord to enforce them shall not relieve Subtenant of its obligation to
comply with the rules or make Landlord or Sublandlord responsible to Subtenant
in any way. Sublandlord shall use reasonable efforts to cause Landlord to apply
the rules and regulations uniformly with respect to Subtenant and tenants in the
Project. In the event of alterations and repairs performed by Subtenant,
Subtenant shall comply with the provisions of Section 5 of this Sublease and any
applicable "Policies, Rules and Regulations for Construction Projects" which may
be established by Landlord and in effect at the time.
8. Repair And Maintenance.
A. Landlord's Obligations. Pursuant to the terms of the Master
Lease, Landlord is obligated to keep in good order, condition and repair (i) the
structural parts of the Building, which structural parts include only the
foundation and subflooring of the Building and the structural condition of the
roof (including the roof membrane), and the exterior walls of the Building (but
excluding the interior surfaces of exterior walls and exterior and interior of
all windows, doors, ceiling and plateglass which shall be maintained and
repaired by Subtenant), (ii) the Building elevator, and (iii) the Project Common
Areas, including all utilities and related utility lines and pipes outside of
the Building ("Landlord's Maintenance Obligations"), and the costs incurred by
Landlord to perform the foregoing obligations with respect to the Building to
the extent they are deemed "Operating Costs" (as defined in Section 2C) shall be
passed through to Subtenant, except that any damage to any of the foregoing
caused by the negligence or willful acts or omissions of Subtenant or of
Subtenant's agents, employees or invitees, or by reason of the failure of
Subtenant to perform or comply with any terms of this Sublease, or caused by
Subtenant or Subtenant's agents, employees or contractors during the performance
of any work may be repaired by Sublandlord, solely at Subtenant's expense, or at
Sublandlord's election, such repairs shall be made by Subtenant, at Subtenant's
expense, with contractors approved by Landlord and Sublandlord. As between
Sublandlord and Subtenant, Sublandlord shall be responsible for performance of
Landlord's Maintenance Obligations if Landlord fails to do so and shall be
entitled to charge Subtenant the cost of such work to the same extent as
Landlord under the Master Lease and on the terms and conditions of this
Sublease. At Sublandlord's election, except in case of roof repairs, which shall
be commenced within five (5) days after notice to Sublandlord, or emergency
repairs which shall be commenced immediately, Sublandlord may first demand in
writing that Landlord perform any work required to be done by Landlord with
respect to Landlord's Maintenance Obligations, and use reasonable efforts to
obtain Landlord performance. Subtenant agrees to exercise reasonable efforts to
give Landlord and Sublandlord prompt notification of the need for any repairs or
maintenance; provided that such notification shall not affect Landlord's
obligation to perform periodic inspections of the Project during the Lease Term.
Subtenant waives the provisions of Sections 1941 and 1942 of
14
<PAGE>
the California Civil Code and any similar or successor law regarding Subtenant's
right to make repairs and deduct the expenses of such repairs from the Rent due
under this Sublease.
B. Subtenant's Obligations. Subtenant shall at all times and at its
own expense clean, keep and maintain in good order, condition and repair every
part of the Premises (including Subtenant's trade fixtures and personal
property) which is not within Landlord's Maintenance Obligation pursuant to
Section 8A. Subtenant's repair and maintenance obligations shall include,
without limitation, all plumbing and sewage facilities within the Premises,
fixtures, interior walls and ceiling, floors, windows (including repairing,
resealing, cleaning and replacing, as necessary, of exterior windows), doors,
entrances, plateglass, showcases, skylights, all electrical facilities and
equipment, including lighting fixtures, lamps, fans and any exhaust equipment
and systems, electrical motors and all other appliances and equipment of every
kind and nature located in, upon or about the Premises. Subtenant shall also be
responsible for all pest control within the Premises and for all trash removal
for the Premises. Subtenant shall obtain at its expense HVAC systems preventive
maintenance contracts with bimonthly or monthly service in accordance with
manufacturer recommendations, which shall be subject to the reasonable prior
written approval of Landlord, and which shall provide for and include
replacement of filters, oiling and lubricating of machinery, parts replacement,
adjustment of drive belts, oil changes and other preventive maintenance,
including annual maintenance of duct work, interior unit drains and caulking at
sheet metal, and recaulking of jacks and vents on an annual basis. Subtenant
shall have the benefit of all warranties available to Landlord or Sublandlord
regarding the equipment in such HVAC systems. Alternatively, Landlord may elect
to perform all repairs and maintenance itself, at Subtenant's expense, to the
Building's mechanical, electrical or other systems in the Premises (e.g., HVAC,
life safety and automatic fire extinguisher/sprinkler systems). Landlord or
Sublandlord may also perform any maintenance or repairs, at Subtenant's expense,
to the extent Subtenant fails to perform such maintenance or repairs, after
notice and opportunity to cure such failure, as required herein.
9. Waiver Of Claims; Indemnification; Insurance.
A. Waiver of Claims. To the extent permitted by law, Subtenant
waives any claims it may have against Sublandlord or their officers, directors,
employees or agents for business interruption or damage to property sustained by
Subtenant as the result of any act or omission of Sublandlord, its agents,
employees or invitees. To the extent permitted by law, Sublandlord waives any
claims it may have against Subtenant or its officers, directors, employees or
agents for loss of rents or damage to property sustained by Sublandlord as the
result of any act or omission of Subtenant, its agents, employees or invitees.
Notwithstanding anything to the contrary in this Sublease, except for
obligations arising under Section 9B below, Sublandlord and Subtenant hereby
release each other from any claims against the other for injury or death to
persons or damage to property occurring in, on or about the Premises or the
Project, and to the fixtures, personal property, improvements, and alterations
of either Sublandlord or Subtenant in or on the Premises or the Project that are
caused by or result from any risks coverable by insurance policies required by
this Sublease or that are actually covered by insurance carried by either party,
regardless of the negligence of the party causing the harm. Each party shall
notify the carrier of its insurance of the existence of this waiver and shall
cause each insurance policy obtained by it to provide that the carrier waives
all right of recovery by way of subrogation against the other party in
connection with any damage covered by any policy.
15
<PAGE>
B. Indemnification. Subtenant shall indemnify, defend and hold
harmless Sublandlord and Landlord and their officers, directors, 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 of
the Premises or from any other act or omission or negligence of Subtenant, its
employees, agents or invitees, or Subtenant's breach of its obligations under
this Sublease, provided that Subtenant's obligations under this paragraph shall
not apply to a claim to the extent it is due to the negligence or intentional
misconduct of Landlord or Landlord's breach of its obligations under the Master
Lease or due to Sublandlord's negligence or willful misconduct or breach of this
Sublease. Subtenant's obligations under this section shall survive the
termination of this Sublease.
Sublandlord shall indemnify, defend and hold harmless Subtenant and its
officers, directors, 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 caused by the negligence or intentional misconduct of Sublandlord or any
of Sublandlord's employees or agents, or Sublandlord's breach of its obligations
under this Sublease, provided that Sublandlord's obligation under this paragraph
shall not apply to a claim to the extent it is due to Subtenants's negligence or
willful misconduct or breach of this Sublease. Subtenant's obligations under
this section shall survive the termination of this Sublease.
C. Subtenant's Insurance. Subtenant shall maintain insurance as
follows, with such other terms, coverages and insurers, as Landlord or
Sublandlord shall reasonably require from time to time:
(1) Commercial general liability insurance, with (a) contractual
liability including the indemnification provisions contained in this Sublease,
(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).
(2) Property Insurance against "All Risks" of physical loss
covering the replacement cost of the Tenant Improvements and all other
improvements and fixtures installed by Subtenant and personal property.
Subtenant waives all rights of subrogation, and Subtenant's property insurance
shall include a waiver of subrogation in favor of Landlord and Sublandlord.
(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 $1,000,000
Disease--Policy Limit $1,000,000
Disease--Each Employee $1,000,000
Such insurance shall contain a waiver of subrogation provision in favor of
Landlord and Sublandlord and their agents.
16
<PAGE>
Subtenant's insurance shall be primary and not contributory to that carried
by Sublandlord, or Landlord, its agents, or mortgagee, if any. Sublandlord its
building manager or agent, Landlord, Landlord's building manager or agent,
mortgagee and ground lessor shall be named as additional insureds as respects to
insurance required of the Subtenant in Sections 9C(1) and 9C(2) (under Section
9C(2) with respect only to Tenant Improvements). The company or companies
writing any insurance which Subtenant is required to maintain under this
Sublease, as well as the form of such insurance, shall at all times be subject
to Landlord's written approval. Such insurance companies shall have a A.M.
Best rating of A VI or better.
(4) Subtenant shall cause any general contractor of Subtenant
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:
a. 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. Such policy or policies
shall also cover any Work which is performed by subcontractors hired by the
general contractor.
b. 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 $ 1,000,000
Disease--Policy Limit $ 1,000,000
Disease--Each Employee $ 1,000,000
Such insurance shall contain a waiver of subrogation provision in favor of
Sublandlord, Landlord and their agents.
Subtenant's contractor's insurance shall be primary and not contributory to
that carried by Subtenant, Sublandlord, or Landlord, its agents or mortgagees.
Subtenant, Sublandlord and Landlord, and if any, Landlord's building manager or
agent, mortgagee or ground lessor shall be named as additional insured on
Subtenant's contractor's insurance policies.
D. Insurance Certificates. Subtenant shall deliver to Landlord and
Sublandlord certificates evidencing all insurance required to be maintained by
Subtenant by the earlier of (a) Subtenant's entry of the Building pursuant to
Section 1C, or (b) five (5) days prior to the Commencement Date, and thereafter
five (5) days prior to the renewal date for such policies thereafter. Each
certificate will provide for thirty (30) days prior written notice of
cancellation to Landlord, Sublandlord and Subtenant.
E. Landlord's Insurance. Pursuant to the Master Lease, Landlord
shall maintain "All-Risk" property insurance at full replacement cost, including
loss of rents for twelve (12) months (including taxes and insurance), on the
Building, and commercial general liability insurance policies of not less that
Five Million Dollars ($5,000,000.00) covering the
17
<PAGE>
common areas of the Project, each with such terms, coverages and conditions as
are normally carried by reasonably prudent owners of properties similar to the
Project, including coverage for personal injury, property damage and contractual
liability endorsement.
F. Waiver of Subrogation. With respect to property and worker's
compensation insurance, Sublandlord and Subtenant mutually waive all rights of
subrogation, and the respective "All-Risk" coverage property insurance policies
and worker's compensation carried by Sublandlord and Subtenant shall contain
enforceable waiver of subrogation endorsements.
