<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BRIO TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0210797
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3430 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 856-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
KAREN J. WILLEM
CHIEF FINANCIAL OFFICER
BRIO TECHNOLOGY, INC.
3430 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 856-8000
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MARK B. WEEKS MARK A. BERTELSEN
JON E. GAVENMAN JOSE F. MACIAS
PATRICK R BARRY S. DAWN SMITH
VENTURE LAW GROUP WILSON SONSINI GOODRICH & ROSATI
A PROFESSIONAL CORPORATION PROFESSIONAL CORPORATION
2800 SAND HILL ROAD 650 PAGE MILL ROAD
MENLO PARK, CA 94025 PALO ALTO, CA 94304
(650) 854-4488 (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 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration 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 following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.001............................... $33,350,000 $9,838.25
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 3, 1998
[LOGO OF BRIO TECHNOLOGY]
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SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
Of the shares of Common Stock, par value $0.001 per share ("Common
Stock"), of Brio Technology, Inc. ("Brio" or the "Company") offered hereby
(the "Offering"), shares are being offered by the Company and shares
are being offered by certain stockholders of the Company (the "Selling
Stockholders"). The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders. See "Principal and
Selling Stockholders" and "Underwriting." Prior to this Offering, there has
been no public market for the Common Stock. It is currently estimated that
the initial public offering price will be between $ and $ per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied to
have the Common Stock approved for listing on the Nasdaq National Market
under the symbol "BRYO."
FOR INFORMATION CONCERNING CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE PROCEEDS
TO UNDERWRITING TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total(3) $ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to additional shares of Common Stock
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to the
approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. Delivery of the shares of Common
Stock offered hereby to the Underwriters is expected to be made in New York,
New York on or about , 1998.
DEUTSCHE MORGAN GRENFELL
BANCAMERICA ROBERTSON STEPHENS
FIRST ALBANY CORPORATION
PIPER JAFFRAY INC.
The date of this Prospectus is , 1998
<PAGE>
[COLOR ARTWORK]
[DESCRIPTION OF COLOR ARTWORK]
The inside front cover contains the same centered, dissected circle as the
gatefold center graphic. However, in this circle the icons are eliminated, as
is the upper-right arrow. The outside perimeter contains the same phrases:
"Client/Server Access" and "Web or Intranet Access." There are 5 text phrases
embedded within the circle. Analoging to a clock face, the text phrases are
positioned as follows:
At twelve o'clock is a set of 4 stacked phrases: (i), (ii), (iii) and (iv).
At two o'clock is the phrase: Query, Analysis & Reporting Directly from
Data Sources
At half-past three is: Query, Analysis & Reporting from Existing Data
Models
At six o'clock is: Ad Hoc Analysis from Pre-Built Reports
At ten o'clock is: Web or Intranet Access
The very top potion of the page contains a text box with the words
"Enterprise Business Intelligence." Below it and on the left are two
paragraphs. The text in the paragraph is as follows:
Delivering effective enterprise business intelligence requires a new
approach--the information supply chain. This information delivery and
analysis strategy incorporates individuals who manage and produce
information--Information Producers--and individuals who use information as
a part of their daily business life--Information Consumers.
This information supply chain approach allows Information Producers to
leverage their strengths in data management, applications and report
development and infrastructure management while enabling end users to focus
an answering key business questions--on their own.
Below that text is an empty space, then a third paragraph as follows:
Information Consumers. The largest group of users in any organization
require:
Below the paragraph are set square bullet points:
. Ad hoc analysis
. Off-line analysis and reporting
. Consistent user interface
. Accessibility via the Web
. Intuitive and easy to learn products
. Timely delivery of information and reports
Below the bullet points is another text box stretching across the left half
of the page with the words "Information Consumers."
On the upper right portion of the page, directly below the large text box is
a smaller text box stretching across the right half of the page with the words
"Information Producers." Below the text box is the phrase:
Information Producers--IT professionals and departmental power users--who
deliver business information to the organization require solutions that
provide:
Below this phrase are 7 square bullet points staggered at various points to
the right, roughly shadowing the perimeter of the wheel. The bullet points
read:
. Scalable architecture
. Simple support and maintenance
. Leverage existing technology
. Secure report distribution
. Centralized control
. Quick implementation
. Comprehensive, integrated tools
[END OF DESCRIPTION OF COLOR ARTWORK INSIDE FRONT COVER]
Adaptive Reporting, Brio, Brio Enterprise, Brio.Insight, BrioQuery,
BrioQuery Designer, BrioQuery Explorer, BrioQuery Navigator, Brio.Quickview,
Broadcast Server, DataPrism, OnDemand Server and the Company's logo are
trademarks of the Company. All other brand names or trademarks appearing in
this Prospectus are the property of their respective holders.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
Except as otherwise noted herein, information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, (ii) a one-for-two
reverse stock split to be effected in March 1998, (iii) the reincorporation of
the Company from California to Delaware, (iv) the conversion of all
outstanding shares of Preferred Stock of the Company into shares of Common
Stock of the Company upon the closing of this Offering, (v) the exercise of a
warrant to purchase 10,000 shares of Common Stock and (vi) the filing, upon
the closing of this Offering, of a restated certificate of incorporation
authorizing 2,000,000 shares of undesignated Preferred Stock.
2
<PAGE>
[DESCRIPTION OF GATEFOLD GRAPHICS]
The graphic heading starts with the phrase "Brio Enterprise for the
Enterprise." Directly underneath this heading is the sentence: "Brio
Enterprise is Brio Technology's comprehensive client/server and web-based
suite of products that meets the needs of both Information Producers and
Information Consumers. In the center of the gatefold there is a circle divided
into 8 various-sized wedges. In the center of the circle is an icon
representing the Brio Enterprise Server product with the text "Brio Enterprise
Server" set out in a block directly below the icon. In the upper right portion
of the circle is an icon representing the BrioQuery product with the text
"BrioQuery" set directly below the icon in a text block. An arrow runs
counter-clockwise through the upper right quadrant of the circle. On the left
side of the circle, still within the circle itself at approximately a
70(degrees) angle from the top of the circle, lies an icon representing the
Brio.Quickview product, again placing the text in a block directly below the
icon. Curved arrows radiate from each side of the icon, one clockwise and the
other counter-clockwise, each covering about 30(degrees) of the circle. An
icon representing the Brio.Insight product lies in the bottom portion of the
circle. Directly below the icon lies the text "Brio.Insight." Arrows radiate
from each side of the icon in the same fashion as the arrows from the
Brio.Quickview icon, but each of these arrows extends for approximately
90(degrees) of the circle. Around the perimeter of the circle is a solid band
encasing two phrases. The upper right portion contains the phrase
"Client/Server Access" and the lower left portion contains the phrase "Web or
Intranet Access."
Directly below the graphic heading and extending across the width of the
page is a graphic consisting of two boxes linked by a double-headed arrow. The
box on the left side of the page carries the text "Information Consumers" and
the box at the right side carries the text "Information Producers." This
graphic represents the two major subsets of individuals Brio's products serve.
The page is roughly divided into 4 quadrants, each representing different
products that meet a slightly different mix of needs, as evinced by their
positioning under the "Information Consumers"--"Information Producers"
continuum. In the lower left quadrant, closest to the left-hand side of the
page, lies the Brio.Quickview icon, along with two different screen shots
demonstrating the product the screen shots are diagonal from one another and
overlap slightly. The icon is below them and to the left. Above and to the
right is the following text:
Brio.Quickview
Browser-based report viewing and refresh of data views provides Web users
timely, formatted reports. Brio's Executive Information System interface
launches other applications and provides one-touch report selection.
Above the text and slightly to the right are two more screen shots, these
taken from Brio Enterprise Server, again diagonally placed and slightly
overlapping. Above the intersection of the screens and to the right lies the
following text:
Brio Enterprise Server
Brio Enterprise Server bridges Information Producers to Information
Consumers with "push" and "pull" server technology. Brio's server solutions
enables query over the Web and pushes information to Information Consumers
via client's server connection, the Web, email, fileservers, or printers.
Brio Enterprise Server provides IT with "zero administration" Web-based
clients, and a full range of capabilities for managing user profiles,
security and usage.
Centered above the text is the Brio Enterprise server, intersecting the
double-sided arrow that spreads across the top portion of the page.
The upper right quadrant has a similar array. The BrioQuery icon is in the
lower left corner of the array, with two screen shots linked diagonally above
and to the right. In the upper right quadrant of the array lies the text:
BrioQuery Designer, Explorer and Navigator
With one intuitive interface, BrioQuery delivers integrated query, analysis
and reporting via existing client/server environments. For IT departments,
BrioQuery provides database administration functionality, security,
auditing and repository set-up, including the ability to build data models
and reports to be shared across the organization.
The lower right quadrant is a mirror image of the upper right quadrant. The
upper right portion contains the Brio.Insight icon, then come the two
interlocked diagonal screens, then on the lower left portion lies the text:
Brio.Insight
Utilizing adaptive reporting technology, Brio's Web-client product,
Brio.Insight adapts its functionality--report by report--based on security
and user profiles. Users experience the same query, analysis and reporting
as BrioQuery--but based in the Web browser.
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with and is qualified in
its entirety by the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
THE COMPANY
Brio designs, develops, markets and supports software products that enable
organizations to rapidly implement enterprise business intelligence solutions.
Brio provides a solution that is architected for the enterprise, designed for
business users, and engineered for IT departments. The Company's software
suite, consisting of server products and a range of Web, email, and client-
server based software, minimizes the user's dependence and corresponding impact
on IT departments by operating within existing hardware and software
infrastructures. These user-centric, cross-platform products provide dynamic
query, analysis, and reporting functionality in a distributed processing
architecture. Brio's strategy is to be a leading provider of enterprise
business intelligence solutions by (i) extending its technology leadership,
(ii) broadening its distribution channels, (iii) expanding its product
deployments throughout the enterprise, (iv) leveraging its industry
relationships, (v) increasing its international presence and (vi) providing its
customers with premium support and service. The Company principally sells and
markets its software and services through a direct sales and services
organization located in the United States, Canada, the United Kingdom, France
and Australia as well as worldwide through its indirect channel, including
value added resellers, resellers and distributors. The Company's customers
currently include: ARCO, Avis Rent A Car Systems, California State University
System, Comcast Cable Communications, Hewlett-Packard, Hoffman LaRoche, IBM,
Motorola, Sun Microsystems, the U.S. Army and Worldcom Network Services.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered ............................. shares (including shares by the
Company and shares by the Selling
Stockholders)
Common Stock outstanding after the Offering....... shares(1)
Use of proceeds................................... General corporate purposes, including working
capital, capital expenditures, and repayment
of certain indebtedness. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............ BRYO
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------ -------------------
1995 1996 1997 1996 1997
------ ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenues................ $3,512 $ 4,527 $13,386 $ 8,709 $18,560
Gross profit.................. 3,115 3,816 11,730 7,594 16,189
Operating expenses............ 3,445 7,045 17,720 11,063 22,703
Loss from operations.......... (330) (3,229) (5,990) (3,469) (6,514)
Net loss...................... (370) (3,196) (5,965) (3,426) (6,740)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 1,472 $
Total current assets................................... 9,254
Total current liabilities.............................. 11,324
Noncurrent liabilities................................. 1,609
Stockholders' equity (deficit)......................... (554)
</TABLE>
- -------
(1) Based on the number of shares outstanding as of December 31, 1997. Excludes
(i) 1,204,562 shares issuable upon exercise of options outstanding as of
December 31, 1997 with a weighted average exercise price of $1.79 per
share, (ii) 10,000 shares issuable upon exercise of an outstanding warrant
as of December 31, 1997 with an exercise price of $.60 per share (which
warrant the Company expects will be exercised immediately prior to
completion of this Offering), (iii) 130,229 shares available for issuance
under the Company's 1992 Stock Option Plan, (iv) 2,250,000 shares reserved
for issuance upon exercise of options that may be granted under the newly
adopted 1998 Stock Option Plan, (v) 300,000 shares reserved for issuance
upon exercise of options that may be granted under the newly adopted 1998
Directors' Stock Option Plan, and (vi) 500,000 shares reserved for issuance
under the newly adopted 1998 Employee Stock Purchase Plan. See
"Management--Stock Plans" and Note 8 of Notes to Consolidated Financial
Statements.
(2) As adjusted to reflect the sale of shares of Common Stock offered by
the Company hereby, at an assumed initial public offering price of $ per
share and after deducting the estimated underwriting discount and estimated
offering expenses, and receipt of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
3
<PAGE>
THE COMPANY
Brio Technology, Inc. designs, develops, markets and supports software
products that enable organizations to rapidly implement enterprise business
intelligence solutions. The Company's software solution is a comprehensive
client-server and Web-based suite of products designed to enable large numbers
of business professionals to access and analyze data in order to make faster
and more informed business decisions.
In today's increasingly competitive markets, organizations in virtually
every industry are seeking to improve the ability of business professionals to
make timely, fact-based business decisions. To accomplish this objective,
organizations must establish and maintain an infrastructure that empowers
business professionals with analytical tools and information to improve their
decision making. The Company refers to this infrastructure as a business
intelligence environment. Over the last decade, many organizations have spent
considerable effort and resources to collect, organize and distribute data,
but have been unable to fully empower business professionals with the benefits
of a business intelligence environment.
The Company believes there is a need for an approach to business
intelligence modeled on the concept of an "INFORMATION SUPPLY CHAIN"
consisting of individuals who produce information, or "INFORMATION PRODUCERS,"
and individuals who consume and use information as part of their daily
business, or "INFORMATION CONSUMERS." The Company believes that an enterprise
business intelligence approach based on the concept of an information supply
chain is the most effective way of meeting the needs of users throughout an
organization.
The Company's Brio Enterprise product suite and related services enable
organizations to develop and deploy enterprise business intelligence solutions
that maximize the value of corporate data. The Company provides an integrated
solution that is architected for the enterprise, designed for information
consumers, and engineered for information producers. The Company's software
suite consists of its server products and a range of Web, email, and client-
server based software. These user-centric, cross-platform products provide
dynamic query, analysis, and reporting functionality in a distributed
processing architecture. The Company's products are designed to be easily and
quickly implemented, to scale from departmental deployments to enterprise
solutions, to minimize the dependence and impact on IT departments, and to
leverage existing hardware and software investments.
Brio's strategy is to be a leading provider of enterprise business
intelligence software solutions. The Company plans to extend its technology
leadership by devoting significant resources to research and development and
leveraging relationships with industry partners. The Company also intends to
broaden its distribution capabilities by expanding its indirect channel and
growing its direct sales force to focus on enterprise-wide deployments within
large organizations. Additionally, Brio has formed strategic relationships
that provide enhanced integration with partner technology and increased market
exposure and sales opportunities. Brio also intends to increase its
international presence and to maintain a focus on quality customer service and
support.
The Company principally sells and markets its software and services through
a direct sales and services organization located in the United States, Canada,
the United Kingdom, France and Australia and internationally through its
indirect channel, including value-added resellers, resellers and distributors.
The Company's customers currently include: ARCO, Avis Rent A Car System,
California State University System, Comcast Cable Communications, Hewlett-
Packard, Hoffman LaRoche, IBM, Motorola, Sun Microsystems, the U.S. Army and
Worldcom Network Services.
Brio was incorporated in California in 1989 and will be reincorporated in
Delaware prior to the closing of this Offering. The Company's principal
executive offices are located at 3430 West Bayshore Road, Palo Alto, CA 94303.
Its telephone number at that location is (650) 856-8000.
4
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock offered by this Prospectus. When used in this
Prospectus, the words "expects," "anticipates," "intends," "plans,"
"estimates" and similar expressions are intended to identify forward looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. These risks
and uncertainties include, but are not limited to, those risks discussed below
and elsewhere in this Prospectus. Actual results could differ materially from
those projected in the forward looking statements as a result of the risk
factors discussed below and elsewhere in this Prospectus.
HISTORY OF NET LOSSES; SUBSTANTIAL ACCUMULATED DEFICIT; UNCERTAIN FUTURE
PROFITABILITY. The Company incurred net losses of $370,000, $3.2 million, $6.0
million and $6.7 million in fiscal 1995, 1996, 1997 and for the nine months
ended December 31, 1997, respectively. As of December 31, 1997, the Company
had an accumulated deficit of approximately $16.5 million. Given the Company's
history of net losses, there can be no assurance of revenue growth or
profitability on a quarterly or annual basis in the future. While the Company
achieved significant quarter-to-quarter revenue growth in fiscal 1997 and in
the nine months ended December 31, 1997, the Company does not expect to
sustain the same rate of sequential quarterly revenue growth in future
periods. In addition, the Company intends to increase its operating expenses
significantly in fiscal 1999; therefore, the Company's operating results will
be adversely affected if revenue does not increase. The Company's prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in rapidly evolving markets. To address these risks, the Company
must, among other things, successfully increase the scope of its operations,
respond to competitive developments, continue to attract, retain and motivate
qualified personnel and continue to commercialize products incorporating
advanced technologies. There can be no assurance that the Company will be
successful in addressing such risks, and the failure to do so would have a
material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company has experienced and
expects to continue to experience significant fluctuations in quarterly
operating results based on a number of factors, many of which are not within
the Company's control. Among other things, the Company's operating results
have fluctuated in the past due to the timing of product enhancements and new
product announcements by the Company, the lengthy sales cycle of the Company's
products, market acceptance of and demand for the Company's products, capital
spending patterns of the Company's customers, customer order deferrals in
anticipation of enhancements or new products offered by the Company, the
Company's ability to attract and retain key personnel, the mix of domestic and
international sales, personnel changes and changes in the timing and level of
operating expenses. The Company's results of operations may also fluctuate in
the future due to a number of factors, including but not limited to those
discussed above as well as the number and significance of product enhancements
and new product announcements by the Company's competitors, changes in pricing
policies by the Company or its competitors, the ability of the Company to
develop, introduce and market new and enhanced versions of the Company's
products on a timely basis, customer order deferrals in anticipation of
enhancements or new products offered by the Company's competitors, nonrenewal
of service agreements, software defects and other product quality problems,
the mix of direct and indirect sales, currency fluctuations, costs or damage
awards associated with
5
<PAGE>
the current Business Objects, S.A. litigation, and general economic
conditions. The Company anticipates that an increasing portion of its revenue
could be derived from larger orders, in which case the timing of receipt and
fulfillment of any such orders could cause material fluctuations in the
Company's operating results, particularly on a quarterly basis. Furthermore,
the Company has experienced, and expects to continue to experience,
seasonality due, among other things, to customer capital spending patterns and
the general summer slowdown in sales. Such seasonality could have a material
adverse effect on the Company's results of operations, particularly for the
quarters ending June 30 or September 30.
In addition, the Company currently intends to commit substantial financial
resources to research and development, customer support and sales and
marketing, including the expansion of its direct sales force, third-party
partnering relationships and its indirect channel sales organization, and
expects that expenses relating to its litigation with Business Objects, S.A.
will increase in future periods. The Company also expects to increase its
staffing and systems infrastructure in order to support the Company's
expanding operations and to comply with the additional responsibilities of a
public company. To the extent such expenses are not subsequently followed by
increased revenues, the Company's business, operating results and financial
condition could be materially adversely affected. The timing of such expansion
and the rate at which new sales people become productive could also cause
material fluctuations in the Company's quarterly operating results.
Due to the foregoing factors, quarterly revenue and operating results are
difficult to forecast. Further, the Company's expense levels are based in
significant part on the Company's expectations as to future revenue and are
therefore relatively fixed in the short term. Additionally, the Company has in
the past and expects in the future to recognize the majority of its license
revenue in the last month of each quarter. If revenue levels fall below
expectations, net income is likely to be disproportionately adversely affected
because a proportionately smaller amount of the Company's expenses varies with
its revenue. In light of the foregoing, in some future quarter the Company's
reported or anticipated operating results may fail to meet or exceed the
expectations of securities analysts or investors. In such event, the price of
the Company's Common Stock would be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON DIRECT SALES FORCE. The Company has historically sold its
products primarily through its direct sales and services organization located
in the United States, Canada, the United Kingdom, France and Australia, and
the Company intends to continue to invest significant resources to expand its
direct sales force. Revenues from direct sales were 91%, 93% and 88% of total
revenues for fiscal 1996, 1997 and the nine months ended December 31, 1997,
respectively. Competition for personnel with a sufficient level of expertise
and experience for these positions is intense, particularly among the
Company's competitors who may have substantially greater resources than the
Company or greater resources dedicated to hiring such personnel. In addition,
the Company has experienced significant turnover of its sales force. Such
turnover tends to slow sales efforts until replacement personnel can be
recruited and trained to become productive members of the Company's sales
force. There can be no assurance that the Company will be able to attract and
retain adequate sales and marketing personnel, despite the expenditure of
significant resources to do so, and the failure to do so could have a material
adverse effect on the Company's business, operating results and financial
condition. See "--Dependence on Key Personnel and Hiring of Additional
Personnel."
DEPENDENCE ON KEY PERSONNEL AND HIRING OF ADDITIONAL PERSONNEL. The
Company's success depends to a significant degree upon the continued
contributions of its key management, engineering, sales and marketing
personnel, many of whom would be difficult to replace. The Company has
employment contracts with only three members of its executive management
personnel, and currently maintains "key person" life insurance only on Yorgen
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Edholm, the Company's President and Chief Executive Officer, and Katherine
Glassey, the Company's Executive Vice President, Products and Services and
Chief Technology Officer, respectively. The Company does not believe such
insurance would adequately compensate it for the loss of either Mr. Edholm or
Ms. Glassey. The Company believes its future success will also depend in large
part upon its ability to attract and retain highly skilled managerial,
engineering, sales and marketing and finance personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company has
recently experienced difficulties in hiring highly qualified sales and
engineering personnel, and the Company believes that it may have greater
difficulty in attracting such personnel with equity incentives as a public
company than it had while privately held. For example, as a result of market
forces, companies in the enterprise software industry have historically
experienced significant fluctuations in their market valuations. To the extent
that the Company's Common Stock trades at a premium relative to historical
industry averages or to other companies in the enterprise software industry,
the Company may experience difficulty in attracting qualified personnel. The
loss of the services of any of the key personnel, the inability to attract or
retain qualified personnel in the future or delays in either hiring required
personnel or the rate at which new people become productive, particularly
sales personnel and engineers, could have a material adverse effect on the
Company's business, operating results and financial condition. In addition,
companies in the enterprise software industry whose employees accept positions
with competitive companies frequently claim that their competitors have
engaged in unfair hiring practices. The Company has, from time to time,
received such claims from other companies and there can be no assurance that
the Company will not receive additional claims in the future as it seeks to
hire qualified personnel or that such claims will not result in litigation
involving the Company. The Company could incur substantial costs in defending
itself against any such claims, regardless of the merits of such claims or
lack thereof. See "Business--Employees" and "Management--Executive Officers
and Directors."
LENGTHY PRODUCT SALES CYCLE. The purchase of the Company's products may
require significant, executive-level investment and systems architecture
decisions by prospective customers. Such transactions may be delayed during
the customer acceptance process because the Company must provide a significant
level of education to prospective customers regarding the use and benefits of
the Company's products. The Company believes that most companies currently are
not yet aware of the benefits of enterprise-wide business intelligence
solutions or of the Company's products and capabilities, nor have such
companies deployed business intelligence solutions on an enterprise-wide
basis. Accordingly, the sales cycle associated with the purchase of the
Company's enterprise business intelligence products is typically three to nine
months in length and subject to a number of significant risks over which the
Company has little or no control, including customers' budgeting constraints
and internal acceptance review procedures. Further, to the extent that
potential customers divert resources and attention to issues associated with
the year 2000 issue, the Company's sales cycle could be further lengthened.
See "--Year 2000 Compliance."
Additionally, the sales cycle for the Company's products in international
markets has historically been, and is expected to continue to be, longer than
the sales cycle in the United States and Canada. Accordingly, as the Company
expands internationally, the average sales cycle for the Company's products is
expected to lengthen. Based in part upon, among other things, its lengthy
sales cycle, the Company believes that its quarterly revenues and operating
results could vary significantly in the future, and that excessive delay in
product sales could have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Sales and Marketing."
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DEPENDENCE ON DEVELOPMENT OF INDIRECT SALES CHANNELS. To date, the Company
has sold its products principally through its direct sales and services
organizations and, to a lesser extent, through value-added resellers ("VARs"),
resellers and distributors (collectively referred to as the Company's
"Indirect Channel"). Revenues from the Company's Indirect Channel were 9%, 7%
and 12% of total revenues for fiscal 1996, 1997 and for the nine months ended
December 31, 1997, respectively. The Company's ability to achieve revenue
growth and improved operating margins on product sales, as well as increased
worldwide sales, in the future will depend in large part upon its success in
expanding and maintaining the Indirect Channel worldwide. Although the Company
is currently investing and plans to continue to invest significant resources
to develop the Indirect Channel, there can be no assurance that the Company
will be able to continue to attract and retain additional companies in the
Indirect Channel that will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective
customer support and services. There also can be no assurance that the Company
will be able to manage conflicts within the Indirect Channel or that the
Company's focus on increasing sales through the Indirect Channel will not
divert management resources and attention from direct sales. In addition, the
Company's agreements with companies in the Indirect Channel do not restrict
such companies from distributing competing products, and in many cases may be
terminated by either party without cause. There can be no assurance that the
Company will be able to successfully expand its Indirect Channel or that any
such expansion will result in an increase in revenues, and failure to do so
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Brio Strategy" and "--Sales
and Marketing."
COMPETITION. The market in which the Company operates is intensely
competitive, highly fragmented and characterized by rapidly changing
technology and evolving standards. The Company's current and potential
competitors offer a variety of software solutions and generally fall within
four categories: (i) vendors of business intelligence software such as Cognos,
Business Objects, S.A., Seagate, and Andyne; (ii) vendors offering alternative
approaches to delivering analysis capabilities to users, such as
MicroStrategy; (iii) database vendors that offer products which operate
specifically with their proprietary database, such as Microsoft, IBM, Oracle
or Arbor; and (iv) other companies that may in the future announce offerings
of enterprise business intelligence solutions. The Company has experienced and
expects to continue to experience increased competition from current and
potential competitors, many of whom have significantly greater financial,
technical, marketing and other resources than the Company. Such competitors
may be able to respond more quickly to new or emerging technologies and
changes in customer requirements or devote greater resources to the
development, promotion and sales of their products than the Company. The
Company expects additional competition as other established and emerging
companies enter into the business intelligence software market and new
products and technologies are introduced. Increased competition could result
in price reductions, fewer customer orders, reduced gross margins, longer
sales cycles and loss of market share, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. Current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. The Company's current or future indirect
channel partners may establish cooperative relationships with current or
potential competitors of the Company, thereby limiting the Company's ability
to sell its products through particular distribution channels. Accordingly, it
is possible that new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. Such
competition could have a material adverse effect on the Company's ability to
obtain new licenses, and maintenance and support renewals for existing
licenses, on terms favorable to the Company. Further, competitive pressures
may require the Company to reduce the price of its
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<PAGE>
products, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and the failure to do so could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company competes on the basis of certain factors, including product
features, time to market, ease of use, product performance, product quality,
analytical capabilities, user scalability, open architecture, customer support
and price. The Company believes it presently competes favorably with respect
to each of these factors. However, the Company's market is still evolving and
there can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
successfully could have a material adverse effect on the Company's business,
operating results and financial condition.
LITIGATION WITH BUSINESS OBJECTS, S.A. On January 20, 1997, Business
Objects, S.A. filed a complaint (the "Complaint") against the Company in the
U.S. District Court for the Northern District of California in San Jose,
California alleging that certain of the Company's products (including at least
the BrioQuery Navigator, BrioQuery Explorer and BrioQuery Designer products)
infringe at least claims 1, 2 and 4 of U.S. Patent No. 5,555,403. In April
1997, the Company filed an answer and affirmative defenses to the Complaint,
denying certain of the allegations in the Complaint and asserting a
counterclaim requesting declaratory relief that the Company is not infringing
the patent and that the patent is invalid and unenforceable. In December 1997,
venue for the case was changed to the Northern District of California in San
Francisco, California. The Company believes that it has meritorious defenses
to the claims made in the Complaint on both invalidity and non-infringement
grounds, and intends to defend the suit vigorously. Business Objects, S.A.
contends that there was no prior software or other prior art which allowed
users to associate a familiar name with a query or which permitted retrieved
values to be semantically dynamic. The Company has contended that, if the
patent were construed to cover the Company's current products, the patent
would then also cover prior art products, rendering the patent invalid.
Business Objects, S.A. contends that there are material differences between
those prior art products and the Company's current products. Business Objects,
S.A. also contends that the patent is valid because it has been commercially
successful and widely copied in the industry. The Company disputes these
contentions. The Company and Business Objects, S.A. are currently conducting
discovery and are awaiting a date for the claims construction hearing. The
pending litigation could result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. The Complaint seeks injunctive relief and unspecified monetary
damages, and Business Objects, S.A. is expected to seek lost profits and/or
equivalent royalties. The Complaint also alleges willful infringement, and
seeks treble damages, costs and attorneys' fees. Litigation is subject to
inherent uncertainties, especially in cases such as this where complex
technical issues must be decided. The Company's defense of this litigation,
regardless of the merits of the Complaint or lack thereof, could be time-
consuming or costly, or divert the attention of technical and management
personnel, which could have a material adverse effect upon the Company's
business, operating results and financial condition. There can be no assurance
that the Company will prevail in the litigation given the complex technical
issues and inherent uncertainties in patent litigation, particularly before
the claims have been construed by the Court. In the event the Company is
unsuccessful in the litigation, the Company may be required to pay damages to
Business Objects, S.A. and could be prohibited from marketing certain of its
products without a license, which license may not be available on acceptable
terms. If the Company is unable to obtain such a license, the Company may be
required to license a substitute technology or redesign to avoid infringement,
in which case the Company's business, operating results and financial
condition could be materially adversely affected. See "Business--Proprietary
Rights" and "--Legal Proceedings."
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<PAGE>
MANAGEMENT OF OPERATIONS; NEW MANAGEMENT TEAM. The Company's recent growth
and expansion of operations has placed, and is expected to continue to place, a
significant strain on its managerial, operational and financial resources. To
manage its potential growth, the Company must continue to implement and improve
its operational and financial systems and to expand, train and manage its
employee base. Over half of the Company's executive management have joined the
Company within approximately the last eighteen months, including the Company's
Chief Financial Officer, Executive Vice President, Marketing and Executive Vice
President, Worldwide Operations. See "Management--Executive Officers and
Directors." These individuals have not previously worked together for
substantial lengths of time and are in the process of integrating as a
management team, and certain of such individuals do not have significant prior
experience in public company executive management. There can be no assurance
that the Company will be able to effectively manage the expansion of its
operations, that the Company's systems, procedures or controls will be adequate
to support the Company's operations or that Company management will be able to
achieve the rapid execution necessary to fully exploit the market opportunity
for the Company's products and services. Any inability to manage growth, if
any, could have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. Sales to customers outside of
the United States and Canada, including sales generated by the Company's
foreign subsidiaries, represented 9%, 14% and 19% of total revenues for fiscal
1996, 1997 and the nine months ended December 31, 1997, respectively. The
Company has direct sales offices in the United Kingdom, France and Australia,
and has established distribution relationships in more than 20 countries,
including Belgium, Italy, Japan, The Netherlands and South Africa. The Company
has, to date, localized its products in French, Italian and Japanese. A key
component of the Company's strategy is its planned expansion into additional
international markets. To facilitate this international expansion, the Company
anticipates localizing its products for additional foreign markets in the
future. If the international revenues generated by these expanded operations
are not adequate to offset the expense of establishing and maintaining these
foreign operations, the Company's business, operating results and financial
condition could be materially adversely affected. To date, the Company has only
limited experience in developing localized versions of its products and
marketing and distributing its products internationally. There can be no
assurance that the Company will be able to successfully localize, market, sell
and deliver its products in these markets, and failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in doing business on
an international level, such as increased difficulty in controlling operating
expenses, unexpected changes in regulatory requirements, tariffs and other
trade barriers, difficulties in staffing and managing foreign operations,
longer payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates, seasonal reductions in
business activity during the summer months in Europe and certain other parts of
the world and potentially adverse tax consequences, which could adversely
impact the success of the Company's international operations. In particular,
the Company's international sales are generally denominated and collected in
foreign currencies, and the Company has not historically undertaken foreign
exchange hedging transactions to cover its potential foreign currency exposure.
In the quarter ended December 31, 1997, the Company incurred losses on foreign
currency translations resulting from intercompany receivables from its foreign
subsidiaries in an amount of approximately $105,000. There can be no assurance
that one or more of such factors
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<PAGE>
will not have a material adverse effect on the Company's future international
operations and, consequently, on the Company's business, operating results and
financial condition.
DEPENDENCE UPON PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE AND EVOLVING
INDUSTRY STANDARDS. The Company's success will depend upon its ability to
develop new products that meet changing customer requirements. The market for
the Company's products is characterized by rapidly changing technology,
evolving industry standards and customer requirements, emerging competition and
frequent new product introductions. The Company's products incorporate a number
of advanced technologies, including a proprietary data analysis engine, a
distributed architecture, as well as Web access and delivery technology. As a
result, the Company may be required to change and improve its products in
response to changes in operating systems, applications, networking and
connectivity software, computer and communications hardware, programming tools
and computer language technology. Such changes and improvements are dependent,
in part, on the Company's ability to hire and retain highly qualified
engineering personnel. See "--Dependence on Key Personnel and Hiring of
Additional Personnel." In addition, the Company attempts to establish and
maintain partner alliances with influential companies in a variety of core
technology areas. The loss of a partner alliance, or the failure to establish
additional partner alliances with leading companies in particular technology
areas, could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company can successfully respond to changing technology, identify new product
opportunities or develop and bring new products to market in a timely and cost-
effective manner. The Company has in the past experienced delays in software
development and there can be no assurance that the Company will not experience
delays in connection with its current or future product development activities.
In particular, development efforts in the UNIX server environment are complex,
and the Company in the past has encountered delays in developing products for
this environment. Delays and difficulties associated with new product
introductions or product enhancements could have a material adverse effect on
the Company's business, operating results and financial condition. Failure of
the Company, for technological or other reasons, to develop and introduce new
products and product enhancements on a timely basis that are compatible with
industry standards and that satisfy customer requirements would have a material
adverse effect on the Company's business, operating results and financial
condition.
In addition, the Company or its competitors may announce enhancements to
existing products, or new products embodying new technologies, industry
standards or customer requirements that have the potential to supplant or
provide lower cost alternatives to the Company's existing products. The
introduction of such enhancements or new products could render the Company's
existing products obsolete and unmarketable. There can be no assurance
that the announcement or introduction of new products by the Company or its
competitors or any change in industry standards will not cause customers to
defer or cancel purchases of existing products, which could have a material
adverse effect on the Company's business, operating results and financial
condition. Furthermore, introduction by the Company of products with
reliability, quality or compatibility problems could result in reduced orders,
delays in collecting accounts receivable and additional service costs. The
failure to introduce a new product or product enhancement on a timely basis
could delay or hinder market acceptance. Any such event could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Products and Technology."
DEPENDENCE ON EMERGING MARKET FOR ENTERPRISE BUSINESS INTELLIGENCE; NO
ASSURANCE OF MARKET ACCEPTANCE OF ENTERPRISE BUSINESS INTELLIGENCE
PRODUCTS. The Company is focusing its selling efforts increasingly on larger,
enterprise-wide implementations of its products, and the Company expects such
sales to constitute an increasing portion of the Company's future
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revenue growth, if any. To date, the Company's selling efforts have resulted in
limited enterprise-wide implementations of the Company's products. The Company
believes that most companies currently are not yet aware of the benefits of
enterprise-wide business intelligence solutions or of the Company's products
and capabilities, nor have such companies deployed business intelligence
solutions on an enterprise-wide basis. While the Company has devoted
significant resources to promoting market awareness of its products and the
problems such products address (including training of its sales force to
promote enterprise business intelligence and demonstrating the enterprise-wide
business intelligence capabilities of Brio Enterprise at industry conferences
and trade shows, the costs of which the Company views as a normal part of its
new product sales and marketing activity), no assurance can be given that these
efforts will be sufficient to build market awareness of the need for enterprise
business intelligence or acceptance of the Company's products. Failure of a
significant market for enterprise business intelligence products to develop, or
failure of enterprise-wide implementations of the Company's products to achieve
broad market acceptance, would have a material adverse effect on the Company's
business, operating results and financial condition.
YEAR 2000 COMPLIANCE. Many existing computer systems and applications, and
other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century. As
a result, such systems and applications could fail or create erroneous results
unless corrected so that they can process data related to the year 2000 and
beyond. The Company relies on its systems, applications and devices in
operating and monitoring all major aspects of its business, including financial
systems (such as general ledger, accounts payable and payroll), customer
services, infrastructure, networks and telecommunications equipment. The
Company also relies, directly and indirectly, on external systems of business
enterprises such as customers, suppliers, creditors, financial organizations,
and governmental entities, both domestic and international, for accurate
exchange of data. The Company's current estimate is that the costs associated
with the year 2000 issue, and the consequences of incomplete or untimely
resolution of the year 2000 issue, will not have a material adverse effect on
the results of operations or financial position of the Company in any given
year. However, despite the Company's efforts to address the year 2000 impact on
its internal systems, the Company has not fully identified such impact or
whether it can resolve it without disruption of its business and without
incurring significant expense. In addition, even if the internal systems of the
Company are not materially affected by the year 2000 issue, the Company could
be affected through disruption in the operation of the enterprises with which
the Company interacts. Furthermore, although the Company's products comply with
such year 2000 requirements, the Company believes that the purchasing patterns
of customers and potential customers may be affected by year 2000 issues as
companies expend significant resources to correct or patch their current
software systems to comply with year 2000 requirements. These expenditures may
result in reduced funds available to purchase software products such as those
offered by the Company, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "--Lengthy
Product Sales Cycle."
RISKS OF PRODUCT DEFECTS; PRODUCT LIABILITY. As a result of their complexity,
the Company's software products may contain undetected errors, failures or
viruses. Despite testing by the Company and use by current and potential
customers when new products are first introduced or new enhancements are
released, there can be no assurance that errors will not be found in new
products or enhancements after commencement of commercial shipments. Although
the Company has not experienced material adverse effects resulting from any
such defects and errors to date, there can be no assurance that defects and
errors will not be found in new products or enhancements after commencement of
commercial shipments, resulting in loss of revenues, delay in market acceptance
or damage to the Company's reputation, which could
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<PAGE>
have a material adverse effect upon the Company's business, operating results
and financial condition. Further, the Company's license agreements with its
customers typically contain provisions designed to limit the Company's exposure
for potential claims based on errors or malfunctions of its products. It is
possible, however, that the limitation of liability provisions contained in the
Company's license agreements may not be effective under the laws of certain
jurisdictions. Although the Company has not experienced any product liability
claims to date, the sale and support of the Company's products entails the risk
of such claims. Although the Company carries insurance against product
liability risks, there can be no assurance that such insurance would be
adequate to cover a potential claim. A product liability claim brought against
the Company could have a material adverse effect on the Company's business,
operating results and financial condition.
LIMITED PROTECTION OF PROPRIETARY RIGHTS. The Company currently relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company also believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product
maintenance are essential to establishing and maintaining a technology
leadership position. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which afford
only limited protection. The Company currently has one United States patent
application. There can be no assurance that the Company's patent application
will result in the issuance of a patent, or if issued, will not be invalidated,
circumvented or challenged, or that the rights granted thereunder, if any, will
provide competitive advantages to the Company or that any of the Company's
future patent applications, if any, will be issued with the scope of the claims
sought by the Company, if at all. Furthermore, there can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology or design around any patent that may come to be owned by
the Company. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or
to obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights as fully as do the laws of the United States. There can be
no assurance that the Company's means of protecting its proprietary rights in
the United States or abroad will be adequate or that competitors will not
independently develop similar technology. The Company has entered into source
code escrow agreements with a number of its customers and indirect channel
partners requiring release of source code under certain conditions. Such
agreements provide that such parties will have a limited, non-exclusive right
to use such code in the event that there is a bankruptcy proceeding by or
against the Company, if the Company ceases to do business or, in some cases, if
the Company fails to meet its contractual obligations. The provision of source
code escrows may increase the likelihood of misappropriation by third parties.
The Company expects that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in different
industry segments overlaps. Any such claims, with or without merit, could be
time consuming to defend, result in costly litigation, divert management's
attention and resources, cause product shipment delays or require the Company
to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, if at all. In the event of a successful claim of product infringement
against the Company and failure or inability of the Company to license the
infringed or similar technology, the Company's business, operating results and
financial condition would be materially adversely affected. Currently, the
Company is engaged
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in litigation with Business Objects, S.A. concerning the alleged infringement
by the Company of a U.S. patent held by Business Objects, S.A. See "--
Litigation with Business Objects, S.A." and "Business--Legal Proceedings."
Finally, in the future the Company may rely upon certain software that it may
license from third parties, including software that may be integrated with the
Company's internally developed software and used in the Company's products to
perform key functions. There can be no assurance that these third-party
software licenses will be available to the Company on commercially reasonable
terms. The inability to obtain or maintain any such software licenses could
result in shipment delays or reductions until equivalent software could be
developed, identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to this Offering, there has been no public market for the Company's Common
Stock, and there can be no assurance that an active public market will develop
or be sustained after this Offering. The initial public offering price will be
determined by negotiations between the Company, the Selling Stockholders and
the representatives of the Underwriters based on several factors and may not be
indicative of the market price of the Common Stock after this Offering. The
market price of the shares of the Company's Common Stock is likely to be highly
volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcement of
business partnerships, technological innovations or new product introductions
by the Company or its competitors, changes of estimates of the Company's future
operating results by securities analysts, developments with respect to
copyrights or proprietary rights, general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
of equity securities of many technology companies. Broad market fluctuations,
as well as economic conditions generally and in the software industry
specifically, may result in material adverse effects on the market price of the
Company's Common Stock. There can be no assurance that the market price for the
Company's Common Stock will not decline below the initial public offering
price. In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. There can be no assurance that such
litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, operating results and financial condition. These broad
market fluctuations may adversely effect the market price of the Company's
Common Stock. See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock offered
hereby will suffer an immediate and substantial dilution of $ per share in
the net tangible book value of the Common Stock from the assumed initial public
offering price. To the extent outstanding options to purchase the Company's
Common Stock are exercised, there will be further dilution. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market following this Offering could adversely
affect the market price for the Company's Common Stock. The number of shares of
Common Stock available for sale in the public market is limited by restrictions
under the Securities Act of 1933, as amended (the "Securities Act"), and lock-
up agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the
date of this Prospectus without the prior written consent of Deutsche Morgan
Grenfell Inc., subject to certain limited exceptions. However, Deutsche Morgan
Grenfell Inc. may, in its sole discretion
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<PAGE>
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. Deutsche Morgan Grenfell Inc. currently has no
plans to release any portion of the securities subject to lock-up agreements.
When determining whether or not to release shares from the lock-up agreements,
Deutsche Morgan Grenfell Inc. will consider, among other factors, the
stockholder's reasons for requesting the release, the number of shares for
which the release is being requested and market conditions at the time. As a
result of these restrictions, based on shares outstanding and options granted
as of December 31, 1997, the following shares of Common Stock will be eligible
for future sale. On the date of this Prospectus, (i) shares will be
eligible for immediate sale, (ii) shares will be eligible for sale 90 days
after the date of this Prospectus, and (iii) shares will be eligible for
sale upon expiration of lock-up agreements 180 days after the date of this
Prospectus. In addition, the Company intends to file a registration statement
on Form S-8 with the Securities and Exchange Commission (the "Commission")
shortly after the date of this Prospectus covering approximately shares
of Common Stock subject to outstanding options or reserved for issuance under
the Company's stock plans. See "Management--Stock Plans." Following this
Offering and expiration of the lock-up agreements, the holders of shares
will have certain rights to require the Company to register those shares under
the Securities Act. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration shares held by such holders pursuant to the exercise of
their piggyback registration rights, such sales may have an adverse effect on
the Company's ability to raise needed capital. See "Description of Capital
Stock," "Underwriting" and "Shares Eligible for Future Sale."
CONTROL BY EXISTING STOCKHOLDERS. Upon consummation of this Offering (based
on shares outstanding as of December 31, 1997), the Company's executive
officers and directors, together with entities affiliated with such
individuals, will beneficially own approximately % of the Company's Common
Stock (approximately % if the Underwriters' over-allotment option is
exercised in full). In particular, Yorgen Edholm, the Company's President and
Chief Executive Officer and a director of the Company, and his spouse Katherine
Glassey, the Company's Executive Vice President, Products and Services and
Chief Technology Officer and a director of the Company, will beneficially own
approximately % of the Company's Common Stock (approximately % if the
Underwriters' over-allotment option is exercised in full). Accordingly, these
stockholders may, as a practical matter, continue to be able to control the
election of a majority of the Company's directors and the determination of all
corporate actions after this Offering. This concentration of ownership could
have the effect of delaying or preventing a change in control of the Company.
See "Management" and "Principal and Selling Stockholders."
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's charter
documents, including provisions relating to a classified board of directors and
provisions eliminating cumulative voting, eliminating the ability of
stockholders to take actions by written consent and limiting the ability of
stockholders to raise matters at a meeting of stockholders without giving
advance notice, may have the effect of delaying or preventing a change in
control or management of the Company, which could have an adverse effect on the
market price of the Company's Common Stock. In addition, the Board of Directors
has authority to issue up to 2,000,000 shares of Preferred Stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
these shares without any further vote or action by the stockholders. The rights
of the holders of the Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for
15
<PAGE>
a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and as a result, the issuance of
such Preferred Stock could have a material adverse effect on the market value
of the Common Stock. The Company has no present plan to issue shares of
Preferred Stock. Further, Section 203 of the General Corporation Law of the
State of Delaware (as amended from time to time, the "DGCL"), which is
applicable to the Company, prohibits certain business combinations with certain
stockholders for a period of three years after they acquire 15% or more of the
outstanding voting stock of a corporation. See "Description of Capital Stock."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS. The Company currently has no
specific plan for using substantially all of the proceeds of this Offering. As
a consequence, the Company will have the discretion to allocate a large
percentage of such proceeds to uses which the stockholders may not deem
desirable, and there can be no assurance that the proceeds can or will yield a
significant return. See "Use of Proceeds."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
being offered by the Company hereby at an assumed public offering price of $
per share are estimated to be $ ($ if the Underwriters' over-allotment
option is exercised in full). The principal purpose of this Offering is to
obtain additional working capital. The Company expects to use the net proceeds
of this Offering for general corporate purposes, capital expenditures, working
capital, and acquisitions of companies and/or technology, although there are no
current agreements or negotiations with respect to any such transactions. In
addition, the Company intends to use a portion of the net proceeds of this
Offering to repay approximately $3.4 million of debt that has a maturity date
of December 31, 1999 and bears interest at the lender's prime rate. Pending
such uses, the Company intends to invest the net proceeds from this Offering in
interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain all available funds and any future
earnings for use in the operation of its business and does not anticipate
paying any cash dividends in the foreseeable future. In addition, the terms of
the Company's primary credit facility prohibit the paying of dividends without
the lender's consent.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company giving effect to the conversion of the outstanding shares of Preferred
Stock into shares of Common Stock upon the closing of this Offering, and (iii)
the pro forma capitalization of the Company as adjusted to give effect to the
sale of the shares of Common Stock offered hereby at an assumed initial
public offering price of per share and after deducting the estimated
underwriting discount and offering expenses. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt(1)........... $ 3,140 $ 3,140
-------- -------
Long-term debt, less current portion(1)........ 250 250
-------- -------
Stockholders' equity (deficit):
Preferred Stock, par value $0.001 per share;
5,625,000 shares authorized, 5,466,172
shares outstanding actual; 2,000,000 shares
authorized pro forma and as adjusted; no
shares outstanding pro forma and as
adjusted.................................... 15,655 --
Common Stock, par value $0.001 per share;
38,250,000 shares authorized; 5,745,000
shares outstanding actual, 11,211,172 shares
outstanding pro forma and shares
outstanding pro forma as adjusted(2)........ 1,134 16,789
Additional paid-in capital................... -- --
Notes receivable from shareholders........... (292) (292)
Deferred compensation........................ (504) (504)
Cumulative translation adjustment............ (10) (10)
Accumulated deficit.......................... (16,537) (16,537)
-------- -------
Total stockholders' equity (deficit)....... (554) (554)
-------- -------
Total capitalization..................... $ 2,836 $ 2,836
======== ======= ===
</TABLE>
- --------
(1) See Note 6 of Notes to Consolidated Financial Statements.