10. Fire And Other Casualty.
A. Termination. If a fire or other casualty causes substantial
damage to the Building, pursuant to the terms of the Master Lease, Landlord
shall engage a registered architect to certify within one (1) month of the
casualty to both Landlord and Sublandlord the amount of time needed to restore
the Building to tenantability, using standard working methods without the
payment of overtime and other premiums. Sublandlord shall deliver a copy of
such notice to Subtenant upon receipt. If the time needed exceeds twelve (12)
months from the beginning of the restoration, or two (2) months therefrom if the
restoration would begin during the last twelve (12) months of the Sublease, then
either Sublandlord or Subtenant may terminate this Sublease by notice to the
other party within ten (10) days after the notifying party's receipt of the
architect's certificate. If sufficient insurance proceeds will not be available
to Landlord to cover the cost of any restoration to the Building or the
Premises, because (i) the casualty was not required to be insured against by the
Master Lease and was not actually insured, or (ii) of insolvency or financial
condition of Landlord's insurance carrier, Landlord may terminate the Master
Lease and this Sublease by written notice to Sublandlord. Any termination
pursuant to this Section 10A shall be effective thirty (30) days from the date
of such termination notice and Rent shall be paid by Subtenant to that date,
with an abatement for any portion of the space which has been untenantable after
the casualty.
B. Restoration. If a casualty causes damage to the Building but this
Sublease is not terminated for any reason, then subject to the rights of any
mortgagees or ground lessors, pursuant to the Master Lease, Landlord shall
obtain the applicable insurance proceeds and diligently restore the Building
subject to current Governmental Requirements. Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the Building
Shell, and provided the Building Shell has been substantially completed no later
than one hundred eighty (180) days after the casualty, Subtenant shall, at
Subtenant's expense, replace or fully repair its damaged improvements (including
any Tenant Improvements constructed within the Building Shell), personal
property and fixtures. Subtenant may terminate this Sublease if the Building
Shell Repair is not substantially complete within one hundred eighty (180) days.
Rent shall be abated on a per diem basis during the restoration for any portion
of the Premises which is untenantable. Subtenant shall not be entitled to any
compensation or damages from Landlord or Sublandlord for loss of the use of the
Premises, damage to Subtenant's personal property and trade fixtures or any
inconvenience occasioned by such damage, repair or restoration. Subtenant hereby
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code, and the provisions of any similar
law hereinafter enacted.
18
<PAGE>
11. Eminent Domain. If a part of the Project is taken by eminent domain
or deed in lieu thereof which is so substantial that the Building cannot
reasonably be used by Subtenant for the operation of its business, then either
party may terminate this Sublease effective as of the date of the taking. Rent
shall abate from the date of the taking in proportion to any part of the
Premises taken. If there is a temporary taking of a part of the Project which
is so substantial that the Building cannot reasonably be used by Subtenant for
the operation of its business, then 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, and Subtenant shall have no right to
share in the award, except (i) for the portion of any award based on the value
of the Tenant Improvements financed by Subtenant in excess of the Tenant
Improvement Allowance; provided, however, that nothing contained herein shall be
deemed to give Landlord or Sublandlord any interest in or require Subtenant to
assign to Landlord or Sublandlord any separate award made to Subtenant for the
taking of Subtenant's personal property and trade fixtures, or its relocation
costs, and (ii) in the event of a temporary taking in which there was no Rent
abatement under this Sublease, then Subtenant shall be entitled to any portion
of the award which was intended to compensate Sublandlord for lost rent during
the period of the temporary taking. All obligations accrued to the date of the
taking shall be performed by each party.
12. Rights Reserved To Landlord And Sublandlord. Landlord and
Sublandlord may exercise at any time any of the following rights respecting the
operation of the Project without liability to Subtenant of any kind:
A. Name. To change the name of the Building or the Project;
provided, however, that so long as Subtenant occupies more than fifty percent
(50%) of the Building, then Sublandlord may not change, and will not consent to
a change of, the name of such Building without Subtenant's prior consent, which
consent shall not be unreasonably withheld or delayed.
B. Signs. To install, modify and/or maintain necessary and
appropriate signs on the exterior and in the interior of the Building or on the
Project, and to approve prior to installation, any of Subtenant's signs in the
Premises visible from the exterior of the Building, provided that such
installation by Sublandlord shall not diminish the signage permitted Subtenant
by this Sublease.
C. Window Treatments. To approve, at its discretion, 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.
D. Keys. To retain and use passkeys to enter the Premises or any
door within the Premises in accordance with Section 12E. Subtenant shall not
alter or add any lock or bolt.
E. Access. To have access to the Premises with twenty four hour
prior notice and in accordance with Subtenant's reasonable security program
procedures (except in the case of an emergency in which case Landlord shall have
the right to immediate access) to inspect the Premises, and to perform its
obligations, or make repairs, alterations, additions or improvements, as
permitted by the Master Lease or this Sublease.
19
<PAGE>
F. Preparation for Reoccupancy. To decorate, remodel, repair, alter
or otherwise prepare the Premises for reoccupancy at any time after Subtenant
abandons the Premises in default of this Sublease, without relieving Subtenant
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 Subtenant's property. Subtenant shall move its property
entirely at its own risk.
H. Show Premises. To show the Premises to prospective purchasers,
lenders, mortgagees, investors, or rating agencies at any reasonable time, or
prospective tenants during the last twelve (12) months of the Term; provided
that Landlord or Sublandlord, as the case may be, gives prior notice to
Subtenant, does not materially interfere with Subtenant's use of the Premises,
and complies with Subtenant's security program.
I. Use of Lockbox. To designate a lockbox collection agent for
collections of amounts due Landlord or Sublandlord. 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, if
Subtenant is in default beyond any applicable cure period, Sublandlord may
reject any payment for all purposes as of the date of receipt or actual
collection by mailing to Subtenant within 21 days after such receipt or
collection a check equal to the amount sent by Subtenant.
J. Repairs and Alterations. To make repairs or alterations to the
Project and in doing so transport any required material through the Premises, to
close entrances, doors, corridors, elevator and other facilities in the Project,
to open any ceiling in the Premises, or to temporarily suspend services or use
of common areas in the Building, provided in the case of Sublandlord, it uses
reasonable efforts to avoid unreasonable interference with Subtenant's use.
Without limiting the foregoing, Sublandlord shall have the right to access the
Building for the installation and/or alteration of the conduit connections among
the Buildings within the Project. Landlord or Sublandlord, as the case may be,
may perform any such repairs or alterations during ordinary business hours,
except that Subtenant may require any work in the Premises to be done after
business hours if Subtenant pays Landlord or Sublandlord, as the case may be,
for overtime and any other additional expenses incurred. Landlord may do or
permit any work on any nearby building, land, street, alley or way.
K. Sublandlord's Agents. If Subtenant is in default under this
Sublease, possession of Subtenant's funds or negotiation of Subtenant's
negotiable instrument by any of Sublandlord's agents shall not waive any breach
by Subtenant or any remedies of Sublandlord under this Sublease.
L. CC&R's. At any time when Subtenant is not occupying all of the
Buildings in the Project, Landlord may promulgate and record a set of CC&R's
which will govern the access, parking, design, signage and other rights of the
tenants in the Project, so long as such CC&R's do not impose any new payment
obligation on Subtenant (i.e., a dues requirement) or require Subtenant to
modify any of the then existing improvements.
20
<PAGE>
13. Subtenant's Default. Any of the following shall constitute an Event
of Default by Subtenant:
A. Rent Default. Subtenant fails to pay any Rent within five (5) days
after notice that such payment was not paid when due, provided that Subtenant
acknowledges that such notice shall be in lieu of and not in addition to any
notice required to be given by Sublandlord to commence an unlawful detainer
action (or similar eviction proceeding) under the then applicable law;
B. Assignment/Sublease or Hazardous Substances Default. Subtenant
defaults in its obligations under Section 18 Assignment and Sublease or Section
29 Hazardous Substances;
C. Other Performance Default. Subtenant fails to perform any other
obligation to Sublandlord under this Sublease or commits any act, or fails to
perform any act, which commission or failure would constitute or cause a breach
of the Master Lease, and this failure continues for thirty (30) days after
written notice from Landlord or Sublandlord, except that if Subtenant begins to
cure its failure within the thirty (30) day period but cannot reasonably
complete its cure within such period, then, so long as Subtenant continues to
diligently attempt to cure its failure, the thirty (30) day period shall be
extended to one hundred twenty (120) days, or such lesser period as is
reasonably necessary to complete the cure;
D. Credit Default. One of the following credit defaults occurs:
(1) Subtenant 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 Subtenant or
for any substantial part of its property, or any such proceeding is commenced
against Subtenant and either remains undismissed for a period of sixty (60) days
or results in the entry of an order for relief against Subtenant which is not
fully stayed within seven (7) days after entry;
(2) Subtenant 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 Subtenant's leasehold interest; and
E. Abandonment Default. Subtenant abandons the Premises.
14. Sublandlord Remedies. Upon an Event of Default, Sublandlord shall
have the following remedies, in addition to all other rights and remedies
provided by law or otherwise provided in this Sublease, to which Sublandlord may
resort cumulatively or in the alternative:
A. Sublandlord may continue this Sublease in full force and effect,
and this Sublease shall continue in full force and effect as long as Sublandlord
does not terminate this Sublease, and Sublandlord shall have the right to
collect Rent when due.
21
<PAGE>
B. Sublandlord may enter the Premises or any part thereof and release
them or any part thereof to third parties for Subtenant's account for any
period, whether shorter or longer than the remaining Term. Subtenant shall be
liable immediately to Sublandlord for all costs Sublandlord incurs in reletting
the Premises or any part thereof, including, without limitation, broker's
commissions, expenses of cleaning and redecorating the Premises required by the
reletting and like costs. Subtenant shall pay to Sublandlord the Rent and other
sums due under this Sublease on the date the Rent is due, less the rent and
other sums received by Sublandlord from any releasing. No act by Sublandlord
other than giving written notice to Subtenant shall terminate this Sublease.
Acts of maintenance, efforts to relet the Premises or the appointment of a
receiver on Sublandlord's initiative to protect Sublandlord's interest under
this Sublease shall not constitute a termination of Subtenant's right to
possession.
C. Sublandlord may terminate this Sublease by giving Subtenant written
notice of termination, in which event this Sublease shall terminate on the date
for termination set forth in such notice. Subtenant shall immediately vacate the
Premises and deliver possession to Sublandlord, and Sublandlord may repossess
the Premises and may, at Subtenant's sole cost, remove any of Subtenant's signs
and any of its other property, without relinquishing its right to receive Rent
or any other right against Subtenant. On termination, Sublandlord has the right
to recover from Subtenant as damages:
(1) The worth at the time of award of unpaid Rent and other sums
due and payable which had been earned at the time of termination; plus
(2) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable which after termination until the
time of award exceeds the amount of such Rent loss that Subtenant proves could
have been reasonably avoided; plus
(3) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable for the balance of the Term after the
time of award exceeds the amount of such Rent loss that Subtenant proves could
be reasonably avoided; plus
(4) Any other amount necessary to compensate Sublandlord for all
the detriment proximately caused by Subtenant's failure to perform Subtenant's
obligations under this Sublease, or which, in the ordinary course of things,
would be likely to result therefrom, including, without limitation, any costs or
expenses incurred by Sublandlord: (i) in retaking possession of the Premises;
(ii) in maintaining, repairing, preserving, restoring, replacing, cleaning,
altering or rehabilitating the Premises or any portion thereof, including such
acts for reletting to a new tenant or tenants; (iii) for leasing commissions; or
(iv) for any other costs necessary or appropriate to relet the Premises; plus
(5) At Sublandlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by the laws of
the State of California.
The "worth at the time of award" of the amounts referred to in Sections
14C(1) and 14C(2) is computed by allowing interest at the maximum rate permitted
by law on the unpaid rent and other sums due and payable from the termination
date through the date of award. The
22
<PAGE>
"worth at the time of award" of the amount referred to in Section 14C(3) is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%). Subtenant
waives redemption or relief from forfeiture under California Code of Civil
Procedure Sections 1174 and 1179, or under any other present or future law, in
the event Subtenant is evicted or Landlord takes possession of the Premises by
reason of any default of Subtenant hereunder.
D. Sublandlord's Remedies Cumulative. All of Sublandlord's remedies
under this Sublease shall be in addition to all other remedies Sublandlord may
have at law or in equity. Waiver by Sublandlord of any breach of any obligation
by Subtenant 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. Sublandlord's acceptance of payment by Subtenant beyond any
applicable cure period shall not constitute a waiver of any breach by Subtenant,
and if the acceptance occurs after Sublandlord's notice to Subtenant and
expiration of any applicable cure period, or termination of the Sublease or of
Subtenant's right to possession, the acceptance shall not affect such notice or
termination. Acceptance of payment by Sublandlord after commencement of a legal
proceeding or final judgment shall not affect such proceeding or judgment.
Sublandlord may advance such monies and take such other actions for Subtenant's
account as reasonably may be required to cure or mitigate any default by
Subtenant. Subtenant shall immediately reimburse Sublandlord for any such
advance, and such sums shall bear interest at the default interest rate until
paid.
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
SUBLEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH
THIS SUBLEASE IN A FEDERAL OR STATE COURT LOCATED IN CALIFORNIA, 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. If either party commences litigation to enforce
or interpret any provision of this Sublease, the prevailing party shall recover
from the non-prevailing party its reasonable attorneys' fees and court costs.
15. Surrender. Upon the expiration or earlier termination of this
Sublease for any reason, Subtenant shall surrender the Premises to Sublandlord
in its condition existing as of the Commencement Date (including the Initial
Tenant Improvements even if not completed as of the Commencement Date) but
subject to the provisions of Section 5, normal wear and tear and damage by fire
or other casualty or condemnation or repairs which are the responsibility of
Landlord excepted, with all interior walls repaired and repainted if marked or
damaged, all carpets shampooed and cleaned, all broken, marred or nonconforming
acoustical ceiling tiles replaced, all windows washed, the plumbing and
electrical systems and lighting in good order and repair, including replacement
of any burned out or broken light bulb or ballasts, the HVAC equipment serviced
and repaired by a reputable and licensed service firm acceptable to Landlord,
and all floors cleaned and waxed, all to the reasonable satisfaction of
Landlord. Subtenant shall remove from the Premises all Subtenant's personal
property and all of Subtenant's alterations
23
<PAGE>
required to be removed pursuant to Sections 5D and 5E (but not the Initial
Tenant Improvements), and restore the Premises to its condition prior to their
installation. If Subtenant fails to remove any alterations and/or Subtenant's
personal property, and such failure continues after the termination of this
Sublease, Landlord or Sublandlord may retain or dispose of such property and all
rights of Subtenant with respect to it shall cease, or Sublandlord may place all
or any portion of such property in public storage for Subtenant's account.
Subtenant shall be liable to Sublandlord for costs of removal of any such
alterations and Subtenant's personal property and storage and transportation
costs of same, and the cost of repairing and restoring the Premises, together
with interest at the Interest Rate from the date of expenditure by Sublandlord.
If the Premises are not so surrendered at the termination of this Sublease,
Subtenant shall indemnify Sublandlord against all loss or liability, including
attorneys' fees and costs, resulting from delay by Subtenant in so surrendering
the Premises.
16. Holdover. Subtenant shall have no right to holdover possession of the
Premises after the expiration or termination of this Sublease without
Sublandlord's prior written consent which Sublandlord may withhold in its sole
and absolute discretion. If, however, Subtenant retains possession of any part
of the Premises after the Term, Subtenant shall become a month-to-month tenant
for the entire Premises upon all of the terms of this Sublease as might be
applicable to such month-to-month tenancy, except that Subtenant shall pay all
of Base Rent at one hundred fifty percent (150%) of the rate in effect
immediately prior to such holdover, plus Operating Costs Share Rent and Tax
Share Rent, computed on a monthly basis for each full or partial month Subtenant
remains in possession. Subtenant shall also pay Sublandlord all of Sublandlord's
direct and consequential damages resulting from Subtenant's holdover. No
acceptance of Rent or other payments by Sublandlord under these holdover
provisions shall operate as a waiver of Sublandlord's right to regain possession
or any other of Landlord's remedies.
17. Subordination To Ground Leases And Mortgages.
A. Subordination. Landlord and Sublandlord shall have the right to
cause this Sublease to be subordinate to any future ground lease or mortgage
respecting Landlord's interest in 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. Subtenant shall execute and deliver, within thirty (30) days after
receipt of written demand by Sublandlord or Landlord and in the form requested
by Landlord or Sublandlord, provided that such form is reasonably acceptable to
Subtenant, any additional documents evidencing the priority or subordination of
this Sublease with respect to any such mortgage or deed of trust.
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 Project, 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 Project.
C. Notice and Right to Cure. The Project is subject to any ground
lease and mortgage identified with name and address of ground lessor or
mortgagee in EXHIBIT D to this Sublease (as the same may be amended from time to
time by written notice to Subtenant).
24
<PAGE>
Subtenant agrees to send by registered or certified mail to any ground lessor or
mortgagee identified either in such Exhibit or in any later notice from Landlord
to Subtenant a copy of any notice of default sent by Subtenant to Landlord or
Sublandlord. If Landlord or Sublandlord fails to cure such default within the
required time period under this Sublease, but ground lessor or mortgagee begins
to cure within ten (10) days after such period and proceeds diligently to
complete such cure, then ground lessor or mortgagee shall have such additional
time as is necessary to complete such cure, including any time necessary to
obtain possession if possession is necessary to cure, and Subtenant shall not
begin to enforce its remedies so long as the cure is being diligently pursued.
D. Definitions. As used in this Section 17, "mortgage" shall include
"trust deed" and "deed of trust", and "mortgagee" shall include "trustee",
"beneficiary" and the mortgagee of any ground lessee, and "ground lessor,"
"mortgagee," and "purchaser at a foreclosure sale" shall include, in each case,
all of its successors and assigns, however remote.
18. Assignment And Sublease.
A. In General. Except as permitted by Section 18F below, Subtenant
shall not, without the prior consent of Landlord and Sublandlord in each case,
(i) make or allow any assignment or transfer, by operation of law or otherwise,
of any part of Subtenant's interest in this Sublease, (ii) grant or allow any
lien or encumbrance, by operation of law or otherwise, upon any part of
Subtenant's interest in this Sublease, (iii) sublet any part of the Premises, or
(iv) permit anyone other than Subtenant and its employees to occupy any part of
the Premises. Subtenant shall remain primarily liable for all of its obligations
under this Sublease, notwithstanding any assignment or transfer. No consent
granted by Landlord and Sublandlord shall be deemed to be a consent to any
subsequent assignment or transfer, lien or encumbrance, sublease or occupancy.
Subtenant shall pay all of Landlord's and Sublandlord's attorneys' fees and
other expenses incurred in connection with any consent requested by Subtenant or
in reviewing any proposed assignment or subletting. Any assignment or transfer,
grant of lien or encumbrance, or sublease or occupancy without Landlord's or
Sublandlord's prior written consent shall be void.
B. Sublandlord's Consent. Sublandlord will not unreasonably withhold
its consent to any proposed assignment or subletting. It shall be reasonable for
Landlord or Sublandlord to withhold its consent to any assignment or sublease if
(i) Subtenant is in default under this Sublease, (ii) on the part of Landlord,
the proposed assignee or sublessee is a tenant in the Project or an affiliate of
such a tenant or a party that Landlord has identified as a prospective tenant in
the Project, (iii) the financial responsibility, nature of business, and
character of the proposed assignee or subtenant are not all reasonably
satisfactory to Landlord or Sublandlord, (iv) in the reasonable judgment of
Landlord or Sublandlord the purpose for which the assignee or subtenant intends
to use the Premises (or a portion thereof) is inconsistent with the character of
the Project as a first class business park or would violate the terms of this
Sublease or the Master Lease, or (v) the proposed assignee or subtenant is a
government entity. The foregoing shall not exclude any other reasonable basis
for Landlord or Sublandlord to withhold its consent.
C. Procedure. Subtenant shall notify Landlord and Sublandlord of any
proposed assignment or sub-sublease at least thirty (30) days prior to its
proposed effective date.
25
<PAGE>
The notice shall include the name and address of the proposed assignee or sub-
subtenant, its corporate affiliates in the case of a corporation and its
partners in a case of a partnership, and sufficient information to permit
Landlord and Sublandlord to determine the financial responsibility and character
of the proposed assignee or sub-subtenant. As a condition to any effective
assignment of this Sublease, the assignee shall execute and deliver in form
satisfactory to Sublandlord prior to the effective date of the assignment, an
assumption of all of the obligations of Subtenant under this Sublease. As a
condition to any effective sub-sublease, sub-subtenant shall execute and deliver
in form satisfactory to Sublandlord prior to the effective date of the sublease,
an agreement to comply with all of Subtenant's applicable obligations under this
Sublease, and at Sublandlord's option, an agreement (except for the economic
obligations which sub-subtenant will undertake directly to Subtenant) to attorn
to Sublandlord under the terms of the sublease in the event this Sublease
terminates before the sub-sublease expires.
D. Excess Payments. If Subtenant shall assign this Sublease or sub-
sublet any part of the Premises for consideration in excess of the pro-rata
portion of Rent applicable to the space subject to the assignment or sub-sublet,
then Subtenant shall pay to Sublandlord as Additional Rent fifty percent (50%)
of any such excess immediately upon receipt; provided that Subtenant shall be
first entitled to recover the reasonable costs actually incurred by Subtenant in
connection with the sub-sublet for leasing commissions, interior improvements
and attorneys' fees.
E. Recapture Rights.
(1) If at any time during the Term of this Sublease, Subtenant
desires to sub-sublease all or a portion of the Premises consisting of one floor
or more in the Building (the "Proposed Sub-Sublease Space") to an entity other
than a Subtenant Affiliate as defined in Section 18F, Subtenant shall notify
Sublandlord of its intention ("Subtenant's Notice"), including proposed terms
and conditions for such sub-sublease if such Subtenant's Notice is given
pursuant to Section 18E.3 of this Sublease.
(2) If such proposed sub-sublease is for substantially the balance
of the term of this Sublease, Sublandlord shall have seven (7) days after
receipt of Subtenant's Notice to notify Subtenant in writing of Sublandlord's
election to terminate this Sublease with respect to the Proposed Sub-Sublease
Space. If, however, Sublandlord fails to notify Subtenant of Sublandlord's
election to terminate this Sublease, Sublandlord shall be deemed to have waived
its right to recapture the Proposed Sub-Sublease Space at such time and
Subtenant shall have the right to lease the Proposed Sub-Sublease Space to the
third party without further notice to Sublandlord. For purposes of this
provision, for "substantially the balance of the term of this Sublease" shall
mean that less than six (6) months remain of the term of the Sublease after
expiration of the sub-sublease. If Sublandlord gives notice of its election to
terminate this Sublease with respect to such Sub-Sublease Space, Subtenant shall
have three (3) days to give notice revoking the Subtenant Notice.