(2) Based on the number of shares outstanding as of December 31, 1997.
Excludes (i) 1,204,562 shares issuable upon exercise of options
outstanding as of December 31, 1997 with a weighted average exercise price
of $1.79 per share, (ii) 10,000 shares issuable upon exercise of an
outstanding warrant as of December 31, 1997 with an exercise price of
$0.60 per share (which warrant the Company expects will be exercised
immediately prior to completion of this Offering), (iii) 130,229 shares
available for issuance under the Company's 1992 Stock Option Plan, (iv)
2,250,000 shares reserved for issuance upon exercise of options that may
be granted under the newly adopted 1998 Stock Option Plan, (v) 300,000
shares reserved for issuance upon exercise of options that may be granted
under the newly adopted 1998 Directors' Stock Option Plan, and (vi)
500,000 shares reserved for issuance under the newly adopted 1998 Employee
Stock Purchase Plan. See "Management--Stock Plans" and Note 8 of Notes to
Consolidated Financial Statements.
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31, 1997
was approximately $(608,000) or $(.05) per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets of the
Company reduced by the amount of its total liabilities and divided by the
total number of shares of Common Stock outstanding. After giving effect to the
sale by the Company of the shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share (after deducting the
estimated underwriting discount and estimated offering expenses), the adjusted
pro forma net tangible book value of the Company as of December 31, 1997 would
have been $ or $ per share of Common Stock. This represents an immediate
increase in net tangible book value of $ per share to existing stockholders
and an immediate dilution in net tangible book value of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share as of
December 31, 1997............................................ $(.05)
Increase per share attributable to new investors..............
-----
Adjusted 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 December 31,
1997, the differences between the existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price per share
paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... % $ % $
New investors..................
------ --------- -------- ----------
Totals....................... 100.0% $ 100.0%
====== ========= ======== ==========
</TABLE>
- --------
(1) Sales by the Selling Stockholders will reduce the number of shares of
Common Stock held by existing stockholders to or % (or or % if
the Underwriters' over-allotment option is exercised in full) and will
increase the number of shares of Common Stock held by new investors to
or % (or or % if the Underwriters' over-allotment option is
exercised in full). See "Principal and Selling Stockholders."
The information presented with respect to existing stockholders assumes no
exercise of a warrant to purchase 10,000 shares that was outstanding on
December 31, 1997 with an exercise price of $0.60 per share (which warrant the
Company expects will be exercised immediately prior to completion of this
Offering) and no exercise of outstanding options under the 1992 Stock Option
Plan. As of December 31, 1997, options to purchase 1,204,562 shares were
outstanding under the Company's 1992 Stock Option Plan with a weighted average
price of $1.79 per share and 130,229 additional shares are available for
issuance. In addition, the information presented excludes 2,250,000 shares
reserved for issuance upon exercise of options that may be granted subsequent
to December 31, 1997 under the newly adopted 1998 Stock Option Plan, 300,000
shares reserved for issuance upon exercise of options that may be granted
subsequent to December 31, 1997 under the newly adopted 1998 Directors' Stock
Option Plan and 500,000 shares reserved for issuance subsequent to December
31, 1997 under the newly adopted 1998 Employee Stock Purchase Plan. The
issuance of Common Stock under these plans and warrant will result in further
dilution to new investors. See "Management--Stock Plans" and Note 8 of Notes
to Consolidated Financial Statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements and the
notes thereto and the other information contained in this Prospectus. The
selected consolidated statements of operations data for the years ended March
31, 1995, 1996 and 1997 and the nine months ended December 31, 1997, and the
selected consolidated balance sheet data as of March 31, 1996 and 1997 and
December 31, 1997, are derived from, and are qualified by reference to, the
audited consolidated financial statements of the Company appearing elsewhere
in this Prospectus. The consolidated balance sheet data as of March 31, 1995,
are derived from audited consolidated financial statements of the Company not
included herein. The selected consolidated statement of operations data for
the years ended March 31, 1993 and 1994 and for the nine months ended December
31, 1996 and the selected consolidated balance sheet data as of March 31, 1993
and 1994 are derived from unaudited consolidated financial statements of the
Company not included in this Prospectus which have been prepared by the
Company on a basis consistent with the audited consolidated financial
statements appearing elsewhere in this Prospectus and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of such data. The results of
operations for the nine months ended December 31, 1997 are not necessarily
indicative of results to be expected for any subsequent period.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------ -------------------
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ------ ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
License fees........... $ 470 $3,180 $2,487 $ 3,212 $10,328 $ 6,675 $13,914
Services............... 84 287 1,025 1,315 3,058 2,034 4,646
----- ------ ------ ------- ------- ------- -------
Total revenues......... 554 3,467 3,512 4,527 13,386 8,709 18,560
----- ------ ------ ------- ------- ------- -------
Cost of revenues:
License fees........... 48 184 192 340 839 641 654
Services............... 67 174 205 371 817 474 1,717
----- ------ ------ ------- ------- ------- -------
Total cost of revenues. 115 358 397 711 1,656 1,115 2,371
----- ------ ------ ------- ------- ------- -------
Gross profit............ 439 3,109 3,115 3,816 11,730 7,594 16,189
----- ------ ------ ------- ------- ------- -------
Operating expenses:
Research and
development........... 276 725 934 1,555 2,447 1,619 3,860
Sales and marketing.... 451 1,001 1,662 4,476 13,588 8,350 16,764
General and
administrative........ 385 819 849 1,014 1,685 1,094 2,079
----- ------ ------ ------- ------- ------- -------
Total operating
expenses.............. 1,112 2,545 3,445 7,045 17,720 11,063 22,703
----- ------ ------ ------- ------- ------- -------
Income (loss) from
operations............. (673) 564 (330) (3,229) (5,990) (3,469) (6,514)
Interest and other
income (expense), net.. (24) (40) (40) 33 25 43 (226)
----- ------ ------ ------- ------- ------- -------
Net income (loss)....... $(697) $ 524 $ (370) $(3,196) $(5,965) $(3,426) $(6,740)
===== ====== ====== ======= ======= ======= =======
Basic net income (loss)
per share(1)........... $(.14) $ .10 $ (.07) $ (.64) $ (1.14) $ (.68) $ (1.18)
===== ====== ====== ======= ======= ======= =======
Shares used in computing
basic net income (loss)
per share(1)........... 5,000 5,000 5,000 5,018 5,218 5,069 5,715
===== ====== ====== ======= ======= ======= =======
Pro forma basic net loss
per share(1)........... $ (.63) $ (.37) $ (.62)
======= ======= =======
Shares used in computing
pro forma basic net
loss per share (1)..... 9,479 9,213 10,898
======= ======= =======
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------ DECEMBER 31,
1993 1994 1995 1996 1997 1997
----------- ----------- ------ ------- ------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA: (IN THOUSANDS)
Cash and cash
equivalents............ $ 167 $ 39 $3,091 $ 546 $ 890 $ 1,472
Total current assets.... 442 925 4,284 3,002 6,516 9,254
Total current
liabilities............ 839 1,178 1,221 3,371 8,295 11,324
Noncurrent liabilities.. 420 -- -- -- 457 1,609
Stockholders' equity
(deficit).............. (690) (166) 3,236 100 133 (554)
</TABLE>
- -------
(1) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
per share amounts.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto and the other information included
elsewhere in this Prospectus. Certain statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
forward-looking statements. The forward-looking statements contained herein
are based on current expectations and entail various risks and uncertainties
that could cause actual results to differ materially from those expressed in
such forward-looking statements. For a more detailed discussion of these and
other business risks, see "Risk Factors."
OVERVIEW
The Company designs, develops, markets and supports software products that
enable organizations to rapidly implement enterprise business intelligence
solutions. The Company's first product, DataPrism, was introduced in 1990, and
the Company's most recent version of its product suite, Brio Enterprise 5.5,
was introduced in 1997. The Company had net losses of $3.2 million, $6.0
million and $6.7 million in fiscal 1996, 1997 and for the nine months ended
December 31, 1997, respectively, and had an accumulated deficit of
approximately $16.5 million as of December 31, 1997. See "Risk Factors--
History of Net Losses; Substantial Accumulated Deficit; Uncertain Future
Profitability."
The Company's revenues are derived principally from license fees for
software products and, to a lesser extent, fees for a range of services
complementing such products, including software maintenance and support,
training and system implementation consulting. The Company generally licenses
its products on a per user basis with the price per user varying based on the
selection of products licensed. Additionally, the Company is increasing its
efforts to sell customers larger enterprise-wide implementations of the
Company's products through licenses on a per site basis with the price per
site varying based on the selection of products licensed, the number of
authorized users for each product at each site and the number of licensed
sites. Revenues from license fees are recognized upon product shipment if
collection of the resulting receivable is deemed probable, the fee is fixed or
determinable and vendor- specific objective evidence exists to allocate the
total fee to all delivered and undelivered elements of the arrangement. In
instances where payments are subject to extended payment terms, revenue is
deferred until payments become due. If an acceptance period is required,
revenue is recognized upon the earlier of customer acceptance or the
expiration of the acceptance period. Allowances are established for potential
product returns and credit losses, which have been insignificant to date. Fees
for services are charged separately from license fees. In addition, service
revenues from maintenance and support services, which include ongoing product
support and periodic product updates, are recognized ratably over the term of
each contract, which is typically twelve months. Payments for maintenance and
support services are generally made in advance and are non-refundable. Service
revenues from training and consulting services are recognized when the
services are performed.
To date, revenues from license fees have been derived principally from
direct sales of software products to end users through the Company's direct
sales force. Although the Company believes that such direct sales will
continue to account for a significant portion of revenues from license fees in
the foreseeable future, the Company has recently developed and intends to
continue to develop reselling relationships with companies in the Indirect
Channel, and the Company expects that revenues from sales through the Indirect
Channel will increase as a percentage of revenues from license fees. Revenues
from the Indirect Channel were 9%, 7% and 12% of total revenues for fiscal
1996, 1997 and for the nine months ended December 31, 1997, respectively. The
Company's ability to achieve revenue growth and
20
<PAGE>
improved operating margins, as well as increased worldwide sales, in the
future will depend in large part upon its success in expanding and maintaining
the Indirect Channel worldwide. See "Risk Factors--Dependence on Direct Sales
Force" and "--Dependence on Development of Indirect Sales Channels."
The Company is also increasing its efforts to sell customers larger,
enterprise-wide implementations of the Company's products, rather than
departmental sales, which may increase the complexity and length of the sales
cycle. In connection with such larger sales, the Company has in the past and
may in the future choose to grant greater pricing and other concessions, such
as discounted training and consulting, than for single department or local
network sales. See "Risk Factors--Lengthy Product Sales Cycle."
The Company has, to date, sold its products internationally through direct
sales offices in the United Kingdom, France and Australia, and indirectly
through established distribution relationships in more than 20 countries,
including Belgium, Italy, Japan, The Netherlands and South Africa. Sales to
customers outside of the United States and Canada, including sales generated
by the Company's foreign subsidiaries, represented 9%, 14% and 19% of total
revenues for fiscal 1996, 1997 and the nine months ended December 31, 1997,
respectively. The Company's direct sales offices in the United Kingdom and
Australia were formed through the Company's acquisition of distributors in
those countries. A portion of the Company's international sales in the past
have been denominated and collected in foreign currencies, and the Company
believes that a portion of the Company's cost of revenues and operating
expenses will continue to be incurred in foreign currencies. Although it is
impossible to predict future exchange rate movements between the U.S. dollar
and other currencies, to the extent the U.S. dollar strengthens or weakens
against other currencies, a substantial portion of the Company's revenues,
cost of revenues and operating expenses will be commensurately lower or higher
than would be the case in a more stable foreign currency environment. Although
the Company has not historically undertaken foreign exchange hedging
transactions to cover its potential foreign currency exposure, it may do so in
the future. See "Risk Factors--Risks Associated with International Expansion."
Although the Company has experienced significant quarter-to-quarter revenue
growth in fiscal 1997 and in the nine months ended December 31, 1997, the
Company does not expect to sustain the same rate of sequential quarterly
revenue growth in future periods, and there can be no assurance that the
Company will be able to sustain revenue growth or attain profitability in the
future. The Company currently intends to commit substantial financial
resources to research and development, customer support and sales and
marketing, including the expansion of its direct sales force, third-party
partnering relationships and its indirect channel sales organization, and
expects that expenses relating to its litigation with Business Objects, S.A.
will increase in future periods. The Company also expects to increase its
staffing and systems infrastructure in order to support the Company's
expanding operations and to comply with the additional responsibilities of a
public company. As a result, the Company expects that its operating expenses
will increase significantly in fiscal 1999. See "Risk Factors--Fluctuations in
Quarterly Operating Results" and "--Litigation with Business Objects, S.A."
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain selected consolidated financial
information as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------- ----------------
1995 1996 1997 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
License fees............... 71% 71% 77% 77% 75%
Services................... 29 29 23 23 25
------ ------ ------ ------ ------
Total revenues........... 100 100 100 100 100
------ ------ ------ ------ ------
Cost of revenues:
License fees............... 5 8 6 7 4
Services................... 6 8 6 6 9
------ ------ ------ ------ ------
Total cost of revenues... 11 16 12 13 13
------ ------ ------ ------ ------
Gross profit................. 89 84 88 87 87
------ ------ ------ ------ ------
Operating expenses:
Research and development... 27 34 18 19 21
Sales and marketing........ 47 99 102 96 90
General and administrative. 24 23 13 12 11
------ ------ ------ ------ ------
Total operating expenses. 98 156 133 127 122
------ ------ ------ ------ ------
Loss from operations......... (9) (72) (45) (40) (35)
Interest and other income
(expense), net.............. (1) 1 -- 1 (1)
------ ------ ------ ------ ------
Net loss..................... (10)% (71)% (45)% (39)% (36)%
====== ====== ====== ====== ======
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
REVENUES
The Company's revenues are derived from license fees and services, which
include software maintenance and support, training and system implementation
consulting. Total revenues increased 113% from $8.7 million for the nine
months ended December 31, 1996 to $18.6 million for the nine months ended
December 31, 1997.
License Fees. Revenues from license fees increased 108% from $6.7 million
for the nine months ended December 31, 1996 to $13.9 million for the nine
months ended December 31, 1997. The increase was the result of increased sales
to new customers and increased follow-on sales to existing customers primarily
as a result of the introduction of the Company's Web-based extension to its
product suite in fiscal 1997 and to a lesser extent increases in average
selling prices for the Company's products.
Services. Service revenues increased 128% from $2.0 million for the nine
months ended December 31, 1996 to $4.6 million for the nine months ended
December 31, 1997. The increase was primarily due to increases in maintenance
and support, and to a lesser extent training and consulting service revenues,
related to increases in the Company's installed customer base.
22
<PAGE>
COST OF REVENUES
License Fees. Cost of revenues from license fees consists primarily of
product packaging, shipping, media, documentation, and related personnel and
overhead allocations. Cost of revenues from license fees increased from
$641,000, or 10% of revenues from license fees, for the nine months ended
December 31, 1996 to $654,000, or 5% of revenues from license fees, for the
nine months ended December 31, 1997. The increase in absolute dollars was due
to the increase in the number of licenses sold. The decrease as a percentage
of revenues from license fees was primarily due to an increase in the number
of customers purchasing master disks, which are less expensive to produce and
ship, as compared to "shrinkwrapped" product.
Services. Cost of service revenues consists primarily of personnel costs and
third-party consulting fees associated with providing software maintenance and
support, training and consulting services. Cost of service revenues increased
from $474,000, or 23% of service revenues, for the nine months ended December
31, 1996 to $1.7 million, or 37% of service revenues, for the nine months
ended December 31, 1997. The increase in absolute dollars was due principally
to increases in personnel resulting from the Company's expansion of its
support services and use of outside consultants for training and consulting
services. The increase as a percentage of service revenues was due principally
to the use of outside consultants for training and consulting services. The
cost of service revenues may vary between periods due to the mix of services
provided by the Company's personnel relative to services provided by outside
consultants and to varying levels of expenditures required to build the
services organization.
OPERATING EXPENSES
Research and development. Research and development expenses consist
primarily of personnel and related costs associated with the development of
new products, the enhancement and localization of existing products, quality
assurance and testing. Research and development expenses increased from $1.6
million, or 19% of total revenues, for the nine months ended December 31, 1996
to $3.9 million, or 21% of total revenues, for the nine months ended December
31, 1997. The increases were primarily due to increased personnel and related
costs required to develop new products and enhance existing products. The
Company believes that significant investment for product research and
development is essential to product and technical leadership and anticipates
that it will continue to commit substantial resources to research and
development in the future. The Company anticipates that research and
development expenditures will continue to increase in absolute dollars,
although such expenses may vary as a percentage of total revenues.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and other personnel related costs, commissions, bonuses and sales
incentives, travel, marketing programs such as trade shows and seminars, and
promotion costs. Sales and marketing expenses increased from $8.4 million, or
96% of total revenues, for the nine months ended December 31, 1996 to $16.8
million, or 90% of total revenues, for the nine months ended December 31,
1997. The increase in absolute dollars was primarily attributable to the costs
associated with additional field sales and marketing personnel, both
domestically and internationally, higher sales commissions associated with
increased revenues, and increased marketing activities worldwide. The Company
also expanded its domestic telesales organization in the nine months ended
December 31, 1997. The decrease as a percentage of total revenues was
generally attributable to increases in revenues for the periods.
The Company believes that as it continues to expand its direct sales and
pre-sales support organization and its third-party partnering relationships
and its indirect channel sales organization on a worldwide basis, sales and
marketing expenses will continue to increase in
23
<PAGE>
absolute dollars. In particular, the Company expects that sales compensation,
travel and related expenses will increase significantly as the Company
continues to increase the number of its direct sales personnel and its emphasis
on direct field sales efforts. Nonetheless, the Company expects sales and
marketing expenses will continue to vary as a percentage of total revenues.
General and administrative. General and administrative expenses consist
primarily of personnel costs for finance, human resources, information systems,
and general management, as well as legal, accounting and unallocated overhead
expenses. General and administrative expenses increased from $1.1 million, or
12% of total revenues, for the nine months ended December 31, 1996 to $2.1
million, or 11% of total revenues, for the nine months ended December 31, 1997.
The increase in absolute dollars was primarily due to an increase in personnel
and related costs and professional fees necessary to manage and support the
Company's growth and facilities expansion. The decrease in general and
administrative expenses as a percentage of total revenues is primarily
attributable to increased efficiencies in the Company's administrative
operations and increased revenues. The Company expects that its general and
administrative expenses will increase in absolute dollars as the Company
expands its staffing to support expanded operations, incurs expenses in its
litigation with Business Objects, S.A., and assumes the responsibilities of a
public company. The Company expects that such expenses will vary as a
percentage of total revenues.
Deferred Compensation. In connection with the grant of certain stock options
to employees during the nine months ended December 31, 1997, the Company
recorded deferred compensation of $580,000, representing the difference between
the deemed value of the Common Stock for accounting purposes and the option
exercise price of such options at the date of grant. Such amount is presented
as a reduction of stockholder's equity and amortized ratably over the vesting
period of the applicable options. Approximately $76,000 was expensed during the
nine months ended December 31, 1997, and the balance will be expensed ratably
over the next four years as the options vest. See Note 8 of Notes to
Consolidated Financial Statements.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net, is comprised primarily of interest
income and foreign currency transaction gains or losses, net of interest
expense. Interest expense is comprised of interest incurred on the Company's
bank line of credit. Interest and other income (expense), net, decreased from a
net income of $43,000 for the nine months ended December 31, 1996 to a net
expense of $226,000 for the nine months ended December 31, 1997. The decrease
in interest and other income (expense), net, is attributable to an increase in
the amount of borrowings on the Company's line of credit to fund growth in
operations, increased working capital requirements and losses on foreign
currency transactions resulting from intercompany receivables from foreign
subsidiaries. See Note 2 of Notes to Consolidated Financial Statements.
PROVISION FOR INCOME TAXES
As of December 31, 1997, the Company had federal and state net operating loss
carryforwards of approximately $8.0 million and $3.0 million, respectively,
available to offset future taxable income, which expire at various dates
through 2012 if not utilized. Further, as of December 31, 1997, the Company had
tax credit carryforwards of approximately $515,000, which expire at various
dates through 2012. In addition, the Internal Revenue Code of 1986, as amended,
contains certain provisions that may limit the net operating loss carryforwards
available for use in any given period upon the occurrence of certain events,
including a significant change in ownership interests. The Company has net
deferred tax assets, including
24
<PAGE>
its net operating loss carryforwards, totaling approximately $4.6 million as
of December 31, 1997. The Company has recorded a valuation allowance for all
of its net deferred tax assets as a result of significant uncertainties
regarding the realization of most of its assets, including the limited
operating history of the Company, a recent history of losses and the
variability of operating results. See Note 10 of Notes to Consolidated
Financial Statements.
FISCAL YEARS ENDED MARCH 31, 1995, 1996 AND 1997
REVENUES
The Company's revenues increased by 29% from $3.5 million in fiscal 1995 to
$4.5 million in fiscal 1996 and by 196% to $13.4 million in fiscal 1997.
License Fees. The Company's revenues from license fees increased by 29% from
$2.5 million in fiscal 1995 to $3.2 million in fiscal 1996 and by 222% to
$10.3 million in fiscal 1997. The increases in fiscal 1996 and 1997 were the
result of growing sales to new customers and increased follow-on sales to
existing customers, primarily as a result of the introduction of BrioQuery
version 3.0 during fiscal 1996, which introduced query and analysis
capabilities in an integrated product, and the expansion of the BrioQuery
product and the introduction of the Company's Web-related products in fiscal
1997, and to a lesser extent increases in average selling prices for the
Company's products.
Services. The Company's service revenues increased by 28% from $1.0 million
in fiscal 1995 to $1.3 million in fiscal 1996 and by 133% to $3.1 million in
fiscal 1997. The increases in fiscal 1996 and 1997 were primarily due to
increases in maintenance and support, and to a lesser extent training and
consulting revenues, related to increases in the Company's installed customer
base.
COST OF REVENUES
License Fees. The Company's cost of revenues from license fees increased by
77% from $192,000 in fiscal 1995 to $340,000 in fiscal 1996 and by 147% to
$839,000 in fiscal 1997. The increases from year to year were due to the
increase in the number of licenses sold and related personnel and overhead
costs.
Services. Cost of service revenues increased by 81% from $205,000 in fiscal
1995 to $371,000 in fiscal 1996 and by 120% to $817,000 in fiscal 1997. The
increases from year to year were due principally to increases in personnel
resulting from the Company's expansion of its support services and related
costs in response to increased demand for maintenance and support, training
and consulting services.
OPERATING EXPENSES
Research and development. Research and development expenses increased by 66%
from $934,000 in fiscal 1995 to $1.6 million in fiscal 1996 and by 57% to $2.4
million in fiscal 1997. The increases from year to year were primarily due to
increased personnel and related costs required to continue to develop and
enhance the Company's fully integrated Brio Enterprise solution for both the
client/server and Web-based environments, while developing new products, such
as the Brio Enterprise server products.
Sales and marketing. Sales and marketing expenses increased by 169% from
$1.7 million in fiscal 1995 to $4.5 million in fiscal 1996 and by 204% to
$13.6 million in fiscal 1997. These increases were primarily attributable to
the costs associated with additional worldwide field sales and marketing
personnel, higher sales commissions, bonuses and sales incentives
25
<PAGE>
associated with increased revenues, and increased domestic and international
marketing activities. In fiscal 1996, the Company began building its direct
field sales organization. In fiscal 1997, it continued the expansion
domestically through the growth of the telesales organization and
internationally through the establishment of subsidiary offices in the United
Kingdom, Australia, and France.
General and administrative. General and administrative expenses increased by
19% from $849,000 in fiscal 1995 to $1.0 million in fiscal 1996 and by 66% to
$1.7 million in fiscal 1997. The increases were primarily due to increased
personnel and related costs and professional fees necessary to manage and
support the Company's growth and facilities expansion.
INTEREST AND OTHER INCOME (EXPENSE), NET
The Company's interest and other income (expense), net, increased by 183%
from a net expense of $40,000 in fiscal 1995 to a net income of $33,000 in
fiscal 1996 and decreased by 24% to $25,000 in fiscal 1997. The increase in
fiscal 1996 was primarily due to the investment of proceeds from the Company's
sale of preferred stock in March 1995 and the corresponding interest on such
funds and related reduced borrowings. The decrease in fiscal 1997 was due to
increased bank borrowings.
PROVISION FOR INCOME TAXES
The Company incurred significant operating losses in each of fiscal 1995,
1996 and 1997. Therefore, no provision for income taxes was necessary.
26
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statements of
operations data of the Company for each of the seven quarters ended December
31, 1997, as well as such data expressed as a percentage of the Company's
total revenues for the quarters presented. This unaudited quarterly
information has been prepared on the same basis as the Company's audited
consolidated financial statements and, in the opinion of management, reflects
all adjustments (consisting only of normal recurring entries) necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31,
1996 1996 1996 1997 1997 1997 1997
-------- -------- ------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees........... $1,389 $2,176 $ 3,110 $ 3,653 $ 3,950 $ 4,531 $ 5,433
Services............... 569 697 768 1,024 1,303 1,527 1,816
------ ------ ------- ------- ------- ------- -------
Total revenues......... 1,958 2,873 3,878 4,677 5,253 6,058 7,249
------ ------ ------- ------- ------- ------- -------
Cost of revenues:
License fees........... 184 257 200 198 210 219 225
Services............... 104 137 233 343 443 544 730
------ ------ ------- ------- ------- ------- -------
Total cost of revenues. 288 394 433 541 653 763 955
------ ------ ------- ------- ------- ------- -------
Gross profit............ 1,670 2,479 3,445 4,136 4,600 5,295 6,294
------ ------ ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 442 501 676 828 1,141 1,304 1,415
Sales and marketing.... 1,798 2,647 3,905 5,238 5,314 5,676 5,774
General and
administrative........ 254 368 472 591 626 687 766
------ ------ ------- ------- ------- ------- -------
Total operating
expenses.............. 2,494 3,516 5,053 6,657 7,081 7,667 7,955
------ ------ ------- ------- ------- ------- -------
Loss from operations.... (824) (1,037) (1,608) (2,521) (2,481) (2,372) (1,661)
Interest and other
income (expense), net.. (18) 53 8 (18) (62) (18) (146)
------ ------ ------- ------- ------- ------- -------
Net loss................ $ (842) $ (984) $(1,600) $(2,539) $(2,543) $(2,390) $(1,807)
====== ====== ======= ======= ======= ======= =======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
---------------------------------------------------------------------
JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31,
1996 1996 1996 1997 1997 1997 1997
-------- -------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees........... 71% 76% 80% 78% 75% 75% 75%
Services............... 29 24 20 22 25 25 25
------ ------ ------- ------- ------- ------- -------
Total revenues......... 100 100 100 100 100 100 100
------ ------ ------- ------- ------- ------- -------
Cost of revenues:
License fees........... 9 9 5 5 4 4 3
Services............... 6 5 6 7 8 9 10
------ ------ ------- ------- ------- ------- -------
Total cost of revenues. 15 14 11 12 12 13 13
------ ------ ------- ------- ------- ------- -------
Gross profit............ 85 86 89 88 88 87 87
------ ------ ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 23 17 17 18 22 22 20
Sales and marketing.... 92 92 101 112 101 94 80
General and
administrative........ 12 13 12 12 12 10 10
------ ------ ------- ------- ------- ------- -------
Total operating
expenses.............. 127 122 130 142 135 126 110
------ ------ ------- ------- ------- ------- -------
Loss from operations.... (42) (36) (41) (54) (47) (39) (23)
Interest and other
income (expense), net.. (1) 2 -- -- (1) -- (2)
------ ------ ------- ------- ------- ------- -------
Net loss................ (43)% (34)% (41)% (54)% (48)% (39)% (25)%
====== ====== ======= ======= ======= ======= =======
</TABLE>
The Company's revenues have increased each consecutive quarter during the
six fiscal quarters ending December 31, 1997, primarily due to increased sales
of new and existing products to new customers and increased follow-on sales to
existing customers. See "Risk Factors--Fluctuations in Quarterly Operating
Results," "--Dependence on Direct Sales Force" and "--Risks Associated with
International Expansion." Service revenues have generally
27
<PAGE>
increased along with increases in the Company's installed base. Cost of
revenues from license fees have not increased proportionately with the
increase in revenues from license fees due to an increase in sales of master
disks, which are less expensive to produce and ship as compared to
"shrinkwrapped" product. Cost of services revenues have increased generally
quarter to quarter both in absolute dollars and as a percentage of revenues,
primarily due to increases in personnel and related costs for customer
support, training and consulting services and the use of outside consultants.
Research and development expenses have increased in absolute dollars quarter
to quarter, primarily due to increased personnel required to support ongoing
development. Fluctuations in quarterly research and development expenses as a
percentage of total revenues were generally attributable to changes in total
revenues. Sales and marketing expenses have increased generally quarter to
quarter in absolute dollars due to the expansion of sales and marketing
personnel domestically and internationally, as well as increased sales
commissions, bonuses and sales incentives as a result of increased revenues.
Decreases in sales and marketing expenses as a percentage of total revenues
from the quarter ended June 30, 1997 through the quarter ended December 31,
1997 were attributable to increased total revenues, and to a reduced rate of
spending as a result of an increased focus on expense management. The Company
believes that, as it continues to expand its direct sales and pre-sales
support organization and its third-party partnering relationships and its
indirect channel sales organization on a worldwide basis, sales and marketing
expenses will continue to increase in absolute dollars. In particular, the
Company expects that sales compensation, travel and related expenses will
increase significantly as the Company continues to increase the number of its
direct sales personnel and its emphasis on direct field sales efforts.
Nonetheless, the Company expects sales and marketing expenses will continue to
vary as a percentage of total revenues. General and administrative expenses
have increased in absolute dollars quarter to quarter, primarily due to
increased personnel and related costs and expanded facilities and
infrastructure added to support overall Company growth. Fluctuations in
quarterly general and administrative expenses as a percentage of total
revenues were generally attributable to changes in revenues, although an
increased focus on expense management resulted in the decline of quarterly
general and administrative expenses as a percentage of total revenues for the
quarters ended September 30, 1997 and December 31, 1997. In particular,
operating expenses increased significantly in the aggregate during the
quarters ended December 31, 1996 and March 31, 1997 for the reasons discussed
above.
The Company has experienced and expects to continue to experience
significant fluctuations in quarterly operating results based on a number of
factors, many of which are not within the Company's control. Among other
things, the Company's operating results have fluctuated in the past due to the
timing of product enhancements and new product announcements by the Company,
the lengthy sales cycle of the Company's products, market acceptance of and
demand for the Company's products, capital spending patterns of the Company's
customers, customer order deferrals in anticipation of enhancements or new
products offered by the Company, the Company's ability to attract and retain
key personnel, the mix of domestic and international sales, personnel changes
and changes in the timing and level of operating expenses. The Company's
results of operations may also fluctuate in the future due to a number of
factors, including but not limited to those discussed above as well as the
number and significance of business partnerships, product enhancements and new
product announcements by the Company's competitors, changes in pricing
policies by the Company or its competitors, the ability of the Company to
develop, introduce and market new and enhanced versions of the Company's
products on a timely basis, customer order deferrals in anticipation of
enhancements or new products offered by the Company's competitors, nonrenewal
of
28
<PAGE>
service agreements, software defects and other product quality problems, the
mix of direct and indirect sales, currency fluctuations, costs or damage
awards associated with the current Business Objects, S.A. litigation, and
general economic conditions. The Company anticipates that an increasing
portion of its revenue could be derived from larger orders, in which case the
timing of receipt and fulfillment of any such orders could cause material
fluctuations in the Company's operating results, particularly on a quarterly
basis. Furthermore, the Company has experienced, and expects to continue to
experience, seasonality due, among other things, to customer capital spending
patterns and the general summer slowdown in sales. Such seasonality could have
a material adverse effect on the Company's results of operations, particularly
for the quarters ending June 30 or September 30.
In addition, the Company currently intends to increase significantly its
funding of research and product development, customer support operations and
sales and marketing activities, to expand its domestic and international
distribution channels, and to increase its infrastructure at its headquarters
and overseas, as required, to support the Company's expanding operations and
additional needs to comply with the responsibilities of a public company. To
the extent such expenses are not subsequently followed by increased revenues,
the Company's business, operating results and financial condition could be
materially adversely affected. The timing of such expansion and the rate at
which new sales people become productive could also cause material
fluctuations in the Company's quarterly operating results.
Due to the foregoing factors, quarterly revenue and operating results are
difficult to forecast. Further, the Company's expense levels are based in
significant part on the Company's expectations as to future revenue and are
therefore relatively fixed in the short term. Additionally, the Company has in
the past and expects in the future to recognize the majority of its license
revenue in the last month of each quarter. If revenue levels fall below
expectations, net income is likely to be disproportionately adversely affected
because a proportionately smaller amount of the Company's expenses varies with
its revenue. In light of the foregoing, in some future quarter the Company's
reported or anticipated operating results may fail to meet or exceed the
expectations of securities analysts or investors. In such event, the price of
the Company's Common Stock would be materially adversely affected. See "Risk
Factors--Fluctuations in Quarterly Operating Results."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for the Company's fiscal year beginning on
April 1, 1998. This standard defines comprehensive income as the changes in
equity of an enterprise except those resulting from stockholder transactions.
All components of comprehensive income will be required to be reported in
financial statements issued for periods beginning after the effective date of
SFAS No. 130. Management believes the adoption of SFAS No. 130 will not have a
material effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 is effective for the Company's fiscal years beginning on April 1,
1998. SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers.
Management believes the adoption of SFAS No. 131 will not have a material
effect on the Company's consolidated financial statements.
29
<PAGE>
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 which will supersede SOP 91-1,
"Software Revenue Recognition." SOP 97-2 is effective for transactions entered
into in the Company's fiscal years beginning April 1, 1998. Management has
assessed this new statement and believes that its adoption will not have a
material effect on the Company's consolidated financial statements or the
timing of the Company's revenue recognition, or cause changes to its revenue
recognition policies.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations and capital
expenditures primarily from the net proceeds of approximately $15.7 million
from private sales of Preferred Stock, cash from operations and, early in the
Company's history, development fees, and to a lesser extent from bank
borrowings. Net cash used in operating activities in fiscal 1996, 1997 and the
nine months ended December 31, 1997 was $3.3 million, $4.7 million and $5.4
million, respectively.
As of December 31, 1997, the Company had cash and cash equivalents of $1.5
million. In addition, during January 1998, the Company obtained a bank line of
credit which provides for up to $10.0 million in borrowings. The Company can
borrow up to 80% of eligible accounts receivable against this line, with an
additional $1.5 million available, which is collateralized by substantially
all of the Company's assets, including the Company's intellectual property to
the extent required to secure the Bank's interest in the accounts receivables
and which provides for interest at the bank's prime rate. This line of credit
requires the Company to comply with various financial covenants. The line
expires on December 1, 1999, when any amounts outstanding thereunder would be
due and payable. See Note 6 of Notes to Consolidated Financial Statements. As
of December 31, 1997, the Company's bank borrowings were $3.4 million.
Net cash used in investing activities was $380,000, $2.0 million and $1.2
million in fiscal 1996, 1997 and the nine months ended December 31, 1997,
respectively, consisting primarily of purchases of property and equipment and,
to a lesser extent, a one-time payment in connection with the acquisition of
the Company's Australian subsidiary. The Company has planned capital
commitments of up to approximately $500,000 in fiscal 1999. See Note 5 of
Notes to Consolidated Financial Statements.
Net cash provided by financing activities was $1.2 million, $7.1 million and
$7.2 million in fiscal 1996, 1997 and the nine months ended December 31, 1997,
respectively, consisting primarily of proceeds from private sales of Preferred
Stock and periodic borrowings, net of repayments, on the bank line of credit.
The Company believes that the proceeds from this Offering, together with the
Company's current cash balances and any cash generated from operations and
from available or future debt financing, will be sufficient to meet the
Company's operating and capital requirements for at least the next 12 months.
However, there can be no assurance that the Company will not require
additional financing within this time frame. The Company has no current plans,
and is not currently negotiating, to obtain additional financing following the
completion of this Offering.
30
<PAGE>
BUSINESS
Brio Technology, Inc. ("Brio" or the "Company") designs, develops, markets
and supports software products that enable organizations to rapidly implement
enterprise business intelligence solutions. The Company's software solution,
Brio Enterprise, is a comprehensive client-server and Web-based suite of
products designed to enable large numbers of business professionals to quickly
access and analyze data to make more informed business decisions. The
Company's products and services are designed to allow organizations to rapidly
deploy and effectively manage business intelligence solutions incorporating
the wide range of available corporate data sources, including data marts, data
warehouses, operational data stores, enterprise applications and legacy
applications.
INDUSTRY BACKGROUND
In today's increasingly competitive markets, organizations in virtually
every industry are seeking to improve the ability of business professionals to
make timely, fact-based business decisions. To accomplish this objective,
organizations must establish and maintain an infrastructure that empowers
business professionals with analytical tools and information to improve their
decision making. The Company refers to this infrastructure as a business
intelligence environment. Over the last decade, many organizations have spent
considerable effort and resources to collect, organize and distribute data,
but have been unable to fully empower business professionals with the benefits
of a business intelligence environment.
LIMITED SCOPE OF TRADITIONAL APPROACHES
Reporting Products. Many organizations use standardized reporting products
to improve the dissemination of information across the organization. Managed
by IT departments, reporting products deliver static reports to business
professionals on paper, through executive information or decision support
systems or recently via the Web and Web browsers. This approach has provided
business professionals with significant amounts of information, but requires
significant IT resources to continually revise and customize reports as
requested by end users. Although reporting products facilitate broad and
timely dissemination of information, they generally do not enable business
professionals to perform the follow-on analysis and custom reporting needed to
maximize the usefulness of the information provided.
Data Access and Analysis Tools and the Data Warehouse. Over the last decade,
data warehousing technology, coupled with access and analysis tools, emerged
as a leading technology framework for enabling business professionals to make
better fact-based decisions. Data warehouses with access and analysis tools
have enabled some non-technical users for the first time to work with data on
their own terms. While this approach has made a positive impact in many
organizations, significant cost and technical barriers have made deploying
data warehousing solutions beyond a small percentage of these organizations'
total user population impractical.
Although reporting products and data warehousing each serve particular types
of users well, many organizations employing these technologies have continued
to encounter problems. IT departments continue to have a reporting and
applications development backlog, a prohibitively high cost of implementation
and maintenance, and face challenges delivering information in a secure and
controlled manner. Reporting products fail to provide more active users with
the analytical functionality they seek. The Company believes that there is a
large and growing population of professionals who need to interact with data,
for whom a data warehousing solution is prohibitively complex and expensive,
and for whom standardized reporting is inadequate. The Company believes that
as the amount of data and the number and diversity of users increase,
organizations will be unable to meet the needs of business professionals
without a new approach to business intelligence.
31
<PAGE>
OPPORTUNITY FOR ENTERPRISE BUSINESS INTELLIGENCE
The Company believes there is a need for an approach to business
intelligence modeled on the concept of an "INFORMATION SUPPLY CHAIN"
consisting of individuals who produce information, or "INFORMATION PRODUCERS,"
and individuals who consume and use information as part of their daily
business, or "INFORMATION CONSUMERS." The Company believes that an enterprise
business intelligence approach based on the concept of an information supply
chain is the most effective means of meeting the needs of users throughout an
organization.
TARGET MARKETS: TRADITIONAL APPROACHES VERSUS ENTERPRISE BUSINESS INTELLIGENCE
[Four circuclar pie diagrams in a rectangular box, showing the types of
users served (information producer and information consumers) by traditional
approaches of reporting products, data access and analysis tools and data
warehouses and enterprise business intelligence.]
Information Producers. In the information supply chain, IT staff and IT-
savvy business professionals, often referred to as "power users," act as the
information producers for the entire organization. IT professionals, using and
supporting a wide variety of hardware and software technologies, create and
manage the infrastructure that supports the storage, processing and delivery
of information across the enterprise. Power users, as part of their jobs, use
full-function data access, reporting and analysis tools to interact directly
with data resident in data marts or data warehouses and to produce reports and
analyses for their own use or the selective use of information consumers.
Information producers are under pressure from information consumers to
continually develop, customize and deliver reports.
Information Consumers. Information consumers, the customers in the
information supply chain, are the largest group of users within any
organization. Although standardized reports have met the needs of a number of
information consumers for years, over the last decade, information consumers
have become increasingly more sophisticated in their information requirements
and have tried to derive more value from the information delivered to them.
These consumers are seeking technology solutions that will allow them to work
autonomously with information delivered by information producers. Although
information consumers want to have access to customized information products,
they typically do not have the skills or supporting information infrastructure
to do anything other than view static, standardized reports.
The Company believes that to address the needs of all users in the
information supply chain, an effective enterprise business intelligence
solution must:
. meet the needs of growing and diverse user populations and growing
amounts of data;
. leverage email and the Web as critical components of the information
infrastructure;
. minimize the dependence and impact on IT departments; and
. leverage existing hardware and software within the organization.
32
<PAGE>
THE BRIO SOLUTION
The Company's Brio Enterprise product suite and related services enable
organizations to develop and deploy enterprise business intelligence solutions
that maximize the value of corporate data. The Company provides an integrated
solution that is architected for the enterprise, designed for information
consumers, and engineered for information producers. The Company's products
and services enable information producers to support the entire information
supply chain, while satisfying the needs of information consumers to interact
with and customize their data. The Company's products are designed to be
easily and quickly implemented, to scale from departmental deployments to
enterprise solutions, to minimize the dependence and impact on IT departments,
and to leverage existing hardware and software investments. The Company
believes its solution provides the following benefits for the enterprise and
its information consumers and producers:
ARCHITECTED FOR THE ENTERPRISE
Integrated, Comprehensive Product Suite. The Company provides a suite of
products that can be used either separately or together in an integrated,
distributed client-server and/or Web-enabled implementation. By incorporating
the same easy-to-use interface across all supported platforms and the same
underlying core technologies, the Company's products provide simple viewing
capabilities, robust analysis and reporting features and powerful
administrative functions for information producers and consumers.
Scalable for Enterprise Deployment. The Company's multi-tier architecture
utilizes the strength of the server and the computing power of the client,
allowing the Company's solution to scale by number and location of users, as
well as by quantity and type of source data.
Leverages Email and the Web. The Company's products economically enable
information producers to push data and reports to information consumers via
email, printers and the Internet.
Adaptive Reporting. The Company's adaptive reporting feature permits
information producers to control, on a report-by-report basis, the analytical
functionality available to the information consumers in a report. This feature
allows information producers to control user access while maximizing the
usefulness of reports and data.
DESIGNED FOR INFORMATION CONSUMERS
Powerful Functionality, Easy to Use. The Company's products combine a
consistent and intuitive user interface with powerful functionality that
allows information consumers to easily customize, format and manipulate data,
reports and analyses.
Robust Solution for Mobile Users. The Company's products facilitate mobile,
off-line analysis in both Web browser and PC-based environments and enable
information consumers to work with reports, analyses, and data sets that have
been sent via email, file servers or the Web. As a result, users in a mobile,
off-line environment can view data and can create new analyses and reports to
answer their individual questions.
ENGINEERED FOR INFORMATION PRODUCERS
Simplifies Administration. The Company designs its products to be quickly
and easily installed. The Company's "zero administration" technology
centralizes and automates the installation and upgrade of the Company's Web-
based client software. The Company's server products enable IT departments to
control user access and security privileges and to audit and manage user
activity.
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<PAGE>
Leverages Existing Customer Investments in Technology. The Company's
products are designed to integrate seamlessly with existing customer database,
application, reporting and analysis software, to take advantage of existing
enterprise hardware environments and to leverage existing desktop and
operating system infrastructure.
BRIO STRATEGY
The Company's strategy is to be a leading provider of enterprise business
intelligence software solutions. The following are key elements of the
Company's strategy:
Extend Technology Leadership. The Company has designed its products to
satisfy customers' desire for rapid implementation, intuitive user interfaces,
transparent integration, high performance and limited IT involvement. The
Company's products incorporate a number of advanced technologies, including a
proprietary data analysis engine, a distributed architecture, and Web access
and delivery technology. In addition, the Company has in the past rapidly
incorporated new technology into its product offerings. In particular, the
Company shipped its Web-based end user analysis solution (Brio.Insight) in
November 1996 and its Java-based server solution (OnDemand Server) in November
1997. The Company intends to extend its technology leadership by continuing to
devote significant resources to research and development efforts and by
forming strategic relationships that will enable the Company to further
enhance its products' functionality and ease of use.
Broaden Distribution Channels. To date, the Company has sold its products
primarily through its direct sales and services organizations located in the
United States, Canada, the United Kingdom, France and Australia, and has sold
its products worldwide through VARs, resellers and distributors. The Company
intends to grow its direct sales organization to intensify its coverage of
large organizations and to augment its telesales operation to cover smaller
organizations. In addition, the Company will continue to both leverage and
grow its existing network of value-added resellers, resellers and distributors
to expand its indirect distribution channel worldwide.
Expand Product Deployments Throughout the Enterprise. The Company's products
and related services are designed to enable organizations to deploy
enterprise-wide business intelligence. Although most organizations initially
deploy the Company's products on a departmental or pilot basis, the Company
believes that initial customer success with this deployment can lead to
significant opportunities for enterprise-wide adoption of the Company's
products. The Company intends to focus its sales and services efforts on large
organizations seeking enterprise-wide business intelligence deployments and on
making initial customer pilots or deployments successful.