(3) If the Proposed Sub-sublease Space is not subject to
"recapture" under 18.E.2, Sublandlord shall have seven (7) days after receipt of
Subtenant's Notice to notify Subtenant in writing of Sublandlord's election to
lease the Proposed Sub-Sublease Space on the terms stated in Subtenant's Notice.
If Sublandlord notifies Subtenant within such seven-day
26
<PAGE>
period of Sublandlord's desire to lease the Proposed Sub-Sublease Space,
Subtenant and Sublandlord shall enter into a lease on the proposed terms an
conditions stated in Subtenant's Notice. If, however, Sublandlord fails to
notify Subtenant of Sublandlord's election to lease the Proposed Sub-Sublease
Space within such seven-day period or, if Subtenant and Sublandlord, through no
fault of Subtenant, fail to execute a lease within thirty (30) days after the
date of Sublandlord's notice to Subtenant, Sublandlord shall be deemed to have
waived its right to lease the Proposed Sub-Sublease Space at such time and
Subtenant shall have the right to lease the Proposed Sub-Sublease Space to the
third party on substantially the terms stated in Subtenant's Notice without
further notice to Sublandlord.
F. Assignments to Affiliates. If no default on the part of Subtenant
has occurred and is continuing, Subtenant may assign this Sublease or sub-sublet
any portion of the Premises to a parent or subsidiary of Subtenant, or to an
entity into which Subtenant is merged or consolidated or to an entity to which
substantially all of Subtenant's assets are transferred (collectively,
"Subtenant Affiliate"), without first obtaining Sublandlord's written consent,
if Subtenant notifies Sublandlord at least ten (10) business days prior to the
proposed transaction, providing information satisfactory to Sublandlord in order
to determine the net worth both of the successor entity and of Subtenant
immediately prior to such assignment, and showing the creditworthiness of the
successor to be, in the reasonable judgment of Sublandlord's treasury
department, adequate to support its obligations under this Sublease.
19. Conveyance By Sublandlord Or Landlord. If Landlord or Sublandlord
shall at any time transfer its interest in the Project or this Sublease,
Landlord or Sublandlord, as the case may be, shall be released of any
obligations occurring after such transfer, except the obligation to return to
Subtenant any security deposit not delivered to its transferee, and Subtenant
shall look solely to Landlord's or Sublandlord's successors, as the case may be,
for performance of such obligations. This Sublease shall not be affected by any
such transfer.
20. Estoppel Certificate. Each party shall, within ten (10) days of
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Sublease
as amended to date is in full force and effect, that the Subtenant is paying
Rent and other charges on a current basis, and that to the best of the knowledge
of the certifying party, the other party has committed no uncured defaults and
has no offsets or claims. The certifying party 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 Costs Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by
Sublandlord, and the amount of any security deposit. Failure to deliver such
statement within the time required shall be conclusive evidence against the non-
certifying party that this Sublease, with any amendments identified by the
requesting party, is in full force and effect, that there are no uncured
defaults by the requesting party, that not more than one month's Rent has been
paid in advance, and that the non-certifying party has no claims or offsets
against the requesting party.
21. Financial Statements. Within ten (10) days after Sublandlord's
written request therefor, Subtenant shall deliver to Sublandlord copies of
Subtenant's most recent financial statements. Sublandlord shall keep
confidential any such information which is not
27
<PAGE>
public. Unless Subtenant is then in default under this Sublease, Sublandlord
shall not have the right to request such data more than two times per year.
22. Lease Deposit.
A. Advance Rent Deposit. Subtenant shall deposit with Sublandlord on
the date Subtenant executes and delivers this Sublease to Sublandlord the cash
sum of Eighty-Five Thousand One Hundred Thirty-Five and 50/100ths Dollars
($85,135.50) ("Advance Rent Deposit"). The Advance Rent Deposit shall be applied
by Sublandlord against the first month's Base Rent payable hereunder.
B. Security Deposit. Upon execution of this Sublease, Subtenant shall
deposit with Sublandlord the cash sum of two times the last month's rent (Two
Hundred Eighty-Three Thousand Seven Hundred Seventy-Three and 10/100ths Dollars
($283,773.10) (the "Security Deposit"). The Security Deposit shall be security
for Subtenant's faithful performance of Subtenant's obligations hereunder. If
Subtenant fails to pay Rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Sublease beyond any applicable
cure periods, Sublandlord may use, apply or retain all or any portion of the
Security Deposit for the payment of any Rent or other charge in default beyond
any applicable cure periods or for the payment of any other sum to which
Sublandlord may become obligated by reason of Subtenant's default beyond any
applicable cure periods, or to compensate Sublandlord for any loss or damage
which Sublandlord may suffer thereby. If Sublandlord so uses or applies all or
any portion of the Security Deposit, Subtenant shall within ten (10) days after
written demand therefor deposit cash with Sublandlord in an amount sufficient to
restore the Security Deposit to the full amount hereinabove stated and
Subtenant's failure to do so shall be a breach of this Sublease. Sublandlord
shall not be required to keep the Security Deposit separate from its general
accounts. If Subtenant performs all of Subtenant's obligations hereunder, said
deposit or so much thereof as had not theretofore been applied by Sublandlord,
shall be returned without payment of interest for its use, to Subtenant (or, at
Sublandlord's option, to the last assignee, if any, of Subtenant's interest
hereunder) within ten (10) days after the expiration of the term hereof or ten
(10) days after the date Subtenant has vacated the Premises, whichever is later.
23. Force Majeure. Neither Sublandlord or Subtenant shall be in default
under this Sublease to the extent that party is unable to perform any of its
obligations on account of any strike or labor problem, equipment, material,
supplies or energy shortages (i.e., such items cannot be obtained at normal
costs within a reasonable time because of limited availability), governmental
pre-emption or prescription, national emergency, or any other cause of any kind
beyond the reasonable control of the party required to act (provided that the
foregoing shall not apply to any monetary obligation) ("Force Majeure").
24. Notices. All notices, consents, approvals and similar communications
to be given by one party to the other under this Sublease, shall be given in
writing, mailed or personally delivered as follows:
28
<PAGE>
A. Sublandlord. To Sublandlord as follows:
Applied Materials, Inc.
Global Real Estate and Facilities
3050 Bowers Avenue, M/S 2753
Santa Clara, California 95054
Attention: Real Estate Manager
or to such other person at such other address as Sublandlord may designate by
notice to Subtenant.
B. Subtenant. To Subtenant as follows:
After Commencement Date Before Commencement Date
----------------------- ------------------------
Vitria Technology, Inc. Vitria Technology, Inc.
945 Stewart Drive, Suite B 500 Ellis Street
Sunnyvale, CA 94086 Mountain View, CA 94043
Attn: Chief Financial Officer Attn: Chief Financial Officer
or to such other person at such other address as Subtenant may designate by
notice to Sublandlord.
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.
Sublandlord shall provide copies of any notices to or from Landlord
alleging defaults under the Master Lease, promptly after transmission or
receipt, as the case may be.
25. Quiet Possession. So long as Subtenant shall perform all of its
obligations under this Sublease, Subtenant shall enjoy peaceful and quiet
possession of the Premises, subject to all of the terms of this Sublease.
26. Real Estate Broker. Subtenant and Sublandlord each represent that it
has not dealt with any real estate broker with respect to this Sublease except
for the brokers 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 Sublease.
Subtenant and Sublandlord 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 Sublease whose claim is based upon the acts or agreements
of the indemnifying party. Sublandlord shall pay the brokers identified in the
Schedule a commission pursuant to a separate agreement to be entered into
between Sublandlord and such brokers.
29
<PAGE>
27. Miscellaneous.
A. Successors and Assigns. Subject to the limits on Subtenant's
assignment contained in Section 18, the provisions of this Sublease shall be
binding upon and inure to the benefit of all successors and assigns of
Sublandlord and Subtenant.
B. Date Payments Are Due. Except for payments to be made by Subtenant
under this Sublease which are due upon demand, Subtenant shall pay to
Sublandlord any amount for which Sublandlord renders a statement of account
within thirty (30) days of Subtenant's receipt of Sublandlord's statement.
C. Meaning of "Sublandlord," "Landlord", "Re-Entry," "including" and
"Affiliate". The term "Sublandlord" means only the owner of the Sublandlord's
interest in this Sublease from time to time. The term "Landlord" means only the
owner of the Project and the lessor's interest in the Master 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 Sublease.
E. No Option. This document shall not be effective for any purpose
until it has been executed and delivered by both parties.
F. Severability. The unenforceability of any provision of this
Sublease shall not affect any other provision.
G. Governing Law. This Sublease 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. No Oral Modification. No modification of this Sublease shall be
effective unless it is a written modification signed by both parties.
I. Sublandlord's Right to Cure. If Sublandlord breaches any of its
obligations under this Sublease, Subtenant shall notify Sublandlord in writing
and shall take no action respecting such breach so long as Sublandlord promptly
begins to cure the breach and diligently pursues such cure to its completion.
Sublandlord may cure any default by Subtenant; any expenses incurred shall
become Additional Rent due from Subtenant on demand by Sublandlord.
J. Captions. The captions used in this Sublease shall have no effect
on the construction of this Sublease.
30
<PAGE>
K. Authority. Sublandlord and Subtenant each represents to the other
that it has full power and authority to execute and perform this Sublease.
L. Sublandlord's Enforcement of Remedies. Sublandlord may enforce any
of its remedies under this Sublease either in its own name or through an agent.
M. Entire Agreement. This Sublease, together with all Exhibits,
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 Sublease.
N. Sublandlord's Title. Landlord's title and Sublandlord's interest
under the Master Lease shall always be paramount to the interest of Subtenant,
and nothing in this Sublease shall empower Subtenant to do anything which might
in any way impair Landlord's title or Sublandlord's interest under the Master
Lease.
O. Light and Air Rights. Neither Landlord nor Sublandlord has granted
by this Sublease any rights to light and air in connection with Project.
P. Singular and Plural. Wherever appropriate in this Sublease, 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 Sublandlord or Subtenant, then the relevant term shall refer to both
parties together.
Q. Exclusivity. Sublandlord does not grant to Subtenant in this
Sublease any exclusive right except the right to occupy its Premises.
R. No Construction Against Drafting Party. The rule of construction
that ambiguities are resolved against the drafting party shall not apply to this
Sublease.
S. Survival. All obligations of Sublandlord and Subtenant under this
Sublease shall survive the termination of this Sublease.
T. 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. Subtenant 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.
U. Building Manager and Service Providers. Sublandlord may perform any
of its obligations under this Sublease through its employees or third parties
hired by the Sublandlord.