Leverage Industry Relationships. To accelerate the adoption of the Company's
products as a standard platform for business intelligence, the Company has
formed strategic relationships that provide for enhanced technology
integration with partner technology as well as increased market exposure and
sales opportunities for the Company's products and services. The Company's
partners include industry-leading providers of software and hardware, such as
Microsoft, Oracle and IBM, that complement the Company's product and service
offerings, and providers of a wide range of training, implementation and
application development services related to the Company's products.
Increase International Presence. Outside of the United States, the Company
has direct sales offices in Canada, the United Kingdom, France and Australia,
has established distributor relationships in more than 20 countries, including
Belgium, Italy, Japan, The Netherlands and South Africa and has localized
products in French, Italian and Japanese. The Company intends to expand its
global sales capabilities by increasing the size of its direct sales and sales
support
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organizations, expanding its distribution channels in Europe, Latin America,
and Asia/Pacific and continuing localization efforts of its products in
selected markets.
Provide Premium Customer Support and Service. The Company believes that
offering quality service and support is important to customer satisfaction and
provides a significant opportunity for the Company to build customer loyalty
and to differentiate itself from competition. The Company intends to increase
its focus on customer satisfaction by investing in support services including
additional staffing, a Web-based help line and systems infrastructure. In
addition, the Company is committed to providing customer-driven product
functionality through feedback from user groups, prospects, consultants,
partners and customer surveys.
PRODUCTS AND TECHNOLOGY
Brio Enterprise is a fully integrated business intelligence software product
suite providing powerful query, analysis and reporting functionality across
both client-server and Web environments. Designed to meet the needs of users
throughout the enterprise, the Company's products combine powerful
functionality with intuitive, easy-to-use interfaces. The Company's products
are designed to enable an IT department to maintain centralized control with
auditing, security and "zero administration" deployment while incorporating a
system architecture that scales to meet the needs of growing and diverse user
populations and increasing amounts of data.
The Company's products use "push" and "pull" server technology to optimize
utilization of client and server system resources. The Company's distributed
architecture, built on the Company's proprietary, portable on-line analytical
processing engine, enables analytical processing to take place on the server
or on the client. This architecture enhances the flexibility and scalability
of the solution without losing analytical capabilities required for
individuals to answer complex data-related business questions. The Company's
adaptive reporting capability further enhances this flexibility by giving IT
departments the ability to control the analytical functionality available to
an information consumer on a report-by-report basis.
[Flowchart diagram illustrating the way the Company's products interact with
various elements of an information technology network.]
BRIO ENTERPRISE CLIENT PRODUCTS
The Company's client products, whether Web-based or client-server based,
share the same user-centric design, functionality and intuitive interface. The
Company believes that the result is an integrated, easy-to-navigate suite of
products that consistently guide the user from query and analysis through
reporting and charting. The Company's client products allow users to
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<PAGE>
create queries that are targeted at single or multiple data sources and that
can combine data from local or server-based data sources without IT department
assistance.
BrioQuery. All editions of BrioQuery unify query, analysis, reporting and
charting capabilities in one product for client-server connected users. To
meet the differing needs of these users, BrioQuery is available in three
editions:
BrioQuery Designer extends the core BrioQuery capabilities with database
administration functionality, security, auditing and repository setup
features to enable IT departments to manage and control the business
intelligence environment;
BrioQuery Explorer is designed for power users or independent analysts
who need direct access to database tables and repositories of pre-defined
data models and reports and need to be able to create their own queries,
analyses and reports; and
BrioQuery Navigator is used by analysts or information consumers who do
not have the technical ability or need to directly access database tables.
These users typically only need access to repositories of pre-defined data
models and reports that they can use as a basis for independent analyses.
Web-based Products. The Company's Web-based client products provide users
with a wide range of report, query and analytical capabilities within standard
Web browsers. Together with the Company's server-based products, they enable
organizations to deploy a "thin client" architecture that facilitates
administration and maintenance in a multi-platform environment.
Brio.Insight. Employing the same user-interface as BrioQuery,
Brio.Insight delivers interactive query, analysis, reporting and charting
capabilities inside a standard Web browser. Whether connected to the Web,
to the Brio Enterprise Server, or operating without connection,
Brio.Insight enables users to go beyond viewing static reports and to
perform independent analysis and reporting on the delivered information.
Brio.Quickview. Brio.Quickview enables organizations to deliver a
portfolio of "view only" reports to users through a Web browser. These
portfolios can include fully formatted reports with color, highlights,
charts and tables. When used in conjunction with the Brio Enterprise
Server, Brio.Quickview provides users with the option to refresh the data
that is used to create their portfolio, or to limit the view based on a set
of criteria.
BRIO ENTERPRISE SERVER PRODUCTS
Brio Enterprise Server. The Brio Enterprise Server product includes two
powerful server modules, the Broadcast Server and the OnDemand Server, and a
unified administration tool. The Brio Enterprise Server is designed to meet
the information distribution and data access needs of information consumers,
while providing IT departments with centralized control, administration and
security management functionality. This scalable server suite employs "push"
and "pull" technology to enable organizations to cost-effectively deploy
business intelligence solutions to a wide variety of users across
heterogeneous computing environments.
Broadcast Server. The Broadcast Server enables IT departments to control the
integrity and distribution of business information. It allows information
producers to take queries, analyses and reports created with BrioQuery, and to
schedule automatic processing and delivery of such reports based on date,
time, or event. The Broadcast Server pushes the reports and documents in a
highly compressed format out to Web, client-server and mobile users via FTP,
email, Web servers, and network file servers and printers.
OnDemand Server. The OnDemand Server allows both mobile and desktop users
easy and secure access to a variety of data sources. Query execution can be
performed over the Web or on the server; the server can then pre-build reports
and transmit them to the Company's Web client products, Brio.Insight and
Brio.Quickview. With the OnDemand Server and the Company's adaptive reporting
feature, IT departments can determine on a report-by-report basis the level of
Brio.Insight and Brio.Quickview functionality and interactivity that a
particular user is allowed.
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<PAGE>
The OnDemand Server also automates the installation and maintenance of the
Company's Web client software.
PLATFORMS AND PRICING
The Company's server products are designed to operate on most popular server
platforms including Windows NT and UNIX (AIX, HPUX, Sun Solaris). Pricing on
the Brio Enterprise Server product, which includes both the Broadcast Server
and the OnDemand Server, ranges from $30,000 to $45,000. Brio client products
currently operate on a number of operating systems including Windows (95, NT
and 3.1), PowerMac and UNIX (AIX, HPUX, Sun Solaris). The Company's products
provide native and ODBC connectivity to a variety of data sources, including
relational database management systems such as Oracle, DB2, SQL Server and
Adaptive Server; non-relational database management systems such as Arbor
Essbase, Oracle Express and Informix Metacube; and legacy systems such as SAS.
Pricing ranges from approximately $50 for Brio.Quickview to $4,000 for
BrioQuery Designer.
The Company's success in the future will depend upon its ability to develop
new products and its ability to sell larger, enterprise-wide implementations of
its products. See "Risk Factors--Dependence upon Product Development; Rapid
Technological Change and Evolving Industry Standards" and "--Dependence on
Emerging Market for Enterprise Business Intelligence; No Assurance of Market
Acceptance of Enterprise Business Intelligence Products."
CUSTOMERS
The Company's customers include organizations in a diverse set of industry
segments. The following is a representative list of Company's customers who
have purchased more than $150,000 of the Company's products since January 1996.
No single customer has accounted for more than 10% of the Company's total
revenues for the year ended March 31, 1997 and the nine months ended December
31, 1997.
MANUFACTURING/PUBLISHING FINANCIAL SERVICES Montell USA, Inc.
Addison-Wesley Longman Allstate Insurance Nortel--Northern
ARCO Company Telecom
Boise Cascade Barclays De Zoete Wedd Pacific Telesis
Corporation Plc Qualcomm Incorporated
BP Exploration Edward Jones & Co. Sasktel ITM
Operating Company Esanda Finance Sprint Corporation
Gannett Co., Inc. Corporation US West Communications
Honeywell Inc. Fair Isaac & Co. Inc.
KLA-Tencor Corporation J&W Seligman & Co. Inc. Worldcom Network
Kraft General Goods Liberty Mutual Services
Nike Inc. Insurance Company
Phillip Morris U.S.A. Piper Jaffray Companies PHARMACEUTICAL/ MEDICAL
Pioneer Standard & Inc. Amgen
Electric Inc. Westpac Banking Bayer Corporation
Sikorsky Aircraft Corp. Corporation Blue Cross & Blue
Toyota Motor Sales Shield
U.S.A. Inc. GOVERNMENT Genentech Inc.
Viskase Corporation State of Oregon Hoffman LaRoche Inc.
Zeneca Agricultural State of Washington Merck & Co. Inc.
Products U.S. Army Pfizer Inc.
U.S. Department of Roche Biosciences
TECHNOLOGY Agriculture United Healthcare
Hewlett-Packard Company U.S. Navy Services, Inc.
Hitachi America
IBM RETAIL/SERVICES EDUCATION
Lotus Development Avis Rent A Car System California State
Corporation Inc. University System
LSI Logic Inc. DHL Massachusetts Institute
Micron Electronics Inc. Edgars Stores of Technology
Motorola HBO Inc. Purdue University
Quantum J. Sainsburys Plc School Board of Broward
Storage Technology Safeway Stores Plc County, Florida
Corporation Toys R' US Virginia Polytechnic
Sun Microsystems Institute
US Robotics Access TELECOMMUNICATIONS University of
Corporation AT&T Wireless Services California
VLSI Technology Corporation University of Maryland
Comcast Cable
Communication
MCI Telecommunications
Corporation
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SALES AND MARKETING
Sales. To date, the Company has sold its products primarily through its
direct sales and services organizations located in the United States, Canada,
the United Kingdom, France and Australia, and has sold its products worldwide
through value-added resellers ("VARs"), resellers and distributors. The direct
sales process involves the generation of sales leads through direct mail,
seminars and telemarketing or requests for proposal from prospects. The
Company's field sales force conducts multiple presentations and demonstrations
of the Company's products to management and users at customer sites as part of
the direct sales effort. Sales cycles typically last from three to nine
months. The direct sales force is responsible for local partner support, joint
sales efforts and channel management. The direct sales force is compensated
for sales made through indirect channel partners as well as direct sales to
ensure appropriate cooperation with the Company's VARs, resellers and
distributors. To date, the Company has generated a majority of its sales from
its direct sales force, and has supplemented its direct sales efforts with the
efforts of VARs, resellers and distributors in a variety of locations
throughout the world. These third parties perform some or all of the following
functions: sales and marketing; systems implementation and integration;
software development and customization; and ongoing consulting, training,
service and technical support. The Company generally offers such parties
discounts on products and training, a cooperative marketing program, and field
level assistance from the Company's direct sales force. The Company intends to
leverage sales and marketing through indirect channel partners that will
distribute or resell the Company's products in their respective markets.
Indirect channel partners accounted for approximately 9%, 7% and 12% of the
Company's total revenues in fiscal 1996 and 1997 and for the nine months ended
December 31, 1997, respectively. The Company intends to grow its direct sales
organization and its telesales operation to cover smaller organizations. In
addition, the Company will continue both to leverage and grow its existing
network of VARs, resellers and distributors to expand its indirect
distribution channel worldwide. See "Risk Factors--Dependence on Direct Sales
Force," "--Dependence on Key Personnel and Hiring of Additional Personnel,"
"--Lengthy Product Sales Cycle," "--Dependence on Development of Indirect
Sales Channels," "--Risks Associated with International Expansion" and "--Year
2000 Compliance."
Marketing. The Company is focused on building market awareness and
acceptance of the Company and its products as well as on developing strategic
partnerships. The Company has a marketing strategy with several key
components: image and awareness building, direct marketing to both prospective
and existing customers, a strong Web presence, as well as broad-scale
marketing programs in conjunction with key local and global partners. The
Company's corporate marketing strategy includes extensive public relations
activities; a conference and trade show speakers program, as well as programs
to work closely with key analysts and other influential third parties. The
Company's direct marketing activities include participation in selected trade
shows and conferences, targeted advertising as well as ongoing direct mail
efforts to existing and prospective customers. The Company has effectively
used local, regional and Web-based seminars to assist prospects in selecting
enterprise business intelligence solutions. The Company has used the Web to
further the interest and lead generation process and to improve the quality of
the leads that it provides to the sales organization. The Company's Web site
has become an effective lead generation program. The Company has invested in
building a partner and channel marketing function which helps to recruit,
train, support and conduct cooperative marketing with technology partners,
resellers and VARs. These programs helped to foster strong relationships
between the Company and its various partners. The marketing organization also
provides a wide-range of programs, materials and events to support the sales
organization in its efforts.
The Company's sales and marketing organization consisted of 111 full-time
employees as of December 31, 1997. The sales and marketing staff is based at
the Company's corporate
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headquarters in Palo Alto, California. The Company also has field sales
offices in the metropolitan areas of Chicago, New York, Los Angeles, Atlanta,
Washington D.C. and Dallas.
RESEARCH AND DEVELOPMENT
Research and development created the products that have been the basis for
the Company's success, and the Company intends to make substantial investments
in research and development and related activities to maintain and enhance its
product lines. The Company believes that its future success will, in large
part, depend on its ability to maintain and improve current products, and to
develop new products that meet enterprise business intelligence needs. The
Company's research and development organization is divided into teams
consisting of development engineers, product managers, quality assurance
engineers and technical writers. As of December 31, 1997, the Company's
research and development organization consisted of 43 full-time employees. The
research and development organization uses a phase-oriented development
process, which includes constant monitoring of quality, schedule,
functionality, costs and customer satisfaction. Product development is based
upon a consolidation of the requirements from existing customers, technical
support and engineering. The development group infrastructure provides
documentation, quality assurance, and delivery and support capabilities (as
well as product design and implementation) for the Company's products.
See "Risk Factors--Dependence on Key Personnel and Hiring of Additional
Personnel," "--Dependence on Product Development; Rapid Technological Change
and Evolving Industry Standards" and "--Risks of Product Defects; Products
Liability."
CUSTOMER AND TECHNICAL SUPPORT
The Company believes that a high level of customer support is important to
the successful marketing and sale of its products. Maintenance and support
contracts, which are typically for twelve months, are offered with the initial
license, may be renewed annually and are typically set at a percentage of the
total license fee. Substantially all of the Company's direct sales to
customers have maintenance and support contracts that entitle the customers to
patches, updates and upgrades at no additional cost if and when available, and
technical hotline support. In addition, the Company offers classes and
training programs at the Company's headquarters, local training centers and
customer sites. Customers purchasing maintenance are able to access hotline
telephone support during normal business hours. Incoming customer calls are
immediately logged into the support database at the time of the call. The
Company supplements its standard telephone hotline support with a number of
Web-based support services, including access to FAQs (frequently asked
questions), a patch download area, and an interface to the Company's technical
support department's problem-tracking database, which allows customers to
submit cases and view the status of any of their current cases on-line. Users
of the Company's products can attend regional user group conferences
throughout the year. To improve user access to explanatory materials, the
Company provides on-line documentation with all of its products. Among other
things, such documentation includes detailed explanations of product features
as well as problem-solving tips for middleware connections.
COMPETITION
The market in which the Company operates is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. The Company's current and potential competitors offer a variety of
software solutions and generally fall within four categories: (i) vendors of
business intelligence software such as Cognos, Business Objects, Seagate, and
Andyne; (ii) vendors offering alternative approaches to delivering analysis
capabilities to users, such as MicroStrategy; (iii) database vendors that
offer products which operate specifically with their proprietary database,
such as Microsoft, IBM, Oracle and Arbor; and (iv) other companies that may in
the future announce offerings of an enterprise business intelligence solution.
The Company has experienced and expects to continue to experience
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<PAGE>
increased competition from current and potential competitors, many of whom have
significantly greater financial, technical, marketing and other resources than
the Company. Such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. The Company expects additional competition as other established and
emerging companies enter into the business intelligence software market and new
products and technologies are introduced. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins, longer sales
cycles and loss of market share, any of which could materially and adversely
affect the Company's business, operating results and financial condition.
Current and potential competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third parties, thereby
increasing the ability of their products to address the needs of the Company's
prospective customers. The Company's current or future indirect channel
partners may establish cooperative relationships with current or potential
competitors of the Company, thereby limiting the Company's ability to sell its
products through particular distribution channels. Accordingly, it is possible
that new competitors or alliances among current and new competitors may emerge
and rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to obtain new licenses, and maintenance
and support renewals for existing licenses, on terms favorable to the Company.
Further, competitive pressures may require the Company to reduce the price of
its products, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and the failure to do so could have a material adverse
effect upon the Company's business, operating results and financial condition.
The Company competes on the basis of certain factors, including data
scalability, user scalability, open architecture, analytical capabilities,
product features, product performance, product quality, time to market, ease of
use, customer support and price. The Company believes it presently competes
favorably with respect to each of these factors. However, the Company's market
is still evolving and there can be no assurance that the Company will be able
to compete successfully against current and future competitors, and the failure
to do so successfully could have a material adverse effect on the Company's
business, operating results and financial condition. See "Risk Factors--
Competition."
PROPRIETARY RIGHTS
The Company currently relies primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company currently has one
United States patent application. There can be no assurance that the Company's
patent application will result in the issuance of a patent, or if issued, will
not be invalidated, circumvented or challenged, or that the rights granted
thereunder, if any, will provide competitive advantages to the Company or that
any of the Company's future patent applications, if any, will be issued with
the scope of the claims sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop technologies that are similar
or superior to the Company's technology or design around any patent that may
come to be owned by the Company. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the
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<PAGE>
Company's products is difficult, and while the Company is unable to determine
the extent to which piracy of its software products exists, software piracy
can be expected to be a persistent problem. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights as fully as
do the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights in the United States or abroad will
be adequate or that competitors will not independently develop similar
technology. The Company has entered into source code escrow agreements with a
number of its customers and indirect channel partners requiring release of
source code under certain conditions. Such agreements provide that such
parties will have a limited, non-exclusive right to use such code in the event
that there is a bankruptcy proceeding by or against the Company, if the
Company ceases to do business or, in some cases, if the Company fails to meet
its contractual obligations. The provision of source code escrows may increase
the likelihood of misappropriation by third parties. The Company expects that
software product developers will increasingly be subject to infringement
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention and
resources, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all.
In the event of a successful claim of product infringement against the Company
and failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
would be materially adversely affected. The Company relies upon certain
software that it licenses from third parties, including software that is
integrated with the Company's internally developed software and used in the
Company's products to perform key functions. There can be no assurance that
these third-party software licenses will continue to be available to the
Company on commercially reasonable terms. The loss of, or inability to
maintain, any such software licenses could result in shipment delays or
reductions until equivalent software could be developed, identified, licensed
and integrated, which could have a material adverse effect on the Company's
business, operating results and financial condition. Currently, the Company is
engaged in litigation with Business Objects, S.A. concerning the alleged
infringement by the Company of a U.S. patent held by Business Objects, S.A.
See "--Legal Proceedings." See "Risk Factors--Fluctuations in Quarterly
Operating Results," "--Litigation with Business Objects, S.A." and "--Limited
Protection of Proprietary Rights."
Finally, in the future the Company may rely upon certain software that it
may license from third parties, including software that may be integrated with
the Company's internally developed software and used in the Company's products
to perform key functions. There can be no assurance that these third-party
software licenses will be available to the Company on commercially reasonable
terms. The inability to obtain or maintain any such software licenses could
result in shipment delays or reductions until equivalent software could be
developed, identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
LEGAL PROCEEDINGS
On January 20, 1997, Business Objects, S.A. filed a complaint (the
"Complaint") against the Company in the U.S. District Court for the Northern
District of California in San Jose, California alleging that certain of the
Company's products (including at least the BrioQuery Navigator, BrioQuery
Explorer and BrioQuery Designer products) infringe at least claims 1, 2 and 4
of U.S. Patent No. 5,555,403. In April 1997, the Company filed an answer and
affirmative defenses to the Complaint, denying certain of the allegations in
the Complaint and asserting a counterclaim requesting declaratory relief that
the Company is not infringing the patent and that
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<PAGE>
the patent is invalid and unenforceable. In December 1997, venue for the case
was changed to the Northern District of California in San Francisco,
California. The Company believes that it has meritorious defenses to the claims
made in the Complaint on both invalidity and non-infringement grounds, and
intends to defend the suit vigorously. Business Objects, S.A. contends that
there was no prior software or other prior art which allowed users to associate
a familiar name with a query or which permitted retrieved values to be
semantically dynamic. The Company has contended that, if the patent were
construed to cover the Company's current products, the patent would then also
cover prior art products, rendering the patent invalid. Business Objects, S.A.
contends that there are material differences between those prior art products
and the Company's current products. Business Objects, S.A. also contends that
the patent is valid because it has been commercially successful and widely
copied in the industry. The Company disputes these contentions. The Company and
Business Objects, S.A. are currently conducting discovery and are awaiting a
date for the claims construction hearing. The pending litigation could result
in substantial expense to the Company and significant diversion of effort by
the Company's technical and management personnel. The Complaint seeks
injunctive relief and unspecified monetary damages, and Business Objects, S.A.
is expected to seek lost profits and/or equivalent royalties. The Complaint
also alleges willful infringement, and seeks treble damages, costs and
attorneys' fees. Litigation is subject to inherent uncertainties, especially in
cases such as this where complex technical issues must be decided. The
Company's defense of this litigation, regardless of the merits of the Complaint
or lack thereof, could be time-consuming or costly, or divert the attention of
technical and management personnel, which could have a material adverse effect
upon the Company's business, operating results and financial condition. There
can be no assurance that the Company will prevail in the litigation given the
complex technical issues and inherent uncertainties in patent litigation,
particularly before the claims have been construed by the Court. In the event
the Company is unsuccessful in the litigation, the Company may be required to
pay damages to Business Objects, S.A. and could be prohibited from marketing
certain of its products without a license, which license may not be available
on acceptable terms. If the Company is unable to obtain such a license, the
Company may be required to license a substitute technology or redesign to avoid
infringement, in which case the Company's business, operating results and
financial condition could be materially adversely affected. See "Risk Factors--
Litigation with Business Objects, S.A." and "Business--Proprietary Rights."
EMPLOYEES
As of December 31, 1997, the Company had 200 employees, including 111 in
sales and marketing, 21 in services and support, 43 in research and development
and 25 in general and administrative functions. The Company believes its
employee relations are good. The Company's success depends to a significant
degree upon the continued contributions of its key management, engineering,
sales and marketing personnel, many of whom would be difficult to replace. The
Company has employment contracts with only two members of its executive
management personnel, and currently maintains "key person" life insurance only
on Yorgen Edholm, the Company's President and Chief Executive Officer, and
Katherine Glassey, the Company's Executive Vice President, Products and
Services and Chief Technology Officer. The Company does not believe such
insurance would adequately compensate it for the loss of either Mr. Edholm or
Ms. Glassey. The Company believes its future success will also depend in large
part upon its ability to attract and retain highly skilled managerial,
engineering, sales and marketing and finance personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The loss of the services
of any of the key personnel, the inability to attract or retain qualified
personnel in the future or delays in either hiring required personnel or the
rate at which new people become productive, particularly sales personnel and
engineers, could have a material
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adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors--Dependence on Key Personnel and Hiring of
Additional Personnel."