V. Late Charge and Interest on Late Payments. Without limiting the
provisions of Section 13A, if Subtenant fails to pay any installment of Rent or
other charge to be paid by Subtenant pursuant to this Sublease within five (5)
business days after the same became due and payable (collectively referred to
herein as a "Late Payment"), then Subtenant shall pay a late charge equal to the
greater of five percent (5%) of the amount of such Late Payment or $250 ("Late
Charge"). In addition, interest shall be paid by Subtenant to Sublandlord on any
Late Payments of Rent from the date due until paid at the rate provided in
Section 2D(2) ("Late
31
<PAGE>
Interest"). Such Late Charge and Late Interest shall constitute Additional Rent
due and payable by Subtenant to Sublandlord upon the date of payment of the Late
Payment. Notwithstanding the foregoing, Subtenant shall not be liable for any
Late Charge or Late Interest for the first two (2) Late Payments during any
calendar year so long as Sublandlord receives such Late Payment within five (5)
days of Subtenant's receipt of Sublandlord's written notice for the same. If
Sublandlord does not receive Subtenant's Late Payment within such five (5) day
period, then Subtenant shall also be liable for the Late Charge and Late
Interest as described above.
W. Consents and Approvals. Any consent or approval provided for in
this Sublease by Sublandlord or Subtenant shall not be unreasonably withheld,
conditioned, or delayed.
28. Unrelated Business Income. If Landlord is advised by its counsel at
any time that any part of the payments by Subtenant to Landlord under this
Sublease may be characterized as unrelated business income under the United
States Internal Revenue Code and its regulations, then Subtenant shall enter
into any amendment proposed by Landlord to avoid such income, so long as the
amendment does not require Subtenant to make more payments or accept fewer
services from Landlord than this Sublease provides.
29. Hazardous Substances.
A. Subtenant's Environmental Indemnity. Subtenant shall not cause or
permit any Hazardous Substances to be brought upon, stored, or used in, on or
under the Project other than such quantities of Hazardous Substances as are
customary and reasonably necessary for the conduct of the Permitted Uses listed
in the Schedule to this Sublease, and which are listed in the Hazardous
Materials Inventory Sheets (collectively, the "HMIS") to be attached hereto as
EXHIBIT F after approval by Landlord and Sublandlord, unless Landlord and
Sublandlord have consented in writing to the storage or use of such Hazardous
Substances, which consent shall not be unreasonably withheld by Sublandlord.
Subtenant shall also provide Landlord and Sublandlord with copies of all
documents or information provided to or documents, information or permits
received from applicable governmental agencies to the extent they relate to the
use, transportation, disposal or storage of Hazardous Substances at the
Premises, including any HMIS's, Material Safety Data Sheets, discharge permits,
Hazardous Materials Management Plans and transportation manifests. Subtenant
shall not cause or permit any Hazardous Substances to be produced, discharged or
disposed of in, on or under the Project by Subtenant, its agents, employees,
contractors, or invitees. Any handling, transportation, storage, treatment,
disposal or use of any Hazardous Substances in or about the Project by
Subtenant, its agents, employees, contractors or invitees shall strictly comply
with all applicable Governmental Requirements. Subtenant shall indemnify, defend
and hold Landlord and Sublandlord harmless from and against any liabilities,
claims, damages, penalties, fines, attorneys' fees and court costs, remediation
costs, investigation costs and any other expenses which result from or arise out
of the use, storage, treatment, transportation, release, or disposal of any
Hazardous Substances on or about the Project by Subtenant, its agents,
employees, contractors or invitees. Sublandlord shall notify Subtenant in
writing promptly upon receipt of notice of any claim to which the
indemnification set forth herein may apply. Sublandlord shall reasonably
cooperate with Subtenant in the course of Subtenant's defense and
indemnification as provided hereunder.
32
<PAGE>
Subtenant shall have the right to settle any claim to which this paragraph may
apply, subject to Sublandlord's consent, which shall not be unreasonably
withheld.
B. "Hazardous Substances" means any hazardous or toxic substances,
materials or waste which are or become regulated by any local government
authority, the state in which the Project is located or the United States
government, including those 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.
C. Pre-existing Contamination. Subtenant hereby acknowledges that
Sublandlord has informed Subtenant that certain chlorinated volatile organic
compounds are present in the groundwater under the Land as of the date of this
Sublease. Subtenant hereby covenants for the benefit of Landlord and Sublandlord
that it will not use or store any chlorinated volatile organic compounds on the
Premises or within the Project.
Subtenant agrees and acknowledges that: (i) neither Sublandlord nor any of
Sublandlord's representatives have made any representations or warranties about
the environmental condition of the Land or the accuracy or completeness of any
environmental reports made available to Subtenant regarding the Land; (ii) it
has had ample time and access to the Land, to review the environmental condition
of the Land and to conduct any tests which Subtenant may deem desirable in
connection with this Sublease; (iii) it is sophisticated, knowledgeable and
experienced in the analysis of environmental matters and that Subtenant has
entered into this Sublease with the intention of making and relying upon its own
(or its experts') investigation of the environmental condition of the Land; and
(iv) Subtenant is not relying upon any representations or warranties purportedly
made by Sublandlord or anyone acting or claiming to act on Landlord's behalf
concerning the Land.
D. Sublandlord's Environmental Indemnity. Subject to the terms,
conditions and limitations set forth below and except to the extent such
contamination was caused, exacerbated, or contributed to by Subtenant, or
Subtenant's employees, agents, contractors or invitees, Sublandlord shall
indemnify Subtenant from and against (a) any liability, claims, damages,
penalties, fines, attorneys' fees and costs, remediation costs, investigation
costs and other expenses arising from any use, storage, treatment,
transportation, release or disposal of Hazardous Substances on or about the
Project by Sublandlord, its agents, contractors, employees or invitees, and (b)
all costs ("Response Costs") to respond to any order of any applicable state or
federal agencies relating to the remediation, removal, disposal or monitoring
("Compliance Order" relating to any contamination) (i) of the soil or
groundwater of the Project existing as of the Effective Date (the "Pre-existing
Contamination"), or (ii) any hydraulic oil released to the Land during the Term
as a direct result of the installation, maintenance or operation of the elevator
in the Building. For purposes of the preceding sentence, the term "Sublandlord's
contractors" excludes Landlord under the Master Lease. Sublandlord's liability
under the foregoing indemnity (i) is personal to Subtenant and Subtenant
Affiliates (after assignment to such Subtenant Affiliate) and may not be
assigned to or relied upon by any other third party without Sublandlord's prior
written consent, which may be withheld in Sublandlord's sole and absolute
discretion, (ii) is limited to Subtenant's actual, out of pocket costs incurred
in
33
<PAGE>
complying with any Compliance Order, and to reasonable consultants fees and
costs and reasonable attorneys' fees and costs incurred in defending against a
proposed Compliance Order, so long as Sublandlord may select the attorney to
defend Subtenant and have sole authority to make all settlement and other
decisions in regard to the proceedings, including the decision whether to
challenge the Compliance Order (and any related order or action) by appeal or
court challenge, and (iii) specifically excludes any claims, costs, damages or
losses for personal injury, property damage, punitive damages, damage to
business, lost profits or consequential damages incurred by Subtenant or any
third party. Sublandlord shall have no liability under the foregoing indemnity
with respect to the Pre-existing Contamination if Subtenant causes or permits
the use, storage, handling, or disposal of chlorinated volatile organic
compounds on, in or under the Project.
30. Exculpation. Landlord shall have no personal liability under this
Sublease. Sublandlord's liability under this Sublease; limited to the greater of
(1) its interest in the Master Lease and subleases pursuant thereto, or (2) Five
Million Dollars ($5,000,000.00). In no event shall any officer, director,
employee, agent, shareholder, partner, member or beneficiary of Landlord or
Sublandlord be personally liable for any of Landlord's or Sublandlord's
obligations hereunder. The foregoing limitation shall not limit Sublandlord's
liability pursuant to the indemnity obligation under Sections 9B and 29D
(collectively the "Indemnity Obligations").
31. Sublandlord Obligations. Sublandlord shall use commercially reasonably
efforts to cause Landlord under the Master Lease to perform all of the
obligations of Landlord thereunder to the extent said obligations apply to the
Premises and Subtenant's use of the Project Common Areas. Sublandlord shall not,
without Subtenant's prior written consent, which shall not be unreasonably
withheld, amend, modify, revise or terminate the Master Lease in any way that
would either materially negatively affect Subtenant's rights or position under
the Sublease or materially increase Subtenant's duties or obligations under the
Sublease.
In addition, Sublandlord shall not waive any provisions under the Master
Lease or make any elections, exercise any right or remedy or give any consent or
approval under the Master Lease which would either materially and negatively
affect Subtenant's rights or position under this Sublease or materially increase
Subtenant's duties or obligations under this Sublease without, in each instance,
Subtenant's prior written consent, which shall not be unreasonably withheld.
32. Sublandlord's Representations And Warranties. Sublandlord represents
and warrants with respect to the Premises that: (a) the Master Lease is in full
force and effect, and there exists under the Master Lease no default or event of
default by either Landlord or Sublandlord, nor has there occurred any event
which, with the giving of notice or passage of time or both, could constitute
such a default or event of default; (b) the copy of the Master Lease attached
hereto as EXHIBIT H is a true and complete copy of the Master Lease, and the
Master Lease has not been amended except as set forth therein; (c) Sublandlord
has not received any notice of pending or threatened actions, suits or
proceedings before any court or administrative agency against Sublandlord or
against Landlord or third parties which could, in the aggregate, adversely
affect the Premises or any part thereof; and (d) Sublandlord has not received
any notice of pending condemnation or similar proceeding affecting the Project
or any portion thereof, and Sublandlord has no knowledge that any such action is
contemplated.
34
<PAGE>
33. Subtenant Cure Right. In the event that Sublandlord fails to perform
or observe any of Sublandlord's obligations under the Master Lease or fails to
perform Sublandlord's stated obligations under this Sublease, then Subtenant may
give Sublandlord notice specifying in what manner Sublandlord has defaulted, and
if such default shall not be cured by Sublandlord within thirty (30) days
thereafter (except that if such default cannot be cured within such thirty (30)
day period, this period shall be extended for an additional reasonable time,
provided that Sublandlord commences to cure such default within such thirty (30)
day period and proceeds diligently thereafter to effect such cure as quickly as
practicable), then Subtenant shall be entitled to cure such default and
Subtenant's reasonable expenses in so doing shall be due upon demand. Subtenant
shall not be required, however, to wait the entire cure period described herein
if earlier action is required to comply with the Master Lease or with any
governmental regulations.
34. Landlord Consent. This Sublease and Sublandlord's and Subtenant's
obligations hereunder are conditioned upon the written consent of Landlord.
Sublandlord shall use diligent efforts to obtain the consent from Landlord as
soon as practicable. If Sublandlord fails to obtain the consent within thirty
(30) days after execution of this Sublease by Subtenant, then either party may
terminate this Sublease by giving the other party written notice thereof at any
time prior to Subtenant's receipt of the consent, and Sublandlord shall promptly
return the Lease Deposit to Subtenant.
In Witness Whereof, the parties hereto have executed this Sublease.
SUBTENANT: SUBLANDLORD:
VITRIA TECHNOLOGY, INC., APPLIED MATERIALS, INC.,
A CALIFORNIA CORPORATION A DELAWARE CORPORATION
By: /s/ Paul R. Auvil By: /s/ Thomas M. _________
-------------------------- ----------------------------
Print Name: Paul R. Auvil Print Name: Thomas M. ________
------------------ --------------------
Print Title: Chief Financial Officer Print Title:
------------------------
By: /s/ Jo Mei Chang By:
----------------- ---------------------------------
Print Name: Jo Mei Chang Print Name:
------------------------- -------------------------
Print Title: President CEO Print Title:
------------------------
35
<PAGE>
Exhibit A
DESCRIPTION OF PROJECT AND PREMISES/BUILDINGS
(attach diagram of Project and approximate footprint of Buildings)
<PAGE>
Exhibit B
RULES AND REGULATIONS
I. 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 judgment,
appear unsightly from outside of the Project.
II. The Project directory, if any, shall be used by Landlord to display names
and locations of tenants in the Project. No tenant shall use or make any changes
to such directories without Landlord's prior written consent.
III. The sidewalks, halls, passages, exits, entrances, elevator and stairways
shall not be obstructed by Tenant or used by Tenant for any purposes other than
for ingress to and egress from the Premises, unless Tenant is the sole occupant
of the Building. 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. Neither Tenant nor
any employee or invitee of Tenant shall go upon the roof of the Project.
IV. 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 or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
V. Tenant shall not install or operate any refrigerating, heating or air
conditioning apparatus, or carry on any mechanical business without the prior
written consent of Landlord; use the Premises for housing, lodging or sleeping
purposes. 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.
VI. Tenant shall not use any method of heating or air conditioning other than
that supplied or approved by Landlord.
VII. Without the prior written consent of Landlord, Tenant shall not use the
name of the Project or any exterior picture of the Project in connection with,
or in promoting or advertising the business of, Tenant, except Tenant may use
the address of the Project as the address of its business.
VIII. 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.
IX. No bicycle (except in those areas which may be designated for bicycles by
Landlord) or other vehicle and no animals or pets shall be allowed in the
Premises, halls, freight docks, or any
1
<PAGE>
other parts of the Building except that blind persons may be accompanied by
"seeing eye" dogs. Unless Tenant is the sole occupant of the Building, 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 reputation of the Building.
X. Tenant shall not do or permit the manufacture or sale of any fermented,
intoxicating or alcoholic beverages without obtaining written consent of
Landlord.
XI. Tenant shall not disturb the quiet enjoyment of any other tenant, if any,
in the Building and/or Project.
XII. No equipment, mechanical ventilators, awnings, special shades or other
forms of window covering shall be permitted outside the windows of the Premises
without the prior written consent of Landlord, 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.
XIII. Tenant shall not during the term of this Sublease canvas or solicit other
tenants of the Building for any purpose.
XIV. 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, 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.
XV. Tenant shall promptly remove all rubbish and waste from the Premises.
XVI. 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 Permitted Uses of the Premises specified in the
Schedule of this Sublease, without the prior written consent of Landlord.
XVII. Tenant shall not overload any floors in the Premises or any public
corridors or elevator in the Building.
XVIII. 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.
2
<PAGE>
Exhibit C
WORK LETTER AGREEMENT
This Exhibit C Work Letter Agreement ("Work Letter") is attached to and
made a part of that certain Sublease (the "Sublease") between Applied Materials,
Inc. a Delaware corporation ("Sublandlord) and Vitria Technology, Inc., a
California corporation ("Subtenant"). Terms used in this Work Letter that are
defined in the Sublease shall have the same meaning as provided in the Sublease.
The purpose of this Work Letter is to set forth the agreement between
Sublandlord and Subtenant with respect to the construction and installation of
the Tenant Improvements to be installed on the Premises.
1. Improvement. Sublandlord shall improve the Premises in accordance with
plans and specifications approved by Landlord, Sublandlord, and Subtenant (such
improvements are referred to herein as the "Tenant Improvements") and in
accordance with this Work Letter and subject to the requirements of the Lease
between Landlord and Sublandlord and its Exhibit C Tenant Improvement Agreement
("Master Lease").
2. Tenant Improvements. For purposes of this Work Letter and the Sublease,
Tenant Improvements shall not include the Building Shell and Sublandlord
Upgrades as defined in the Sublease. The Tenant Improvements shall include, but
not be limited to, the following:
a. sprinkler drops and heads below drop ceiling;
b. roof mounted HVAC, including main trunk lines, secondary distribution
lines and controls;
c. ceilings;
d. lighting;
e. building insulation;
f. interior walls and partitions;
g. plumbing
h. painting;
i. floor covering;
j. interior doors;
k. all venting, including exhaust lines and hoods;
l. electrical secondary system from transformer (including underground
pull section and conductors), panels, main switchboard, switches, and
distributions;
<PAGE>
m. gas distribution;
n. telephone switch room, panel, distribution system;
o. electrical rooms, phone, rooms, and mechanical rooms;
p. Building common area improvements (including lobbies, corridors,
bathrooms, janitorial closet, base HVAC system and secondary concrete and steel
exit stairs;)
q. emergency generators;
r. window coverings;
s. interior and exterior signage; and
t. special data and communications systems.
3. Schematic Plan. Sublandlord and Subtenant have each approved the schematic
space plans for the Premises dated April 2, 1999 (the "Schematic Plan") prepared
by Liz Gibbons of CAS Architects ("Sublandlord's Space Planner").
4. Design Development Drawings. On or before April 9, 1999, Subtenant shall
provide Sublandlord's Space Planner or Architect with all information reasonably
required in order to prepare design development drawings and specifications (the
"Design Development Drawings") showing the specific Tenant Improvements which
Subtenant desires to have Sublandlord construct in the Premises in order to
complete. Subtenant shall contract directly for design of interior finishes and
details ("Upgrade Finish Designs"). The Design Development Drawings shall be
based upon the Schematic Plan. The information which Subtenant is to convey to
Sublandlord's Space Planner within the five (5) business day period shall
include all information regarding Subtenant's proposed use of the Premises and
the character of the Tenant Improvements necessary to develop the Design
Development Drawings, including such general information as number and general
size and types of offices, computer rooms, conference rooms, storage areas
office equipment rooms, lunch or break rooms, laboratories, lobby size and
layout, and specific information, including upgrades from Building Standards
(defined in Paragraph 8), and shall, without limitation, including the
following:
a. type of all partitions;
b. type of all doors, including hardware;
c. type of glass partitions, windows and doors, including framing;
d. requirements and type of Subtenant's telephone equipment, including
Subtenant's telephone company approval and, if required, all governmental
approvals therefor,
e. requirements and type of electrical outlets (including, without
limitation, floor monuments), switches, telephone outlets and lighting;
2
<PAGE>
(f) requirements and type of special electrical outlets for Subtenant's
equipment with special electrical requirements, including manufacturer's
specifications for use and operation;
(g) weight per square foot and description of any equipment exceeding fifty
(50) pounds per square foot;
(h) all special air conditioning or ventilation requirements;
(i) floor covering types and colors;
(j) wall covering and base types and colors;
(k) paint types and colors;
(l) requirement and type of plumbing and kitchen equipment;
(m) all millwork and built-in equipment with size, hook-up requirements and
finishes approved by Subtenant;
(n) all bracing and support of special walls and dimensions;
(o) height and type of ceiling, if different from Building Standard;
(p) special purpose rooms including, without limitation, computer rooms,
kitchens, and laboratories, and notation if services of special technical
consultants will be required;
(q) any special fire sprinkler equipment and its location;
(r) Subtenant's security requirements;
(s) special cabling, data, and communication equipment requirements; and
(t) such other detail as Sublandlord's Space Planner shall reasonably
request.
All Design Development Drawings shall be subject to Sublandlord's written
approval which approval shall not be unreasonably withheld so long as such
Design Development Drawings are consistent with and represent a logical
evolution of the Schematic Plan. If Sublandlord disapproves Subtenant's Design
Development Drawings, Sublandlord shall promptly inform Subtenant of such
disapproval and the grounds therefor. Subtenant shall have three (3) business
days thereafter to deliver to Sublandlord's Space Planner any information
necessary to revise the Design Development Drawings. Subtenant shall have three
(3) business days after receipt to notify Sublandlord of its approval or
disapproval of the Design Development Drawings. If Subtenant fails to disapprove
the proposed Design Development Drawings within such three (3) business day
period, Subtenant shall be deemed to have approved such proposed Design
Development Drawings. If Subtenant disapproves the proposed Design Development
Drawings, it shall concurrently deliver to Sublandlord its written proposal for
required changes and the parties shall negotiate in good faith to reach
agreement on the Design Development Drawings.
3
<PAGE>
5. Work Cost Estimate. Following approval of the Design Development Drawings,
Sublandlord shall submit to Subtenant a written estimate of the costs of the
Tenant Improvements work (the "Work Cost Estimate"). Within two (2) business
days after receipt of such estimate, Subtenant shall either approve the Work
Cost Estimate, or disapprove specific items and submit to Sublandlord's Space
Planner information necessary to prepare revisions of the Design Development
Drawings to reflect the deletion of and/or substitution of such disapproved
items. Any such deletions and/or substitutions shall be subject to Sublandlord's
approval as hereinabove required. Following approval of the revised Design
Development Drawings, Sublandlord shall submit to Subtenant a revised Work Cost
Estimate. Failure of Subtenant to disapprove any items on a Work Cost Estimate
within two (2) business days after receipt shall be deemed approval of such Work
Cost Estimate by Subtenant. Subtenant acknowledges that the Work Cost Estimate
is an estimate of the Tenant Improvement Costs, and that the contingency amount
specified therein may not be sufficient to provide for all changes in the
Tenant improvements and/or other unforeseen costs and expenses arising after
Subtenant's approval thereof. Subtenant acknowledges that any request by
Subtenant for above-standard improvements, as well as all change orders, will,
more likely than not, result in the Tenant Improvements Costs exceeding the
Improvements Allowance.
6. Construction Drawings. Following approval of the Schematic Plan and Work
Cost Estimate, CAS Architects ("Landlord's Architect")shall prepare detailed
drawings sufficient for construction of the Tenant Improvements ("Construction
Drawings"). Subtenant shall contract directly for design of the plumbing,
electrical, and HVAC systems on a "design/build" basis and Finish Upgrade
Designs, and the Construction Drawings may include only specifications for these
systems. Sublandlord shall also deliver to Subtenant with the Construction
Drawings an updated Work Cost Estimate ("Updated Work Cost Estimate") based upon
the Construction Drawings. Subtenant shall have three (3) business days after
receipt of the Construction Drawings and Updated Work Cost Estimate to approve
or disapprove the Construction Drawings and Updated Work Cost Estimate. If
Subtenant disapproves the Construction Drawings or updated Work Cost Estimate,
Subtenant and Sublandlord shall have two (2) business days to resolve the
disapproval.
7. Time Schedule. Preparation and approval of the Design Development Drawings
and Construction Documents shall proceed as indicated below and each action
completed by Subtenant on or before the date herein specified.