FACILITIES
The Company's principal executive offices are located in Palo Alto,
California where the Company leases approximately 12,145 square feet under a
lease that expires in October 2003. Effective March 1998, the Company will
lease approximately 30,000 square feet in Palo Alto, California under a lease
that expires in March 2000. The Company also leases approximately 17,895 square
feet in an adjacent facility in Palo Alto, California under a lease that
expires in May 1998. The Company has no plans to renew this lease upon
expiration. The Company also leases space (typically less than 4,000 square
feet) in various geographic locations primarily for sales and support
personnel. The Company believes that its current facilities are adequate to
meet its needs through the end of 1999, at which time the Company may need to
lease additional space.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
March 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Yorgen H. Edholm..................... 42 President, Chief Executive Officer and
Chairman of the Board of Directors
Katherine Glassey.................... 40 Executive Vice President, Products and
Services, Chief Technology Officer and
Director
Robert W. Currie..................... 52 Executive Vice President, Worldwide
Operations
Chris M. Grejtak..................... 49 Executive Vice President, Marketing
Karen J. Willem...................... 42 Executive Vice President, Finance and
Operations and Chief Financial Officer
E. Floyd Kvamme(1)(2)................ 60 Director
Bernard J. Lacroute(1)(2)............ 54 Director
Norman L. Vincent(1)(2).............. 64 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
YORGEN H. EDHOLM is a co-founder of the Company and has been its President,
Chief Executive Officer and Chairman of the Board of Directors since inception.
Prior to founding the Company, Mr. Edholm was a manager with the Management
Consulting Division of Arthur Young & Company in New York (now Ernst & Young,
LLP) where he co-founded the microcomputer-based Decision Support Systems
Group. Before that, Mr. Edholm was a product manager with Industri Mathematic
AB in Stockholm, Sweden. Mr. Edholm holds a M.S. degree in Computer Science and
Applied Mathematics from the School of Physical Engineering at the Royal
Institute of Technology in Stockholm, Sweden and an M.B.A. degree in
Organizational Behavior and International Economics from the Stockholm School
of Economics in Stockholm, Sweden. Mr. Edholm is the spouse of Katherine
Glassey.
KATHERINE GLASSEY is a co-founder of the Company and has been its Executive
Vice President of Products and Services and Chief Technology Officer since
January 1997 and has been a director since inception. Prior to joining the
Company, Ms. Glassey established and managed application development and
consulting organizations for Metaphor Computer Systems, Inc. ("Metaphor"), a
decision support hardware and software company. Before joining Metaphor, Ms.
Glassey was a Senior Consultant with the Management Consulting Division of
Arthur Young & Company in New York. During that time, she co-founded the
microcomputer-based Decision Support Systems Group whose charter was to use
personal computers to enable end-users to make decisions based on corporate
data. Ms. Glassey holds a B.S. degree in Operations Research from Cornell
University with a Minor in English Literature. Ms. Glassey is the spouse of
Yorgen H. Edholm.
ROBERT W. CURRIE joined the Company in September 1996 as Executive Vice
President of Worldwide Operations. Prior to joining the Company, Mr. Currie was
Vice President and General Manager of North American Operations at Sybase,
Inc., a database software and systems company, from July 1995 to July 1996.
From December 1993 to July 1995, Mr. Currie was Vice President and General
Manager of European Operations at Sybase, Inc. Mr. Currie holds a B.S. degree
in Business Administration from the University of Massachusetts.
44
<PAGE>
CHRIS M. GREJTAK joined the Company in January 1997 as Executive Vice
President, Marketing. Prior to joining the Company, Mr. Grejtak was Vice
President, Marketing at Red Brick Systems, Inc., a data warehousing company,
from December 1995 to December 1996. From July 1995 to December 1995, he was
Vice President, Sales and Marketing at Avistar Systems, Inc., a video desktop
conferencing software and hardware company. Mr. Grejtak was Vice President,
Marketing at Network General Corporation ("Network General"), a network
management software company, from November 1994 to June 1995. From August 1992
to November 1994, he was a Vice President and then President and CEO of
Metaphor. Mr. Grejtak holds a B.A. degree in Sociology from Middlebury College.
KAREN J. WILLEM joined the Company in August 1997 as Executive Vice
President, Finance and Operations and Chief Financial Officer. Prior to joining
the Company, Ms. Willem was Vice President, Worldwide Sales Operations from
April 1995 to January 1997 at Network General. From July 1991 to March 1995,
Ms. Willem was Vice President and Corporate Controller at Network General. Ms.
Willem holds a B.S. degree in Biology from Bucknell University and an M.B.A.
degree in Finance from the University of Pittsburgh.
E. FLOYD KVAMME has been a director of the Company since March 1995. He is
currently also a director of TriQuint Semiconductor, Inc., Harmonic Lightwaves,
Inc., Photon Dynamics, Inc., and several privately held companies. He has been
a partner of Kleiner Perkins Caufield & Byers, a venture capital firm, since
1984. He holds a Bachelor of Science degree in engineering from the University
of California and a Master of Science degree in engineering from Syracuse
University.
BERNARD J. LACROUTE has been a director of the Company since March 1995. He
is currently also a director of several privately held companies. Mr. Lacroute
has been a partner with Kleiner Perkins Caufield & Byers since 1989. Prior to
joining Kleiner Perkins Caufield & Byers, Mr. Lacroute held a number of Senior
Executive positions in leading high technology firms including Digital
Equipment Corporation and Sun Microsystems, Inc. Mr. Lacroute holds graduate
degrees in Physics from the University of Grenoble and in Engineering from the
Ecole Nationale Superieure d'lngenieurs, as well as an M.S. degree in
Electrical Engineering from the University of Michigan.
NORMAN L. VINCENT has been a director of the Company since November 1995.
From 1960 until 1995, Mr. Vincent held various positions at State Farm Mutual
Auto Insurance Company ("State Farm") including, most recently, head of the
systems department (Systems Vice President). During part of his tenure at State
Farm, Mr. Vincent was a member of the Research Board, a private organization of
Chief Information Officers. He currently serves on the board of NeoVista
Solutions, Inc. Mr. Vincent holds a degree in Psychology from the University of
Wisconsin, as well as an M.S. and a Ph.D. in Industrial Psychology from Purdue
University.
EXECUTIVE OFFICERS
The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company.
BOARD COMPOSITION
The Company currently has authorized six directors. In accordance with the
terms of the Company's Restated Certificate of Incorporation, effective at the
time the Company becomes a Listed Corporation within the meaning of Section
301.5 of the California Corporations Code, the terms of office of the Board of
Directors will be divided into two classes: Class I, whose term will expire at
the annual meeting of stockholders to be held in 1999 and Class II, whose term
45
<PAGE>
will expire at the annual meeting of stockholders to be held in 2000. The Class
I directors are Mr. Kvamme, Mr. Vincent and Ms. Glassey, and the Class II
directors are Mr. Edholm and Mr. Lacroute. 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 second annual meeting following election. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the two classes so that, as nearly as possible, each
class will consist of one-half of the directors. This classification of the
Board of Directors may have the effect of delaying or preventing changes in
control or management of the Company. Directors of the Company may be removed,
with or without cause, by the affirmative vote of the holders of a majority of
the Common Stock.
BOARD COMMITTEES
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee. The Board's Audit Committee currently consists of
Messrs. Kvamme, Lacroute and Vincent. The Audit Committee reviews the Company's
annual audit and meets with the Company's independent auditors to review the
Company's internal accounting procedures and financial management practices.
The Compensation Committee currently consists of Messrs. Kvamme, Lacroute and
Vincent. The Compensation Committee recommends compensation and benefits for
certain of the Company's executive officers to the Board, reviews general
policy relating to compensation and benefits of employees of the Company, and
administers the Company's Stock Plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board is currently
or has been, at any time since the formation of the Company, an officer or
employee of the Company. No executive officer of the Company serves as a member
of the Board of Directors or compensation committee of any entity that has one
or more executive officers serving on the Company's Board or Compensation
Committee.
DIRECTOR COMPENSATION
Except for Mr. Vincent, who receives $500 per meeting for his attendance at
meetings of the Board of Directors, the Company does not currently provide cash
compensation to directors for services in such capacity. Directors may,
however, be reimbursed for certain expenses in connection with attendance at
Board and Committee meetings. Directors are eligible to participate in the
Company's Stock Plans and, beginning in 1998, employee directors will also be
eligible to participate in the Company's 1998 Employee Stock Purchase Plan and
non-employee directors will also be eligible to participate in the 1998
Directors' Stock Option Plan. In December 1996, Mr. Vincent was granted an
option to purchase 12,500 shares of Common Stock at an exercise price of $0.60
per share subject to a twenty-five month vesting schedule. In March 1989, Mr.
Edholm and Ms. Glassey purchased 3,750,000 shares and 1,250,000 shares,
respectively, of restricted Common Stock. See "--Stock Plans."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain estimated
compensation awarded or paid by the Company during the fiscal year ended March
31, 1998 ("Last Fiscal Year") to its President, Chief Executive Officer and
Chairman of the Board of Directors and the Company's other four most highly
compensated executive officers, each of whose aggregate compensation during the
Last Fiscal Year exceeded $100,000 (collectively, the "Named Executive
Officers"):
46
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS(1) OPTIONS
- --------------------------- -------------------- ------------
<S> <C> <C> <C>
Yorgen H. Edholm.......................... $ 175,000$ 42,112 --
President, Chief Executive Officer and
Chairman of the Board of Directors
Katherine Glassey......................... 145,000 31,584 --
Executive Vice President, Products and
Services, Chief Technology Officer and
Director
Robert W. Currie.......................... 170,000 69,934(2) --
Executive Vice President and General
Manager, Worldwide Operations
Chris M. Grejtak.......................... 175,000 21,056 25,000
Executive Vice President, Marketing
Karen J. Willem(3)........................ 99,519 21,056 87,500
Executive Vice President, Finance and
Operations, and Chief Financial Officer
</TABLE>
- --------
(1) Includes amounts estimated to be earned in the Last Fiscal Year with
respect to such individual's performance in the quarter ending March 31,
1998.
(2) Represents sales commission.
(3) Ms. Willem joined the Company in August 1997. Ms. Willem's annualized
salary is $150,000.
Option Grants. The following table provides certain estimated information
regarding stock options granted to the Named Executive Officers during the Last
Fiscal Year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(4)
-------------------------------------------------- --------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE (3) DATE 5% 10%
- ---- ---------- -------------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Yorgen H. Edholm........ -- -- -- -- -- --
Katherine Glassey....... -- -- -- -- -- --
Robert W. Currie........ -- -- -- -- -- --
Chris M. Grejtak........ 25,000 3.5% $1.20 06/18/2002 $ 8,288 $ 18,315
Karen J. Willem......... 75,000 10.6 2.00 08/20/2002 41,442 91,577
12,500 1.8 6.00 11/25/2002 20,721 45,788
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) With respect to Mr. Grejtak's option, 1/48 of the total shares vest on each
monthly anniversary of the vesting commencement date. With respect to Ms.
Willem's options, (i) the option to purchase 75,000 shares vests at the
rate of 1/4 of such shares one year from the vesting commencement date, and
1/48th of the total shares on each monthly anniversary of the vesting
commencement date thereafter and (ii) the option to purchase 12,500 shares
vests at the rate of 1/48 of the total shares on each monthly anniversary
of the vesting commencement date. The options expire five years from the
date of grant, or earlier upon termination of employment. See "--Stock
Plans--1992 Stock Option Plan."
(2) Based on an aggregate of 705,597 options granted to employees, consultants
and directors during the eleven months ended February 28, 1998.
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<PAGE>
(3) The exercise price per share of each option was equal to the fair value of
the Common Stock on the date of grant as determined by the Board of
Directors. See Note 8 of Notes to Consolidated Financial Statements.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the SEC. There can be no assurance that the
actual stock price appreciation over the five-year option term will be at
the assumed 5% and 10% levels or at any other defined level. Unless the
market price of the Common Stock appreciates over the option term, no value
will be realized from the option grants made to the Named Executive
Officers.
Option Holdings. The following table sets forth for each of the Named
Executive Officers the number and value of securities underlying unexercised
options held by each of the Named Executive Officers as of March 31, 1998.
YEAR-END OPTION HOLDINGS AND VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT MARCH 31, 1998 AT MARCH 31, 1998(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Yorgen H. Edholm............ -- -- -- --
Katherine Glassey........... -- -- -- --
Robert W. Currie............ 87,240 175,260
Chris M. Grejtak............ 16,146 33,854
Karen J. Willem............. 521 86,979
</TABLE>
- --------
(1) Value realized and value of unexercised in-the-money options is based on a
value of $ .00 per share of the Company's Common Stock, the assumed initial
public offering price. Amounts reflected are based on the assumed value
minus the exercise price multiplied by the number of shares acquired on
exercise.
EMPLOYMENT AGREEMENTS
In June 1994, the Company entered into an agreement with Mr. Edholm providing
that, in the case of involuntary termination six months prior to or twelve
months after a change in control of the Company, salary will continue to be
paid for a period of six months from the date of termination and all stock
options and restricted stock then held by Mr. Edholm will become fully vested
and exercisable.
In October 1996, the Company entered into an agreement with Mr. Currie
providing that, in the case of involuntary termination six months prior to or
twelve months after a change in control of the Company, salary will continue to
be paid for a period of six months from the date of termination and all stock
options and restricted stock then held by Mr. Currie will become fully vested
and exercisable.
In August 1997, the Company entered into an agreement with Ms. Willem
providing that, in the case of involuntary termination six months prior to or
twelve months after an acquisition of the Company, the vesting of all of the
stock options and restricted stock then held by Ms. Willem will accelerate as
if an additional year of service had been rendered.
STOCK PLANS
1992 Stock Option Plan. The Company's 1992 Stock Option Plan (the "1992
Plan") was adopted by the Board of Directors in January 1992 and approved by
the stockholders in June 1992. A total of 1,250,000 shares of Common Stock were
reserved at that time for issuance under the 1992 Plan. An increase of 429,795
shares in the number of shares reserved for issuance under the 1992 Plan, to a
total of 1,679,795 shares of Common Stock issuable thereunder, was authorized
by the Board of Directors and approved by the stockholders in
48
<PAGE>
March 1995. An additional increase of 400,000 shares in the number of shares
reserved for issuance under the 1992 Plan, to a total of 2,079,795 shares of
Common Stock issuable thereunder, was authorized by the Board of Directors and
approved by the stockholders in May 1996. As of December 31, 1997, 784,901
options to purchase any shares of Common Stock had been exercised, options to
purchase a total of 1,204,562 shares at a weighted average exercise price of
$1.79 per share were outstanding and 130,229 shares remained available for
future option grants under the 1992 Plan.
The purposes of the 1992 Plan are to attract, retain and reward persons
providing services to the Company and to motivate such persons to contribute to
the growth of the Company. The 1992 Plan provides for the granting to
employees, including officers and employee directors, of incentive stock
options within the meaning of Section 422 of the Code and for the granting to
employees, consultants and advisors of nonstatutory stock options. To the
extent an optionee would have the right in any calendar year to exercise for
the first time one or more incentive stock options for shares having an
aggregate fair market value (under all plans of the Company and determined for
each share as of the date the option to purchase the shares was granted) in
excess of $100,000, any such excess options shall be treated as nonqualified
stock options. If not terminated earlier, the 1992 Plan will terminate in
January 2002.
The 1992 Plan is administered by the Board of Directors (the "1992
Administrator"). The 1992 Administrator has the power to determine which of the
persons eligible under the 1992 Plan shall be granted options; when and how an
option shall be granted; whether an option will be an incentive stock option or
a nonqualified stock option; the provisions of each option granted (which need
not be identical), including the time or times when a person shall be permitted
to receive an option; and the number of shares with respect to which option
shall be granted to each such person. Options granted under the 1992 Plan are
not generally transferable by the optionee. Options granted under the 1992 Plan
may be exercised within ninety days after termination of employment or
consulting status, provided however that options must be exercised within 12
months after an optionee's termination by death or 12 months after an
optionee's termination due to optionee's disability, and in any event no later
than the expiration of the option's five year term. The exercise price of
options must be at least equal to the fair market value of the Common Stock on
the date of grant, unless such option is granted pursuant to an assumption or
substitution for another option in a manner qualifying under the provisions of
Section 425(a) of the Code. Under the Company's standard form of option
agreement, the initial option grant vests over four years, with 25% vesting on
the annual anniversary of the vesting commencement date and an additional 1/48
vesting on each monthly anniversary thereafter. For subsequent option grants,
the option shares typically vest at a rate of 1/48 of such shares on each
monthly anniversary following the grant date. The 1992 Administrator has 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, notwithstanding the
provisions in the option agreement. In the event of a dissolution, sale of
substantially all of the Company's assets, merger, reverse merger, or
consolidation of the Company with or into another corporation, the Board may
have the surviving corporation assume the options granted under the 1992 Plan,
or substitute similar options, continue the options in full force and effect or
accelerate vesting thereof. The Company does not intend to grant any new
options under the 1992 Plan following completion of this Offering.
1998 Stock Option Plan. The Company's 1998 Stock Option Plan (the "1998
Plan") was adopted by the Board of Directors in February 1998 and will be
submitted to the stockholders for approval in April 1998. A total of 2,250,000
shares of Common Stock have been reserved for issuance under the 1998 Plan,
plus an automatic annual increase on the first day of each of the Company's
fiscal years in 1999, 2000, and 2001 equal to the lesser of 600,000 shares or
three
49
<PAGE>
percent (3%) of the Company's outstanding Common Stock on the last day of the
immediately preceding fiscal year. No options have been granted under the 1998
Plan.
The purposes of the 1998 Plan are to attract and retain the best available
personnel to the Company, to provide additional incentives to the Company's
employees and consultants and to promote the success of the Company's business.
The 1998 Plan provides for the granting to employees, including officers and
directors, of incentive stock options within the meaning of Section 422 of the
Code and for the granting to employees and consultants, including nonemployee
directors, of nonstatutory stock options. To the extent an optionee would have
the right in any calendar year to exercise for the first time one or more
incentive stock options for shares having an aggregate fair market value (under
all plans of the Company and determined for each share as of the date the
option to purchase the shares was granted) in excess of $100,000, any such
excess options shall be treated as nonstatutory stock options. If not
terminated earlier, the 1998 Plan will terminate in February 2008.
The 1998 Plan may be administered by the Board of Directors or a committee
appointed by the Board which shall be constituted in such a manner as to comply
with applicable law (the "1998 Administrator"). The 1998 Administrator has the
power to select the consultants and employees to whom options may be granted,
to determine the terms of the options granted including the exercise price, the
number of shares subject to the option and the exercisability thereof, and the
form of consideration payable upon exercise. Options granted under the 1998
Plan are not generally transferable by the optionee; provided, however, that
the maximum number of shares which may be subject to options granted to any
employee for any fiscal year or the Company shall be 1,000,000. Such limitation
shall not take effect until the earliest date required under Section 162(m) of
the Code. Options granted under the 1998 Plan must be exercised within 30 days
after termination of employment or consulting status, provided however that
options must generally be exercised within six months after an optionee's
termination by death or by disability, and in any event no later than the
expiration of the option's ten year term. The exercise price of stock options
must be at least equal to the fair market value of the Common Stock on the date
of grant; provided, however, that the exercise price of any stock option
granted to a holder of more than 10% of the total combined voting power of all
classes of stock of the Company must equal at least 110% of the fair market
value of the Company Stock on the date of grant. Initial grants made under the
Company's standard form of option agreement typically vest over four years,
with 25% vesting on the 12 month anniversary of the vesting commencement date
and with 1/48 vesting on each monthly anniversary thereafter. For subsequent
option grants, the option shares typically vest at a rate of 1/48 of such
shares on each monthly anniversary following the grant date. In the event of a
dissolution or liquidation, to the extent it has not been previously exercised,
the option will terminate immediately prior to the consummation of such
proposed action. In the event of a proposed sale of all or substantially all of
the Company's assets, merger of the Company with or into another corporation,
each outstanding option or stock purchase right shall be assumed or an
equivalent option or right substituted by the successor corporation, unless the
Administrator determines that the optionee shall have the right to exercise the
option as to some or all of the optioned stock, including shares as to which
the option would not otherwise be exercisable, for a thirty day period.
1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock Purchase
Plan (the "Purchase Plan") was adopted by the Board of Directors in February
1998 and will be submitted to the stockholders for approval in April 1998. A
total of 500,000 shares of Common Stock has been reserved for issuance under
the Purchase Plan, plus an automatic annual increase on the first day of each
of the Company's fiscal years in 1999, 2000, and 2001 equal to
50
<PAGE>
the lesser of 300,000 shares or 2% of the Company's outstanding Common Stock or
the last day of the immediately preceding fiscal year.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of offering periods of twenty-four month
duration, with the first such offering period commencing on the effective date
of this Registration Statement and ending on April 30, 2000. Each offering
period after the first offering period will commence on or about May 1 and
November 1 of each year. Each offering period will consist of four consecutive
purchase periods of six months duration, with the last day of each period being
designated a purchase date. The first purchase date will occur on October 31,
1998, with subsequent purchase dates to occur every six months thereafter. The
Purchase Plan will be administered by the Board of Directors or a committee
named by the Board. Employees (including officers and employee directors) of
the Company, or of any majority-owned subsidiary designated by the Board, are
eligible to participate in the Purchase Plan if they are employed by the
Company or any such subsidiary for at least 20 hours per week and more than
five months per year. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 20% nor equal
less than 1% of an employee's compensation, at a price equal to the lower of
85% of the fair market value of the Company's Common Stock at the beginning of
the offering period or the purchase date. If the fair market value of the
Common Stock on a purchase date is less than the fair market value at the
beginning of the offering period, a new twenty-four month offering period will
automatically being on the first business day following the purchase date with
a new fair market value. Employees may end their participation in the offering
at any time during the offering period, and participation ends automatically on
termination of employment with the Company. If not terminated earlier, the
Purchase Plan will have a term of 20 years.
The Purchase Plan provides that in the event of the proposed dissolution or
liquidation of the Company, the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. In the event of a merger of the Company with or into another
corporation or a sale of all or substantially all of the Company's assets, each
right to purchase stock under the Purchase Plan will be assumed or an
equivalent right substituted by the successor corporation unless the Board of
Directors shortens the offering period so that employees' rights to purchase
stock under the Purchase Plan are exercised prior to the merger or sale of
assets. The Board of Directors has the power to amend or terminate the Purchase
Plan as long as such action does not adversely affect any outstanding rights to
purchase stock thereunder.
1998 Directors' Stock Option Plan. The 1998 Directors' Stock Option Plan (the
"Directors' Plan") was adopted by the Board of Directors in February 1998 and
will be submitted for approval by the stockholders for approval in April 1998.
A total of 300,000 shares of Common Stock has been reserved for issuance under
the Directors' Plan. The Directors' Plan provides for the automatic grant of
nonstatutory stock options to nonemployee directors of the Company. The
Directors' Plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
Board of Directors.
The Directors' Plan provides that each person who first becomes a nonemployee
director of the Company after the date of this offering shall be granted a
nonstatutory stock option to purchase 20,000 shares of Common Stock (the "First
Option") on the date on which the optionee first becomes a nonemployee director
of the Company. The First Option will not be granted to individuals serving as
nonemployee directors as of the date of this offering. Thereafter, on the date
of each annual meeting of the Company's stockholders following which a
nonemployee director is serving on the Board of Directors, each nonemployee
director (including directors who were not granted a First Option prior to the
date of such annual
51
<PAGE>
meeting) shall be granted an option to purchase 5,000 shares of Common Stock (a
"Subsequent Option") if, on such date, he or she has served on the Company's
Board of Directors for at least six months.