Action Due Date
- ------ --------
A: By Subtenant:
a) Submission of information to Five (5) business days after approval of
Sublandlord's Space Planner. Schematic Plan.
b) Submission, if necessary, of Three (3) business days after receipt of
information to redesign Design Sublandlord's notice of disapproval.
Development Drawings.
c) Delivery of written notice Three (3) business days after receipt.
approving or
4
<PAGE>
disapproving Design Development Drawings.
(d) Delivery of written notice Two (2) business days after receipt.
approving or disapproving Work Cost
Estimate.
(e) Delivery of written notice Three (3) business days after receipt.
approving or disapproving Construction
Drawings.
(f) Resolution of any disapproval of Two (2) business days after Subtenant
Construction Drawings. Disapproval.
(g) Delivery of design criteria for On or before April 6, 1999.
plumbing, Electrical, and HVAC systems.
(h) Delivery of Final Plans and On or before April 19, 1999.
Specifications for plumbing,
electrical, and HVAC systems and Final
Upgrade Finish Designs.
B: By: Sublandlord:
(a) Delivery of written notice Within five (5) days after delivery of
approving or disapproving Final Plans Final Plans for plumbing, electrical,
and Specifications and Final Upgrade and HVAC system and Final Upgrade
Finish Designs plans for plumbing, Finish Designs.
electrical, and HVAC systems.
8. Construction. Following approval of the Construction Drawings,
Sublandlord shall enter into a contract with South Bay Construction Company
("Contractor") for construction of the Tenant Improvements ("Construction
Contract"). The Construction Contract be a guaranteed maximum price contract in
the amount of the approved Updated Work Cost Estimate, with allowances for the
design/build systems. The Construction Contract shall require that Contractor
provide a minimum warranty of one year with respect to the Tenant Improvements
and require that the Contractor provide a replacement warranty with the same
coverage for any existing warranty covering the Building Shell or other
improvements invalidated by work performed by the Contractor. Except as
specified in the Construction Drawings, the Tenant Improvements will be
constructed using Building-standard materials and procedures ("Building
Standards") as more particularly described in Schedule "1" attached hereto and
incorporated herein by reference.
All Tenant Improvements shall be completed in a good and workmanlike
manner and in compliance with the Master Lease. All materials and equipment
incorporated into the Tenant Improvements (i) will be new and free of defects,
(ii) will conform to all applicable codes, (iii) will conform to the approved
final Construction Drawings approved by Sublandlord and Subtenant, including all
changes or modifications thereto approved by Sublandlord and Subtenant, and (iv)
comply with requirements of the Master Lease.
5
<PAGE>
Sublandlord shall be responsible for obtaining all necessary permits and
approvals (including the building and occupancy permits) and other
authorizations from governmental agencies needed in connection with the Tenant
Improvements. The costs of all such permits and approvals required in connection
with the Tenant Improvements, including inspection and other building fees
required to obtain the permits for the Tenant Improvements, shall be included as
part of the costs of the Tenant Improvements.
9. Project Management. Sublandlord shall enter into a contract with South Bay
Construction ("Project Manager") for project management for the design
preparation and construction process.
10. Change Orders. Any changes to the Construction Drawings subsequent to
Sublandlord's and Subtenant's approval thereof which are requested by Subtenant,
required by any governmental agency, or proposed for any other reason whatsoever
shall be incorporated into the work only by means of a change order ("Change
Order"). All proposed Change Orders shall be forwarded to Sublandlord for
approval and costing. Sublandlord shall have two (2) business days for approval
or disapproval. Sublandlord shall not unreasonably withhold or delay consent to
any Change Order proposed by Subtenant, and Subtenant shall not unreasonably
withhold or delay consent to a Change Order proposed by Sublandlord. Subtenant
shall be given a written cost estimate and time required for the completion of
such Change Order, and Subtenant shall have two (2) business days for approval
or disapproval. The cost of any Change Order which would not otherwise be
covered by the Improvements Allowance shall be paid by Subtenant in full with
the next subsequent installment of Subtenant's Construction Cost Share (defined
in Section 11 below). No revisions to the approved Construction Drawings shall
be made by either Sublandlord or Subtenant unless approved in writing by both
parties. Sublandlord or Subtenant agrees to make all changes required by any
public agency to conform with governmental regulations. Any costs related to
such changes shall be added to the Tenant Improvements Cost. Costs related to
changes shall include, without limitation, any architectural or design fees, and
the Contractor's price for effecting the change.
11. Improvements Allowance. Sublandlord shall provide an allowance for the
planning and construction of the Tenant Improvements in the amount of One
Million Five Hundred Ninety-Four Thousand Five Hundred Twenty-Five Dollars
($1,594,525.00) ("Base Allowance"). In addition, Sublandlord shall provide an
additional improvement allowance (Additional Allowance") of Seven Dollars
($7.00) per square foot of the Premises for a total Additional Allowance of up
to Four Hundred Sixty-Six Thousand Four Hundred Sixty-Seven Dollars
($446,467.00). The Additional Allowance shall be fully amortized over the term
of the Sublease at an interest rate of ten percent (10%) per annum as an element
of Base Rent. The Base Allowance and the Additional Allowance shall be referred
to collectively as the "Improvements Allowance". The Improvements Allowance
shall be the maximum contribution by Sublandlord for the Tenant Improvements
Cost, as defined in Paragraph 12. If the Tenant improvements Cost as specified
in the Construction Contract exceeds the Improvements Allowance, Subtenant shall
pay the amount by which the Tenant Improvements Cost exceeds the Improvements
Allowance ("Subtenant's Construction Cost Share). Subtenant shall deliver to
Sublandlord in cash twenty-five percent (25%) of any Subtenant's Construction
Cost Share prior to commencement of construction. Subtenant shall pay the
balance of Subtenant's Construction Cost Share in two (2) monthly installments
of twenty-five percent (25%) each, and a final installment upon Substantial
6
<PAGE>
Completion. Sublandlord shall bill Subtenant for such installments plus any
excess of the cost of the plumbing, electrical, and HVAC systems in excess of
the allowances in the Construction Contract, and payment shall be due ten (10)
days after Sublandlord's billing therefor. Any unpaid amount shall bear interest
from the date due at the Interest Rate specified in the Sublease. The
Improvements Allowance shall not be used for payment of any costs of procuring,
constructing or installing in the Premises any of Subtenant's personal property,
including furnishings, fixtures, and equipment.
12. Improvements Cost. The improvement cost ("Tenant Improvements Cost") to be
paid by Sublandlord from the Improvements Allowance shall include, but not be
limited to:
(a) All costs, including all Sublandlord's Architect and Space Planner
fees, of the Schematic Plan, Design Development Drawings, Construction Drawings
and specifications for the Tenant Improvements, including as-built drawings, and
engineering costs for mechanical, electrical and plumbing design and for State
of California energy utilization calculations under title 24 legislation,
including any fees resulting from Change Orders requested by Subtenant or
required by any government agency;
(b) All costs of obtaining building permits and other necessary
authorizations from the City of Sunnyvale and other governmental agencies;
(c) All costs of constructing and installing the Tenant Improvements paid
to Contractor pursuant to the Construction Contract, including, but not limited
to, the construction fee for overhead and profit and the cost of all on-site
project management, supervisory and administrative staff, office, equipment and
temporary services rendered by the Contractor in connection with construction of
the Tenant Improvements;
(d) Sewer, water, or other utility or municipal connection fees, in
accordance with Section 4 of the Sublease;
(e) The fee for the Project Manager as provided in Paragraph 9; and
(f) The fee for Subtenant's design contractor for the plumbing, electrical,
and HVAC systems and Finish Upgrade Designs.
The Tenant Improvements Cost shall not include nor shall any portion of the
Improvements Allowance be used for (i) charges and expenses for Change Orders
that have not been approved by Subtenant, (ii) costs resulting from any breach
of contract by Contractor or any of its subcontractors or by Architect or any
design or construction defects, (iii) costs for which Sublandlord received
reimbursement from others (including, without limitation, insurers and
warrantors), (iv) the cost of bringing the exterior of the Premises and
surrounding area into compliance with applicable Governmental Regulations, and
(v) costs resulting from a casualty or act of God.
13. Termination. If the Sublease is terminated prior to the Commencement Date
due to the default of Subtenant pursuant to this agreement or the Sublease,
Subtenant shall pay to Sublandlord, within thirty (30) days of receipt of a
statement therefor, any costs incurred by Sublandlord through the date of
termination in connection with the Tenant Improvements. Any
7
<PAGE>
extra costs incurred due to the casualty shall not be included as part of the
Tenant Improvements Cost.
14. Rink of Loss. The risk of loss of the Premises before the Commencement Date
(as defined in the Sublease) shall be borne by Sublandlord. At all times prior
to the Commencement Date, Sublandlord, at its sole cost and expense, shall
maintain contingent liability and broad form "builder's risk" insurance with
coverage in an amount equal to the replacement cost of the Tenant Improvements.
If the Premises are damaged or destroyed prior to the Commencement Date, and if
the Premises, in the reasonable opinion of Sublandlord's Architect, cannot be
substantially completed prior to February 1,2000, Subtenant shall have the right
to terminate the Sublease. If the Premises are damaged or destroyed and the
Sublease is not terminated pursuant to the tam of the Sublease, then Sublandlord
shall promptly and diligently complete construction of the Tenant Improvements
in accordance with the Lease and this Work Letter.
15. Commencement Date Determination. "Substantial Completion" shall mean the
state of completion existing when (i) the Tenant Improvements (exclusive of
custom features, such as entrance stair, water feature, and boardroom upgrades)
have been completed in accordance with the approved final Construction Drawings,
as certified by Sublandlord's Architect and Sublandlord's Contractor, (ii) all
utilities are hooked up and available for use, and (iii) Subtenant may lawfully
occupy the Premises. Substantial Completion shall be deemed to have occurred
notwithstanding a requirement on the part of Sublandlord to complete "punch
list" or similar corrective work. The date of Substantial Completion of the
Tenant Improvements shall be fixed by Sublandlord's Project Manager.
The Commencement Date shall be the earlier of: (a) the date of Substantial
Completion of the Tenant Improvements, or (b) August 1, 1999.
If Substantial Completion of the Tenant Improvements is delayed as a result
of:
a. Subtenant's failure to submit the information necessary for the
preparation of the Design Development Drawings or Construction Drawings within
the time periods called for;
b. Subtenant's failure to deliver preliminary or final plans and
specifications for the plumbing, electrical, and HVAC systems or Finish Upgrade
Designs;
c. Subtenant's change(s) in the Construction Drawings after such dates;
d. Subtenant's failure to either approve the Design Development Drawings,
Work Cost Estimate, Construction Drawings, or Updated Work Cost Estimate, or
Change Orders, to submit revisions, or to resolve disapproval within the times
prescribed;
e. Subtenant's specification of materials other than Building Standard
materials or relocation of Building Core from Building Standard location, which
increase the construction period or result in delay;
f. special permit requirements for Subtenant's operations and improvements;
8
<PAGE>
(g) Subtenant's failure to deliver the twenty-five percent (25%) of
Subtenant's share of Tenant Improvement Cost prior to the scheduled date for
commencement of work or to timely pay any other installment of Subtenant's
Construction Cost Share; and
(h) any other delays requested or caused by the acts or omissions of
Subtenant, its agents, employees, consultants or designers, including
Subtenant's activities in the Premises during the Early Occupancy Period
provided for in Section 1 of the Sublease.
(all of the foregoing being referred to herein collectively as "Subtenant's
Delay"),
or as a result of:
x. Sublandlord's failure to approve or disapprove a Change Order within
the time prescribed; or
y. Sublandlord's failure to approve or disapprove Final Plans and
specifications for the plumbing, electrical, and HVAC systems or Finish Upgrade
Designs prepared by Subtenant's designer within the times prescribed (the
foregoing being referred to collectively as "Sublandlord Delay")
then the Commencement Date shall be the earlier of:
(1) August 1, 1999 plus the number of days equal to the days of Sublandlord
Delay less the number of days equal to the days of Subtenant Delay; or
(2) the date upon which Subtenant commences business operations in the
Premises.
In calculating days of Subtenant Delay or Sublandlord Delay, credit shall
be given (i.e., deduction made) for subsequent actions or approvals faster than
the schedule requires and which regain time lost due to previous delay. For
example, if Subtenant is responsible for three days of delay on an occasion, but
on a subsequent occasion takes only one day when two is allowed and one day of
schedule is regained, then the number of days of Subtenant Delay would be two
(2) days.
16. Acceptance of Possession. As soon as the Tenant Improvements are
Substantially Complete (exclusive of custom features, such as entrance stair,
water feature, and boardroom upgrades) and Sublandlord has given Subtenant
reasonable prior written notice of the time and date therefor, Sublandlord and
Subtenant shall together walk through and inspect the Premises. After such
inspection has been completed, each party shall sign an acceptance agreement,
which shall (i) include a list of all "punch list" items which the parties agree
are to be corrected by Sublandlord, and (ii) shall state the Commencement Date
as provided above. Sublandlord shall use reasonable efforts to complete and/or
repair such "punch list" items within thirty (30) days after executing the
acceptance agreement. After completion of the custom features, Sublandlord and
Subtenant shall prepare a punch list for these elements. The parties'
preparation of such a "punch list" and execution of an acceptance agreement
shall be deemed an acceptance by Subtenant of the Premises as complete and free
from defects except as noted in the punch list, but shall not in any way affect
the following warranty obligations of Sublandlord: Notwithstanding anything to
the contrary in the Sublease, effective upon delivery of the Premises to
Subtenant, Sublandlord does hereby warrant (i) that the Tenant Improvements were
9
<PAGE>
constructed in accordance with all applicable Governmental Requirements, (ii)
that the Tenant Improvements were constructed in accordance with the approved
final Construction Drawings and in a good and workmanlike manner, (iii) that all
material and equipment installed in the Premises conformed to the approved final
Construction Drawings, was new and otherwise of good quality and was installed
in accordance with all vendor's and manufacturer's specifications, instructions
and requirements, and (iv) that all material and equipment installed in the
Premises has been paid for and is free of liens, security interests or chattel
mortgages. All construction, product and equipment warranties and guarantees
obtained by Sublandlord shall, to the extent obtainable, provide that such
warranties and guarantees shall also run to the benefit of Subtenant and its
successors and assigns. Subtenant shall have the benefit of any construction,
product and equipment warranties and guarantees in favor of Sublandlord that
would assist Subtenant in correcting defects and in discharging any of
Subtenant's obligations regarding the repair and maintenance of the Premises.
Upon written request by Subtenant, Sublandlord shall inform Subtenant of all
written construction, product and equipment warranties and guarantees in favor
of Sublandlord which affect the Premises. Notwithstanding anything to the
contrary contained in the Sublease, Subtenant's acceptance of the Premises shall
not be deemed a waiver of the foregoing warranty, and Sublandlord shall promptly
repair all violations of the warranty set forth in this paragraph at its sole
cost and expense.
SUBTENANT: SUBLANDLORD:
Vitria Technology, Inc., Applied Materials, Inc.,
a California corporation a Delaware corporation
By: /s/ Paul R. Auvil By: /s/ Thomas R. ----------
-------------------------------- ---------------------------------
Name: Paul R. Auvil Name: Thomas R. --------
------------------------------ -------------------------------
Title: Chief Financial Officer Title:
----------------------------- -------------------------------
By: /s/ Jo Mei Chang By:
-------------------------------- ---------------------------------
Print Name: Jo Mei Chang Print Name:
------------------------ -------------------------
Title: President & CEO Title:
----------------------------- ------------------------------
10
<PAGE>
Schedule "1" to Exhibit C
BUILDING STANDARD IMPROVEMENTS
Unless otherwise agreed by both Subtenant and Sublandlord, the following
materials, or comparable substitute materials, shall be used by Sublandlord in
completing the Improvements for the Premises.
Drywall Partitions: Building-standard interior partitions to consist
of 3 5/8" metal studs, with one layer 5/8"
gypsum board each side. All partitions to be
taped and prepared for light texture paint
finish.
Door: Interior door assembly to be paint grade wood-
veneer, solid-core doors, 3 feet wide by 7'
height.
Door Frame: Hollow metal knock-down, painted building-
standard color.
Door Hardware: Chrome lever handle latchset, three pair butt
hinges.
Entry Door Assembly: Door assembly to be determined, frame and
lockset included.
Ceiling Grid System: Mechanically suspended, 2' x 4' Armstrong
"Prelude" building-standard grid throughout the
Premises.
Ceiling Tiles: Armstrong 2' x 4' mineral-fiber acoustical lay-
in "Cortega" tiles.
Light Fixtures, Recessed, ceiling-mounted, 2' x 4' fluorescent
fixture with three lamps and prismatic lens,
installed in building-standard acoustic ceiling.
Wall Switches: Switching to be dual rocker switch to meet Title
24 requirements, controlling building standard
fixtures.
Wall Duplex Outlet: Duplex power receptacle mounted at standard
Height (18" A.F.F. mounted vertically) in
drywall partition with normal circuiting from
core low voltage panel.
Wall Telephone Data Outlet: Telephone/data outlet to be dry-wall ring
mounted at standard height (18"A.F.F. mounted
vertically) in drywall partition with pull
string to above ceiling.
Paint: Building-standard paint to consist of one coat
of stipple acrylic latex selected from building
color samples.
Base: Building-standard base 4" high, resilient rubber
selected from building sample colors.
11
<PAGE>
Resilient Tile: Building-standard resilient tile will be
provided in lieu of carpeting where required,
selected from building sample colors.
Carpet: Building-standard carpet, 26 ounces per square
yard, selected from building sample colors.
Window Treatment: Building-standard horizontal mini-blinds typical
at all exterior windows.
HVAC: Individual, custom-designed, roof mounted
package or heat-pump unit with one thermostatic
control per zone.
Sprinkler System: Semi-recessed sprinkler heads in white
escutcheon, installed in building-standard
ceiling tiles.
12
<PAGE>
Exhibit D
MORTGAGES CURRENTLY AFFECTING THE PROJECT
[None]
<PAGE>
Exhibit E
SHELL UPGRADES
<TABLE>
<CAPTION> AMAT AMAT
Approved Date
CQ# Description Status Cost Approved Remarks
- --- ----------- ------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
1004 toilet mm blk outs completed 7,200 2/4/98 Installed as requested
1005 undgr drainage sewer completed 107,467 2/4/98 Scope incl vending/janitor closet,
add't sewer undrg, clean outs
1006 reception desk comm conduit completed 3,739 12/19/98 Communication and electrical
conduit to reception desks
1009 ungr comm conduit completed 71,601 12/19/98 Scope incl. 6-4" addtl conduit
w/jnct box to DeGuine N&S Campus
1011 upgrd rf joists for mech. eqmt. completed 8,964 12/19/98 Upgrades roof joist sizes within
mechanical screen area
1014 elevator oil leak monitoring completed 7,578 4/3/98 AMAT requirement
1020 second flr infills Bldgs A&D completed 64,987 4/3/98 Changed lobby locations for Bldgs
A&D
1025 elevator eqpmt (7) bldg completed 530,428 4/3/98 Installed elevators per HPC core
plans, incls. Machine Rooms, sound
deading, secondary machinery
containment, & ventilation
1026 add't stairs - 2 per building completed 183,036 4/3/98 Scope for 14 stairs incl stringers,
treads, infill, temporary handrail
steel handrails per drawings left
in each building for future use
1028 infrastr for grease interceptor completed 15,516 2/4/98 Install additional underground
sewer south and east of Bldg G
1030 site conduit for 4000amp completed 27,638 2/4/98 Install 2 additional 6" conduits on
north side of North Campus for
future upgrade of electrical
service to 4,000 amps per bldg.
1033 blk out slab at Bldg F for CET completed 9,078 1/7/98 Included pour of concrete if not
clean rooms and Bldg G for Kitchen left open
1039 extr dr panic hardware completed 41,039 4/1/98 Per discussions with Tobbi Beck
from Security
1040 power assist drs at main entries completed 40,513 4/1/98 Per discussions with Tobbi Beck
from Security
1051 site security upgrades completed 40,393 4/1/98 Per discussions with Tobbi Beck
from Security
1055 electrical room 7 bldgs completed 20,987 4/3/98 Enclose all Elect. Rms, per code.
Split costs with CarrAmerica
CarrA addit A/E fees for shell & site completed 14,250 4/3/98 Additional services for all shell
changes and site changes requested by AMAT
Total Change Order Costs 1,194,414
</TABLE>
<PAGE>
Exhibit F
LIST OF HAZARDOUS SUBSTANCES AND QUANTITIES USED BY TENANT
Customary types and quantities of office supplies and cleaning materials.
<PAGE>
Exhibit G
MASTER LEASE
[To Be Attached]
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 22, 1999, relating
to the financial statements of Vitria Technology Inc., which appears in such
Prospectus. We also consent to the references to us under the heading "Experts"
in such Prospectus.
PricewaterhouseCoopers LLP
San Jose, California
June 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 MAR-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999<F1>
<CASH> 12,792 11,444
<SECURITIES> 0 0
<RECEIVABLES> 6,306 5,706
<ALLOWANCES> (333) (451)
<INVENTORY> 0 0
<CURRENT-ASSETS> 18,945 16,988
<PP&E> 1,270 1,570
<DEPRECIATION> (303) (462)
<TOTAL-ASSETS> 5,973 5,255
<CURRENT-LIABILITIES> 6,609 6,217
<BONDS> 0 0
0 0
11 11
<COMMON> 15 16
<OTHER-SE> 13,365 11,996
<TOTAL-LIABILITY-AND-EQUITY> 20,000 18,240
<SALES> 7,627 5,209
<TOTAL-REVENUES> 7,627 5,209
<CGS> 2,905 1,606
<TOTAL-COSTS> 14,597 6,443
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 350 118
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (9,569) (2,711)
<INCOME-TAX> (9,569) (2,711)
<INCOME-CONTINUING> (9,569) (2,711)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,569) (2,711)
<EPS-BASIC> (0.80) (0.21)
<EPS-DILUTED> (0.80) (0.21)
<FN>
<F1> Unaudited
</FN>
</TABLE>