The Directors' Plan sets neither a maximum nor a minimum number of shares for
which options may be granted to any one nonemployee director, but does specify
the number of shares that may be included in any grant and the method of making
a grant. No option granted under the Directors' Plan is transferable by the
optionee other than by will or the laws of descent or distribution or pursuant
to the terms of a qualified domestic relations order, and each option is
exercisable, during the lifetime of the optionee, only by such optionee. The
Directors' Plan provides that the First Option shall become exercisable in
installments of 25% of the total number of shares subject to the First Option
on each of the first, second, third and fourth anniversaries of the date of
grant of the First Option; each Subsequent Option shall become exercisable in
full on the day before the first anniversary of the date of grant of that
Subsequent Option. The exercise price of all stock options granted under the
Directors' Plan shall be equal to the fair market value of a share of the
Company's Common Stock on the date of grant of the option. Options granted
under the Directors' Plan have a term of ten years.
In the event of the dissolution or liquidation of the Company, a sale of all
or substantially all of the assets of the Company, the merger of the Company
with or into another corporation in which the Company is not the surviving
corporation or any other capital reorganization in which more than 50% of the
shares of the Company entitled to vote are exchanged, the Company shall give to
each nonemployee director either (i) a reasonable time within which to exercise
the option, including any part of the option that would not otherwise be
exercisable, prior to the effectiveness of any such transaction at the end of
which time the Option shall terminate, or (ii) the right to exercise the
option, including any part of the option that would not otherwise be
exercisable (or receive a substitute option with comparable terms) as to an
equivalent number of shares of stock of the corporation succeeding the Company
or acquiring its business by reason of any such transaction. The Board of
Directors may amend or terminate the Directors' Plan; provided, however, that
no such action may adversely affect any outstanding option. If not terminated
earlier, the Directors' Plan will have a term of ten years.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company has included in its Restated Certificate of Incorporation a
provision to eliminate the personal liability of its officers and directors for
monetary damages for breach or alleged breach of their fiduciary duties as
officers or directors, respectively, except to the extent otherwise required by
Delaware Law. Such limitation of liability does not affect the availability of
equitable remedies such as injunctive relief or rescission. In addition, the
Company's Bylaws provide that the Company is required to indemnify its officers
and directors under certain circumstances, including those circumstances in
which indemnification would otherwise be discretionary, and the Company is
required to advance expenses to its officers and directors as incurred in
connection with proceedings against them for which they may be indemnified. The
Company has entered into indemnification agreements with its officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the Delaware Law. The
indemnification agreements require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as officers and directors (other
than liabilities arising from willful misconduct of a culpable nature), to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms. The Company has also obtained
directors' and officers' liability insurance with respect to liabilities
arising out of certain matters, including
52
<PAGE>
matters under the Securities Act. The Company believes that its charter
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers.
At present, the Company is not aware of any pending or threatened litigation
or proceeding involving a director, officer, employee or agent of the Company
in which indemnification would be required or permitted. The Company is not
aware of any threatened litigation or proceeding that might result in a claim
for such indemnification.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 31, 1995, the Company has issued, in private placement
transactions (collectively, the "Private Placement Transactions"), shares of
Preferred Stock as follows: an aggregate of 2,496,756 shares of Series A
Preferred Stock at $1.542 per share in March 1995, an aggregate of 2,117,147
shares of Series B Preferred Stock at $2.834 per share in June 1996 and an
aggregate of 852,269 shares of Series C Preferred Stock at $7.04 per share in
June 1997. Each share of Series A, Series B and Series C Preferred Stock is
convertible into one share of Common Stock. The purchasers of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
included, among others, the following Named Executive Officers, directors and
5% stockholders of the Company and persons and entities associated with them:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED PREFERRED PREFERRED
INVESTOR(1) STOCK STOCK STOCK
- ----------- --------- --------- ---------
<S> <C> <C> <C>
Kleiner Perkins Caufield 2,269,780 705,716 71,022
& Byers VII............
(E. Floyd Kvamme and
Bernard J.
Lacroute)(2)(3)
Integral Capital
Partners(2)(4)......... -- 705,716 99,431
</TABLE>
- --------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Holder is a 5% stockholder.
(3) Includes shares held by Kleiner Perkins Caufield & Byers VII and KPCB
Information Sciences Zaibatsu Fund II.
(4) Includes shares held by Integral Capital Partners III, L.P. and Integral
Capital Partners International II C.V.
In December 1996, the Company issued to Management Decisions Limited a
warrant to purchase 10,000 shares of Common Stock at an exercise price of $0.60
per share. The Company expects these warrants will be exercised immediately
prior to the completion of this Offering.
In December 1996, Chris Grejtak exercised an option to purchase 50,000 shares
of the Company's Common Stock and entered into a Notice of Early Exercise and
Restricted Stock Purchase Agreement with respect to such exercise. Mr. Grejtak
paid the $0.60 exercise price per share of such shares by delivery of a five
year full-recourse promissory note bearing interest at the rate of 6.31% per
annum. The note, which is full-recourse, is secured by the shares of Common
Stock purchased by Mr. Grejtak. The maximum indebtedness under the note during
the year ended March 31, 1998 was $32,403.
In July 1997, the Company loaned Yorgen Edholm $400,000 pursuant to a full-
recourse Secured Promissory Note bearing interest at a rate of 6.07% per annum.
The note was repaid in full in December 1997. The maximum indebtedness under
the note during the nine months ended December 31, 1997 was $408,877.
In June 1994, the Company entered into an agreement with Mr. Edholm providing
that, in the case of involuntary termination six months prior to or twelve
months after a change in control of the Company, salary will continue to be
paid for a period of six months from the date of termination and all stock
options and restricted stock then held by Mr. Edholm will become fully vested
and exercisable.
In October 1996, the Company entered into an agreement with Mr. Currie
providing that, in the case of involuntary termination six months prior to or
twelve months after a change in control of the Company, salary will continue to
be paid for a period of six months from the date of termination and all stock
options and restricted stock then held by Mr. Currie will become fully vested
and exercisable.
54
<PAGE>
In August 1997, the Company entered into an agreement with Ms. Willem
providing that, in the case of involuntary termination six months prior to or
twelve months after an acquisition of the Company, the vesting of all of the
stock options and restricted stock then held by Ms. Willem will accelerate as
if an additional year of service had been rendered.
The Company has entered into indemnification agreements with its officers and
directors containing provisions which may require the Company, among other
things, to indemnify its officers and directors against certain liabilities
that may arise by reason of their status or service as officers or directors
(other than liabilities arising from willful misconduct of a culpable nature)
and to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified. The Company also intends to execute
such agreements with its future directors and executive officers. See
"Management--Limitation of Liability and Indemnification Matters."
In the past, the Company has granted options to certain of its executive
officers. The Company intends to continue to grant options to its officers in
the future. See "Management--Option Grants in Last Fiscal Year" and "Principal
and Selling Stockholders."
The Company believes that all of the transactions set forth above were in its
best interests. As a matter of policy, the transactions were, and all future
transactions between the Company and its officers, directors, principal
stockholders and affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested directors
on the Board of Directors, and will be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
55
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1997 and as adjusted
to reflect the sale of the Common Stock offered by this Prospectus by (i) each
stockholder who is known by the Company to own beneficially more than 5% of the
Common Stock , (ii) each Named Executive Officer of the Company, (iii) each
director of the Company, and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING (1) AFTER OFFERING (1)
-------------------------- --------------------
OFFICERS, SHARES
DIRECTORS AND PRINCIPAL STOCKHOLDERS NUMBER PERCENT(2) OFFERED (3) NUMBER PERCENT(2)
- ------------------------------------ ------------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
Kleiner Perkins 3,046,518 27.2% -- 3,046,518
Caufield & Byers(4)....
2750 Sand Hill Road,
Suite 250
Menlo Park, CA 94025
Entities affiliated with
Integral Capital 805,147 7.2 -- 805,147
Partners(5)............
2750 Sand Hill Road
Menlo Park, CA 94025
Yorgen H. Edholm(6)..... 4,999,996 44.6 125,000 4,874,996
Katherine Glassey(6).... 4,999,996 44.6 125,000 4,874,996
Robert W. Currie(7)..... 87,240 * -- 87,240
Chris M. Grejtak(8)..... 66,146 * -- 66,146
Karen J. Willem(9)...... 521 * -- 521
E. Floyd Kvamme(10)..... 3,046,518 27.2 -- 3,046,518
Kleiner Perkins
Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Bernard J. Lacroute(11). 3,046,518 27.2 -- 3,046,518
Kleiner Perkins
Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Norman L. Vincent(12)... 12,500 * -- 12,500
All directors and
executive officers as a
group (8 persons) (13). 8,212,921 72.5 125,000 8,087,920
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the Company's Common
Stock.
(1) Assumes no exercise of the Underwriters' over-allotment option and no
exercise of outstanding warrants. Except pursuant to applicable community
property laws or as indicated in the footnotes to this table, to the
Company's knowledge, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by such stockholder.
(2) Applicable percentage of ownership for each stockholder is based on
11,211,172 shares of Common Stock outstanding as of December 31, 1997
together with applicable options for such stockholders. Beneficial
ownership is determined in accordance with the rules of the SEC. The
number of shares beneficially owned by a person includes shares of Common
Stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of December 31, 1997. Such
shares issuable pursuant to such options are deemed outstanding for
computing the percentage ownership of the person holding such options but
are not deemed outstanding for the purposes of computing the percentage
ownership of each other person. Unless otherwise indicated, the address of
each of the individuals named above is: c/o Brio Technology, Inc., 3430
West Bayshore Road, Palo Alto, CA 94303.
(3) Consists of 93,750 shares and 31,250 shares to be sold in this Offering by
Mr. Edholm and Ms. Glassey, respectively. Additionally, if the
Underwriter's over-allotment option is exercised in full, Mr. Edholm and
Ms.
56
<PAGE>
Glassey will sell an additional 93,750 shares and 31,250 shares,
respectively, in the Offering. In such event, Mr. Edholm and Ms. Glassey
will both beneficially own 4,749,996 shares or % and %, respectively,
of the shares outstanding. The Company will sell the remaining
shares of the over-allotment if such option is exercised in full.
(4) Consists of 3,027,100 shares held by Kleiner Perkins Caufield & Byers VII
and 19,418 shares held by KPCB Information Sciences Zaibatsu Fund II. E.
Floyd Kvamme and Bernard J. Lacroute, both directors of the Company, are
general partners of KPCB VII Associates, the general partner of each of
Kleiner Perkins Caufield & Byers VII and KPCB Information Sciences
Zaibatsu Fund II. Each of Messrs. Kvamme and Lacroute disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(5) Includes 153,048 shares held by Integral Capital Partners International II
C.V.
(6) Includes 1,815,009 shares held by Mr. Edholm, 605,003 shares held by Ms.
Glassey and 2,500,000 shares held by the Edholm Family Limited
Partnership. Also includes an aggregate of 79,984 shares held in trusts
for the children of which Mr. Edholm and Ms. Glassey are trustees and have
voting power.
(7) Consists of 87,240 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(8) Includes 16,146 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(9) Consists of 521 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(10) Consists of 3,027,100 shares held by Kleiner Perkins Caufield & Byers VII
and 19,418 shares held by KPCB Information Sciences Zaibatsu Fund II. E.
Floyd Kvamme, a director of the Company, is a general partner of KPCB VII
Associates, the general partner of each of Kleiner Perkins Caufield &
Byers VII and KPCB Information Sciences Zaibatsu Fund II, shares voting
and dispositive power with respect to the shares held by each such entity,
and disclaims beneficial ownership of such shares in which he has no
pecuniary interest.
(11) Consists of 3,027,100 shares held by Kleiner Perkins Caufield & Byers VII
and 19,418 shares held by KPCB Information Sciences Zaibatsu Fund II.
Bernard J. Lacroute, a director of the Company, is a general partner of
KPCB VII Associates, the general partner of each of Kleiner Perkins
Caufield & Byers VII and KPCB Information Sciences Zaibatsu Fund II,
shares voting and dispositive power with respect to the shares held by
each such entity, and disclaims beneficial ownership of such shares in
which he has no pecuniary interest.
(12) Consists of 12,500 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(13) Includes 116,407 shares issuable upon exercise of stock options
exercisable within 60 days of December 31, 1997.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this Offering, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, $0.001 par value,
and 2,000,000 shares of undesignated Preferred Stock, $0.001 par value.
COMMON STOCK
As of December 31, 1997, there were 11,211,172 shares of Common Stock
outstanding, held of record by 91 stockholders, and options to purchase an
aggregate of 1,204,562 shares of Common Stock were also outstanding. There will
be shares of Common Stock outstanding after December 31, 1997 (assuming
no exercise of the Underwriter's overallotment option, no exercise of
outstanding warrants, and no exercise of outstanding options under the Stock
Plans after December 31, 1997) after giving effect to the sale of the shares of
Common Stock to the public offered hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and satisfaction of preferential
rights of any outstanding Preferred Stock. The Common Stock has no preemptive
or conversion rights or other subscription rights. The outstanding shares of
Common Stock are, and the shares of Common Stock to be issued upon completion
of this Offering will be, fully paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of this Offering, each outstanding share of
preferred stock will be converted into one share of Common Stock and
automatically retired. Thereafter, the Board of Directors is authorized to
issue up to 2,000,000 shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may adversely affect the voting power of the holders of Common Stock, including
voting rights, of the holders of Common Stock. In certain circumstances, such
issuance could have the effect of decreasing the market price of the Common
Stock. As of the closing of this Offering, no shares of Preferred Stock will be
outstanding and the Company currently has no plans to issue any shares of
Preferred Stock.
WARRANTS
As of December 31, 1997, the Company had an outstanding exercisable warrant
to purchase 10,000 shares of Common Stock at $0.60 per share. The warrant
expires, among other times, upon the closing of this Offering. The warrant
contains provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon the exercise of the warrant under certain
circumstances, including stock dividends, stock splits, reorganizations,
reclassification, consolidations and certain dilutive sales of the securities
for which the warrant
58
<PAGE>
is exercisable below the then existing exercise price. The warrant may be
exercised, without the payment of cash, for the number of shares of Common
Stock purchasable, at the current market value of the Common Stock, by the
difference between the aggregate exercise price of the warrant and the value,
at the current market price per share of Common Stock of the aggregate number
of shares purchasable under the warrant. The Company anticipates that the
warrant will be exercised immediately prior to the closing of this Offering on
a net issuance basis for approximately shares.
REGISTRATION RIGHTS
Following this Offering, the holders of 4,533,480 shares of Common Stock (the
"Registrable Securities") or their transferees will be entitled to certain
rights with respect to the registration of such shares under the Securities
Act. These rights are provided under the terms of an agreement between the
Company and the holders of the Registrable Securities. Subject to certain
limitations in the agreement, the holders of at least 50% of the Registrable
Securities may require, on two occasions beginning after the earlier of March
21, 1998 or six months after the effective date of this Offering, that the
Company use its best efforts to register the Registrable Securities for public
resale. If the Company registers any of its Common Stock either for its own
account or for the account of other security holders, the holders of
Registrable Securities are entitled to include their shares of Common Stock in
such registration, subject to the ability of the underwriters to limit the
number of shares included in such offering. The holders of Registrable
Securities may also require the Company (not more than two times in any twelve-
month period or three times in the aggregate) to register all or a portion of
their Registrable Securities on Form S-3 when use of such form becomes
available to the Company, provided, among other limitations, that the proposed
aggregate selling price (net of any underwriters' discounts or commissions) is
at least $250,000. All registration expenses must be borne by the Company and
certain selling expenses relating to the Registrable Securities must be borne
by the Company.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
In February 1998, the Company's Board of Directors approved certain
provisions to the Company's Restated Certificate and Bylaws to provide, among
other things, that directors of the Company will be elected without the
application of cumulative voting. The Company will seek stockholder approval of
such amendments prior to the effective date of this Offering. Such provisions
shall become effective at the first meeting of stockholders following the
annual meeting of stockholders when the Company shall have had at least 800
stockholders. Such amendments also provide that, after the closing of this
Offering, any action required or permitted to be taken by the stockholders of
the Company may be taken only at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition,
special meetings of the stockholders of the Company may be called only by the
Board of Directors, the Chairman of the Board, the President of the Company or
by any person or persons holding shares representing at least 10% of the
outstanding capital stock. The Company's Restated Certificate also provides for
a classified Board. See "Management--Board Composition." These provisions may
have the effect of deterring hostile takeovers or delaying changes in control
or management of the Company. The Bylaws also establish procedures, including
advance notice procedures with regard to the nomination, other than by or at
the direction of the Board of Directors, of candidates for election as
directors.
The Company is subject to the provisions of Section 203 of the Delaware Law,
an anti-takeover law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder,
59
<PAGE>
unless the business combination is approved in a prescribed manner. For
purposes of Section 203, a "business combination" includes a merger, asset sale
or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
The foregoing provisions could have the effect of making it more difficult
for a third party to effect a change in the control of the Board of Directors.
In addition, these provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, a majority of the outstanding voting stock of the Company. See
"Risk Factors--Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe,
L.P. located at 150 Royall Street, Canton, Massachusetts, (781) 575-2000.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in
the public market could adversely affect prevailing market prices from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, based on the number of shares outstanding
as of December 31, 1997, the Company will have outstanding an aggregate of
shares of Common Stock assuming no exercise of warrants or options to purchase
Common Stock outstanding as of December 31, 1997. Of these shares, the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, unless such shares are purchased
by an existing "affiliate" of the Company as that term is defined in Rule 144
under the Securities Act (an "Affiliate"). The remaining shares of Common
Stock held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rules 144, 144(k) or 701 promulgated
under the Securities Act, which rules are summarized below. As a result of the
contractual restrictions described below and the provisions of Rules 144,
144(k) and 701, additional shares will be available for sale in the public
market as follows: (i) no shares will be eligible for immediate sale on the
date of this Prospectus, (ii) shares will be eligible for sale 90 days
after the date of this Prospectus, and (iii) shares will be eligible for
sale upon expiration of lock-up agreements 180 days after the date of this
Prospectus.
All of the officers and directors and certain stockholders and optionholders
of the Company have entered into lock-up agreements generally providing that
they will not offer, pledge, sell, offer to sell, contract to sell, sell any
option or contract to purchase, purchase any option to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, Common Stock owned by them, or enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, for a
period of 180 days after the date of this Prospectus, without the prior written
consent of Deutsche Morgan Grenfell Inc., subject to certain limited
exceptions. Deutsche Morgan Grenfell Inc. may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements. Deutsche Morgan Grenfell Inc. currently has no plans to
release any portion of the securities subject to lock-up agreements. When
determining whether or not to release shares from the lock-up agreements,
Deutsche Morgan Grenfell Inc. will consider, among other factors, the
stockholder's reasons for requesting the release, the number of shares for
which the release is being requested and market conditions at the time.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares 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: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately shares immediately after this
Offering); or (ii) the average weekly trading volume of the Common Stock on the
Nasdaq National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such
61
<PAGE>
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an Affiliate of the Company at any time during the 90 days preceding
a sale, and who has beneficially owned the shares proposed to be sold for at
least two years (including the holding period of any prior owner 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. Accordingly, unless otherwise restricted, "144(k) shares" may be sold
immediately upon the completion of this Offering
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisors prior to the date the
issuer becomes subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such
persons. In addition, the SEC has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Offering).
Securities issued in reliance on Rule 701 are restricted securities and,
subject to the contractual restrictions described above, beginning 90 days
after the date of this Prospectus, may be sold (i) by persons other than
Affiliates, subject only to the manner of sale provisions of Rule 144 and (ii)
by Affiliates, under Rule 144 without compliance with its one-year minimum
holding period requirements.
Following this Offering, the Company intends to file a registration statement
under the Securities Act covering approximately shares of Common Stock
issued and outstanding, subject to outstanding options or reserved for issuance
under the Company's stock plans. See "Management--Stock Plans." Accordingly,
shares registered under such registration statement will, subject to Rule 144
volume limitations applicable to Affiliates, be available for sale in the open
market, except to the extent that such shares are subject to vesting
restrictions with the Company or contractual restrictions described above.
Upon completion of this Offering, the holders of approximately shares of
Common Stock issuable upon conversion of Preferred Stock or the transferees,
will be entitled to certain rights with respect to registration of such shares
under the Securities Act. Registration of such shares under the Securities Act
would result in such shares becoming freely tradeable without restriction under
the Securities Act (except for shares purchased by Affiliates of the Company)
immediately upon the effectiveness of such registration. See "Description of
Capital Stock--Registration Rights."
62
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Deutsche Morgan Grenfell Inc.,
BancAmerica Robertson Stephens, First Albany Corporation and Piper Jaffray Inc.
are acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions in the Underwriting Agreement (the form of
which will be filed as an exhibit to the Company's Registration Statement of
which this Prospectus is a part), to purchase from the Company and the Selling
Stockholders the respective number of shares of Common Stock indicated below
opposite their respective names. The Underwriters are committed to purchase all
of the shares, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Morgan Grenfell Inc.......................................
BancAmerica Robertson Stephens.....................................
First Albany Corporation...........................................
Piper Jaffray Inc..................................................
----
Total..........................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions.
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers
(who may include the Underwriters) a concession not in excess of $ a share
under the initial public offering price. The selected dealers may reallow a
concession not in excess of $ a share to other dealers and other selling
terms may be changed by the Representatives. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part. The
Underwriters do not intend to sell any of the shares of Common Stock offered
hereby to accounts for which they exercise discretionary authority.
Pursuant to the Underwriting Agreement, the Company and the Selling
Stockholders have granted to the Underwriters an option to purchase up to
and additional shares of Common Stock, respectively, to cover over-
allotments, if any, at the initial public offering price, less the underwriting
discount set forth on the cover page of this Prospectus. Such option is
exercisable for 30 days from the date of this Prospectus. To the extent such
option is exercised, each Underwriters will be committed, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares of Common Stock
offered hereby. The Selling Stockholders will be obligated, pursuant to the
option, to sell such shares to the Underwriters.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers, directors, optionholders and stockholders
of the Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for up to 180 days after the date of the
final Prospectus without the prior consent of Deutsche Morgan Grenfell Inc. The
Company has agreed in the Underwriting Agreement that it will not, directly or
indirectly, without the prior written consent of Deutsche Morgan Grenfell Inc.,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option,
63
<PAGE>
right or warrant to purchase, or otherwise transfer or dispose of any shares of
Common Stock or any securities convertible into or exchangeable for Common
Stock, for a period of 180 days after the date of the final Prospectus without
the consent of Deutsche Morgan Grenfell Inc., except under certain
circumstances.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
Prior to this Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiation between the
Company and the Representatives. The principal factors to be considered in
determining the initial public offering price include the information set forth
in this Prospectus and otherwise available to the Representatives; the history
and the prospects for the industry in which the Company competes; the ability
of the Company's management; the prospects for future earnings of the Company;
the present state of the Company's development and its 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. Each of the Representatives has
informed the Company that it currently intends to make a market in the shares
subsequent to the effectiveness of this Offering, but there can be no assurance
that the Representatives will take any action to make a market in any
securities of the Company.
At the request of the Company, the Underwriters have reserved for sale at the
initial public offering price to persons designated by the Company a number of
shares of Common Stock not to exceed five percent of the total number of shares
of Common Stock in this Offering. The number of shares available for sale to
the general public will be reduced to the extent such persons purchase these
shares.
Certain persons participating in this Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with this Offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with this Offering when shares of Common Stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
64
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Venture Law Group, A Professional Corporation, Menlo Park,
California. Mark B. Weeks, a director of Venture Law Group, is the Secretary of
the Company. Certain legal matters relating to this Offering will be passed
upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. As of the date of this Prospectus, certain
directors of Venture Law Group and an investment partnership affiliated with
Venture Law Group own options to purchase an aggregate of 12,500 shares of the
Company's Common Stock and own an aggregate of 10,035 shares of Common Stock.
EXPERTS
The financial statements and schedule included in this Prospectus and
elsewhere in the Registration Statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement (which term shall include any amendments thereto) on
Form S-1 under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain 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 the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the financial statements and notes filed as
a part thereof. Statements made in this Prospectus concerning the contents of
any document referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement, including exhibits thereto and
the financial statements and notes filed as a part thereof, as well as such
reports and other information filed with the Commission, may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New York, NY
10048, and the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part thereof may be obtained from
the Commission upon payment of certain fees prescribed by the Commission. Such
reports and other information may also be inspected without charge at a Web
site maintained by the Commission. The address of such site is
http://www.sec.gov.
65
<PAGE>
BRIO TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit) .................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
After the reincorporation and the effectiveness of the stock split discussed
in Note 11 to Brio Technology, Inc.'s consolidated financial statements, we
expect to be in a position to render the following audit report:
ARTHUR ANDERSEN LLP
San Jose, California
February 26, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Brio Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Brio
Technology, Inc. (a California corporation) and subsidiaries as of March 31,
1996, March 31, 1997, and December 31, 1997, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended March 31, 1997, and for the nine-
month period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brio Technology, Inc. and
subsidiaries as of March 31, 1996, March 31, 1997, and December 31, 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1997, and for the nine-month period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
San Jose, California
February 26, 1998 (except with
respect to the matter
discussed in Note 11, as to
which the date is , 1998)
F-2
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1997 PRO FORMA
---------------- DECEMBER 31, SHAREHOLDERS'
1996 1997 1997 DEFICIT (NOTE 7)
------- ------- ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.... $ 546 $ 890 $ 1,472
Accounts receivable, net of
allowance of $249, $371 and
$619........................ 2,277 5,144 6,779
Inventories.................. 152 104 347
Prepaid expenses and other
current assets.............. 27 378 656
------- ------- --------
Total current assets..... 3,002 6,516 9,254
Property and Equipment, net.... 413 2,052 2,807
Other Assets................... 56 317 318
------- ------- --------
$ 3,471 $ 8,885 $ 12,379
======= ======= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Current maturities of notes
payable..................... $ 1,104 $ 1,724 $ 3,140
Accounts payable............. 246 1,535 1,546
Accrued liabilities--
Payroll and related
benefits................... 428 1,318 1,239
Other....................... 65 657 781
Deferred revenue, current.... 1,528 3,061 4,618
------- ------- --------
Total current
liabilities............. 3,371 8,295 11,324
Notes Payable, net of current
maturities.................... -- 438 250
Noncurrent Deferred Revenue.... -- -- 1,311
Other Noncurrent Liabilities... -- 19 48
------- ------- --------
Total liabilities........ 3,371 8,752 12,933
------- ------- --------
Commitments and Contingencies
(Notes 5 and 9)
Shareholders' Equity (Deficit):
Convertible preferred stock,
no par value, aggregate
liquidation preference of
$15,850:
Authorized--5,625,000
shares at December 31,
1997 and pro forma
Issued and outstanding
(Series A, B and C)--
2,496,756 shares at March
31, 1996; 4,613,903 at
March 31, 1997; and
5,466,172 at December 31,
1997; no shares issued and
outstanding pro forma..... 3,818 9,811 15,655 $ --
Common stock, no par value:
Authorized--13,500,000
shares at December 31,
1997 and pro forma
Issued and outstanding--
5,021,392 shares at March
31, 1996; 5,656,910 shares
at March 31, 1997;
5,745,000 shares at
December 31, 1997; and
11,211,172 shares
outstanding pro forma..... 114 495 1,134 16,789
Notes receivable from
shareholders................ -- (314) (292) (292)
Deferred compensation........ -- -- (504) (504)
Cumulative translation
adjustment.................. -- (62) (10) (10)
Accumulated deficit.......... (3,832) (9,797) (16,537) (16,537)
------- ------- -------- --------
Total shareholders'
equity (deficit)........ 100 133 (554) $ (554)
------- ------- -------- ========
$ 3,471 $ 8,885 $ 12,379
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------ -------------------
1995 1996 1997 1996 1997
------ ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.................. $2,487 $ 3,212 $10,328 $ 6,675 $13,914
Services...................... 1,025 1,315 3,058 2,034 4,646
------ ------- ------- ------- -------
Total revenues.............. 3,512 4,527 13,386 8,709 18,560
------ ------- ------- ------- -------
Cost of revenues:
License fees.................. 192 340 839 641 654
Services...................... 205 371 817 474 1,717
------ ------- ------- ------- -------
Total cost of revenues...... 397 711 1,656 1,115 2,371
------ ------- ------- ------- -------
Gross profit.................... 3,115 3,816 11,730 7,594 16,189
------ ------- ------- ------- -------
Operating expenses:
Research and development...... 934 1,555 2,447 1,619 3,860
Sales and marketing........... 1,662 4,476 13,588 8,350 16,764
General and administrative.... 849 1,014 1,685 1,094 2,079
------ ------- ------- ------- -------
Total operating expenses.... 3,445 7,045 17,720 11,063 22,703
------ ------- ------- ------- -------
Loss from operations............ (330) (3,229) (5,990) (3,469) (6,514)
------ ------- ------- ------- -------
Interest and other income
(expenses), net :
Interest income............... 6 44 93 83 60
Interest expense.............. (46) (2) (68) (40) (129)
Other expense, net............ -- (9) -- -- (157)
------ ------- ------- ------- -------
Total interest and other
income (expense), net...... (40) 33 25 43 (226)
------ ------- ------- ------- -------
Net loss........................ $ (370) $(3,196) $(5,965) $(3,426) $(6,740)
====== ======= ======= ======= =======
Basic net loss per share........ $ (.07) $ (.64) $ (1.14) $ (.68) $ (1.18)
====== ======= ======= ======= =======
Shares used in computing basic
net loss per share............. 5,000 5,018 5,218 5,069 5,715
====== ======= ======= ======= =======
Pro forma basic net loss per
share.......................... $ (.63) $ (.37) $ (.62)
======= ======= =======
Shares used in computing pro
forma basic net loss per share. 9,479 9,213 10,898
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES TOTAL
PREFERRED STOCK COMMON STOCK RECEIVABLE CUMULATIVE SHAREHOLDERS'
----------------- ----------------- FROM DEFERRED TRANSLATION ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS COMPENSATION ADJUSTMENT DEFICIT (DEFICIT)
--------- ------- --------- ------ ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1994............... -- $ -- 4,999,996 $ 101 $ -- $ -- $ -- $ (266) $ (165)
Issuance of Series
A preferred stock,
net............... 2,464,331 3,768 -- -- -- -- -- -- 3,768
Issuance of common
stock for cash.... -- -- 5,036 3 -- -- -- -- 3
Net loss........... -- -- -- -- -- -- -- (370) (370)
--------- ------- --------- ------ ----- ----- ---- -------- -------
Balance, March 31,
1995............... 2,464,331 3,768 5,005,032 104 -- -- -- (636) 3,236
Issuance of Series
A preferred stock,
net............... 32,425 50 -- -- -- -- -- -- 50
Issuance of common
stock for cash.... -- -- 16,360 10 -- -- -- -- 10
Net loss........... -- -- -- -- -- -- -- (3,196) (3,196)
--------- ------- --------- ------ ----- ----- ---- -------- -------
Balance, March 31,
1996............... 2,496,756 3,818 5,021,392 114 -- -- -- (3,832) 100
Issuance of Series
B preferred stock,
net............... 2,117,147 5,993 -- -- -- -- -- -- 5,993
Exercise of common
stock options for
cash.............. -- -- 112,435 67 -- -- -- -- 67
Exercise of common
stock options for
notes receivable.. -- -- 553,500 332 (332) -- -- -- --
Repurchase of
restricted shares. -- -- (30,417) (18) 18 -- -- -- --
Cumulative
translation
adjustment........ -- -- -- -- -- -- (62) -- (62)
Net loss........... -- -- -- -- -- -- -- (5,965) (5,965)
--------- ------- --------- ------ ----- ----- ---- -------- -------
Balance, March 31,
1997............... 4,613,903 9,811 5,656,910 495 (314) -- (62) (9,797) 133
Issuance of Series
C preferred stock,
net............... 852,269 5,844 -- -- -- -- -- -- 5,844
Exercise of common
stock options for
cash.............. -- -- 39,869 30 -- -- -- -- 30
Exercise of common
stock options for
notes receivable.. -- -- 57,701 35 (35) -- -- -- --
Repurchase of
restricted shares. -- -- (9,480) (6) -- -- -- -- (6)
Repayment of notes
receivable from
shareholders...... -- -- -- -- 57 -- -- -- 57
Deferred
compensation...... -- -- -- 580 -- (580) -- -- --
Amortization of
deferred
compensation...... -- -- -- -- -- 76 -- -- 76
Cumulative
translation
adjustment........ -- -- -- -- -- 52 -- 52
Net loss........... -- -- -- -- -- -- -- (6,740) (6,740)
--------- ------- --------- ------ ----- ----- ---- -------- -------
Balance, December
31, 1997........... 5,466,172 $15,655 5,745,000 $1,134 $(292) $(504) $(10) $(16,537) $ (554)
========= ======= ========= ====== ===== ===== ==== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
MARCH 31, ENDED DECEMBER 31,
------------------------ -------------------
1995 1996 1997 1996 1997
------ ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss...................... $ (370) $(3,196) $(5,965) $(3,426) $(6,740)
Adjustments to reconcile net
loss to cash used in
operating activities:
Depreciation and
amortization............... 40 140 298 189 458
Provision for returns and
doubtful accounts.......... 89 108 346 238 424
Deferred compensation
amortization............... -- -- -- -- 76
Changes in operating assets
and liabilities:
Accounts receivable....... (282) (1,375) (3,213) (1,550) (2,059)
Inventories............... (60) (51) 48 58 (243)
Prepaid expenses and other
assets................... (51) (1) (571) (512) (312)
Accounts payable and
accrued liabilities...... 357 41 2,790 1,464 85
Deferred revenue.......... 158 1,005 1,533 410 2,868
------ ------- ------- ------- -------
Cash used in operating
activities............. (119) (3,329) (4,734) (3,129) (5,443)
------ ------- ------- ------- -------
Cash flows from investing
activities:
Purchases of property and
equipment.................... (127) (380) (1,883) (1,279) (1,180)
Cash payment for DataBasics
acquisition.................. -- -- (95) -- --
------ ------- ------- ------- -------
Cash used in investing
activities............. (127) (380) (1,978) (1,279) (1,180)
------ ------- ------- ------- -------
Cash flows from financing activ-
ities:
Proceeds from notes payable... -- 1,104 2,093 680 6,564
Repayments under notes
payable...................... (473) -- (1,035) (1,035) (5,336)
Proceeds from issuance of
preferred stock, net......... 3,768 50 5,993 5,993 5,844
Proceeds from issuance of
common stock, net............ 3 10 67 67 24
Proceeds from repayments of
notes receivable from
shareholders................. -- -- -- -- 457
Issuance of note to
shareholder.................. -- -- -- -- (400)
------ ------- ------- ------- -------
Cash provided by
financing activities... 3,298 1,164 7,118 5,705 7,153
------ ------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents........... 3,052 (2,545) 406 1,297 530
Effect of exchange rate changes
on cash........................ -- -- (62) (49) 52
Cash and cash equivalents,
beginning of period............ 39 3,091 546 546 890
------ ------- ------- ------- -------
Cash and cash equivalents, end
of period...................... $3,091 $ 546 $ 890 $ 1,794 $ 1,472
====== ======= ======= ======= =======
Supplemental disclosure of cash
flow information:
Cash paid for interest........ $ 139 $ 46 $ 54 $ 47 $ 124
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION RELATING TO THE NINE MONTHS ENDED DECEMBER 31, 1996 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS:
Brio Technology, Inc. (the "Company"), designs, develops, markets and
supports software products that enable organizations to rapidly implement
enterprise business intelligence solutions. The Company's products and
services are designed to allow organizations to rapidly deploy and effectively
manage business intelligence solutions incorporating the wide range of
available corporate data sources, including data marts, data warehouses,
operational data stores, enterprise applications and legacy applications.
The Company is subject to a number of risks associated with companies in a
similar stage of development, including negative working capital and
shareholders' deficit, rapid technological growth, dependence on key personnel
and sales force, litigation (see Note 9), potential competition from larger,
more established companies, dependence on product development, the ability to
penetrate the market with its products, and the ability to obtain adequate
financing to support its growth.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
are eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company's subsidiaries is the local currency.
Accordingly, the Company applies the current rate method to translate the
subsidiaries' financial statements into U.S. dollars. Translation adjustments
are included as a separate component of shareholders' equity (deficit) in the
accompanying consolidated financial statements. Transaction gains and losses,
which have not been material, are included in other income (expense).
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At March 31, 1996 and
1997, and December 31, 1997, the Company held its cash in checking and money
market accounts.
Inventories
The Company's inventories are carried at the lower of cost or market on a
first-in, first-out basis. Inventory consists principally of completed
software packages including media and documentation.
F-7
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to seven years) of
the assets. Leasehold improvements are depreciated over the shorter of the
term of the related lease or the estimated useful life of the asset.
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------- DECEMBER 31,
1996 1997 1997
----- ------ ------------
<S> <C> <C> <C>
Computer equipment and software..................... $ 584 $1,780 $ 2,657
Furniture and fixtures.............................. 75 638 976
Leasehold improvements.............................. 50 210 175
----- ------ -------
709 2,628 3,808
Less: Accumulated depreciation...................... (296) (576) (1,001)
----- ------ -------
$ 413 $2,052 $ 2,807
===== ====== =======
</TABLE>
Revenue Recognition
The Company's revenues are derived from two sources, license fees and
services. Services include software maintenance and support, training, and
system implementation consulting.
Revenue from license fees is recognized upon shipment of the software if
collection of the resulting receivable is probable, the fee is fixed or
determinable, and vendor-specific objective evidence exists to allocate the
total fee to all delivered and undelivered elements of the arrangement.
Allowances are established for potential product returns and credit losses. In
instances where payments are subject to extended payment terms, revenue is
deferred until payments become due. If an acceptance period is required,
revenue is recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.
Maintenance revenue is recognized ratably over the term of the maintenance
contract. Consulting and training revenue is recognized when the services are
performed.
Cost of revenues consists primarily of third-party fees, related personnel
and overhead allocations and overhead costs, the cost of media, documentation,
packaging and shipping related to products sold.
Deferred Revenue
Deferred revenue represents amounts received from customers under certain
license, maintenance and service agreements for which the revenue earnings
process has not been completed.
Software Development Costs
Under Statement of Financial Accounting Standards (SFAS) No. 86 "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
costs incurred in the
F-8
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
research and development of software products are expensed as incurred until
technological feasibility has been established. Once established, these costs
would be capitalized. Amounts that could have been capitalized under this
Statement were insignificant and, therefore, no costs have been capitalized to
date.
Unaudited Interim Financial Data
The unaudited interim financial statements for the nine months ended
December 31, 1996, have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance with
generally accepted accounting principles.
Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per
Share
Historical net loss per share has been calculated under SFAS No. 128
"Earnings Per Share." Basic net loss per share on a historical basis is
computed using the weighted average number of shares of common stock
outstanding. No diluted loss per share information has been presented in the
accompanying consolidated statements of operations since potential common
shares from conversion of preferred stock, stock options, and warrants are
antidilutive. The Company evaluated the requirements of the Securities and
Exchange Commission Staff Accounting Bulletin No. 98 (SAB 98), and concluded
that there are no nominal issuances of common stock or potential common stock
which would be required to be shown as outstanding for all periods as outlined
in SAB 98.
Pro forma basic net loss per share has been calculated assuming the
conversion of preferred stock into an equivalent number of common shares, as
if the shares had converted on the dates of their issuance.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is effective for the Company's
fiscal year beginning April 1, 1998. This standard defines comprehensive
income as the changes in equity of an enterprise except those resulting from
shareholder transactions. All components of comprehensive income will be
required to be reported in financial statements issued for periods beginning
after the effective date of SFAS No. 130. Management believes the adoption of
SFAS No. 130 will not have a material effect on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 is effective for the Company's fiscal year beginning April 1,
1998. SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers.
Management believes the adoption of SFAS No. 131 will not have a material
effect on the Company's financial statements.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 which will supersede SOP 91-1,
"Software Revenue Recognition." SOP
F-9
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
97-2 is effective for transactions entered into in the Company's fiscal year
beginning April 1, 1998. Management has assessed this new statement and
believes that its adoption will not have a material effect on the Company's
financial statements or on the timing of the Company's revenue recognition, or
cause changes to its revenue recognition policies.
3. ACQUISITIONS:
On April 1, 1996, the Company purchased Brio Technology Ltd. from Management
Decisions (MD), one of the Company's distributors in the United Kingdom. The
Company paid a nominal value for the outstanding stock and operations of Brio
Technology Ltd., and the acquisition was accounted for as a purchase. No
goodwill resulted from this acquisition. Brio Technology Ltd. is now a wholly-
owned subsidiary of the Company. At March 31, 1996, the Company had a net
receivable from MD in the amount of $19,300, which is included in the
Company's accounts receivable at March 31, 1996. Sales to MD for the year
ended March 31, 1996 were $39,100.
On July 1, 1996, the Company purchased DataBasics, one of the Company's
distributors in Australia, for $95,000 in cash. The acquisition was accounted
for as a purchase and resulted in goodwill of $60,000 that is being amortized
over a five year period. DataBasics was renamed Brio Technology Pty. Ltd., and
is now a wholly-owned subsidiary of the Company. At March 31, 1996, the
Company had receivables from DataBasics in the amount of $82,000, which is
included in the Company's accounts receivable balance at March 31, 1996. Sales
to DataBasics for the year ended March 31, 1996 were $121,000.
Pro forma information related to these acquisitions has not been presented
as the prior operations of the acquired companies were immaterial.
4. SIGNIFICANT CONCENTRATIONS:
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. The Company
performs periodic credit evaluations of its customers' financial condition and
generally does not require collateral.
For the year ended March 31, 1997 and the nine months ended December 31,
1997, no customer accounted for more than 10% of the Company's total revenues.
For the year ended March 31, 1996, one customer accounted for approximately
15% of the Company's total revenues. As of March 31, 1996 and 1997 and
December 31, 1997, no customer accounted for more than 10% of accounts
receivable.
The Company markets its products in the United States and Canada and in
other foreign countries through its domestic sales personnel and through its
foreign subsidiaries. International revenue, which consists of sales to
customers in foreign countries and sales from the Company's foreign
subsidiaries, were 9%, 14% and 19% of total revenues for the years ended March
31, 1996 and 1997 and the nine months ended December 31, 1997, respectively.
International revenues were not material in 1995.
F-10
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS:
The Company leases its corporate headquarters facilities under an operating
lease which expires in October 2003. The Company also leases office equipment
under various non-cancelable operating leases with terms which expire through
July 1998. Future minimum lease payments relating to these agreements as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1998 (Three months)................................................. $ 360
1999................................................................ 1,712
2000................................................................ 1,576
2001................................................................ 511
2002................................................................ 434
2003................................................................ 434
Thereafter.......................................................... 253
------
$5,280
======
</TABLE>
Rent expense for the years ending March 31, 1995, 1996 and 1997 was $67,300,
$260,300, and $798,000, respectively. Rent expense for the nine month periods
ended December 31, 1996 and 1997, was $564,000 and $1,397,000, respectively.
Additionally, the Company has entered into a purchase commitment to purchase
up to $500,000 of equipment for certain of its office space.
6. NOTES PAYABLE:
At December 31, 1997, the Company had a $5,000,000 accounts receivable-based
line of credit agreement and a $750,000 equipment-based line of credit
agreement with a commercial bank. Interest accrued on borrowings under the
accounts receivable line at the bank's reference rate (8.5% at December 31,
1997) and on borrowings under the equipment line at the bank's reference rate
plus 0.5% (9.0% at December 31, 1997). The accounts receivable line and the
equipment line had expiration dates of April 30, 1998 and December 1, 1999,
respectively. At December 31, 1997, $3,390,000 was outstanding under these
arrangements of which $3,140,000 was classified as current and $250,000 as
noncurrent, due in fiscal 1999. Borrowings under the accounts receivable line
of credit were limited to 70% of eligible accounts receivable. Borrowings
under both agreements were secured by inventory, accounts receivable, property
and equipment, and intangible assets of the Company.
In January 1998, the Company entered into a new line of credit agreement
with another bank and used proceeds from borrowings under the new line to pay
off balances owed under the old lines of credit discussed above. The old lines
of credit were cancelled. The new line of credit provides for up to $10.0
million in borrowings. The Company can borrow up to 80% of eligible accounts
receivable against this line, in addition to up to $1.5 million in non-formula
availability. The line of credit is collateralized by substantially all of the
Company's assets, including the Company's intellectual property, accounts
receivable, and property and equipment. Borrowings under the line bear
interest at the bank's prime rate. This line of credit requires the Company to
comply with various financial covenants, including quarterly requirements to
maintain a minimum quick ratio, a minimum tangible net worth, and minimum
results of operations (the results of operation covenant is eliminated in the
event of an initial public offering). The line expires on December 1, 1999.
F-11
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PREFERRED STOCK:
As of December 31, 1997, the Company had issued 2,496,756 shares of Series A
Convertible Preferred Stock (Series A), 2,117,147 shares of Series B
Convertible Preferred Stock (Series B) and 852,269 shares of Series C
Convertible Preferred Stock (Series C).
The rights, restrictions and preferences of the Series A, Series B and
Series C Convertible Preferred Stock are as follows:
. Each share of Series A, Series B and Series C is convertible, at the
right and option of the shareholder, into one share of common stock. The
conversion ratio is subject to adjustment in the event of stock splits,
stock dividends, or the issuance of equity securities with a per share
price lower than that of the Series A, Series B and Series C.
. Each shareholder of Series A, Series B and Series C is entitled to the
number of votes equal to the number of shares of common stock into which
the preferred stock can be converted.
. Each share of Series A, Series B and Series C will automatically convert
into common stock in the event of the closing of an underwritten public
offering of the Company's common stock from which the Company receives
proceeds in excess of $10,000,000 and for which the offering price is not
less than $14.08 per share of common stock (see Note 11).
. Each shareholder of Series A, Series B and Series C is entitled to
receive annual dividends at the rates of $.14, $.28 and $.70 per share,
respectively, when and if declared by the Board of Directors, prior to
payment of dividends on common stock. Dividends are non-cumulative, and
no dividends have been declared to date.
. On June 30, 2002 or thereafter, the Company may redeem in whole or in
part the Series A, Series B and Series C shares by paying, in cash,
$1.542, $2.834 and $7.04 per share, respectively, plus any accrued but
unpaid dividends. Such redemption may occur prior to June 30, 2002, with
the written consent of 66 2/3% of the outstanding Series A, Series B and
Series C shareholders.
. In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, each shareholder of Series A,
Series B and Series C shall be entitled to receive, prior and in
preference to any distribution of any assets or surplus funds to the
holders of common stock, an amount equal to $1.542, $2.834 and $7.04 per
share, respectively. If the full amount is not available for
distribution, amounts shall be paid out in proportion to the aggregate
preferential amounts owed.
Pro Forma Shareholders' Deficit
In February 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with the proposed Initial Public
Offering (IPO). If the offering is consummated under the terms presently
anticipated, all of the currently outstanding convertible preferred stock will
convert to 5,466,172 shares of common stock upon the closing of the IPO. The
effect of the conversion has been reflected as unaudited pro forma
shareholders' deficit in the accompanying consolidated balance sheet as of
December 31, 1997.
F-12
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK:
As of December 31, 1997, 150,000 shares of common stock issued to certain
founders of the Company were subject to the option of the Company to
repurchase such shares at original cost. Of the shares subject to the
repurchase option, 50,000 shares per month will be released from such option.
As of December 31, 1997, the Company had reserved shares of its common stock
for future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A convertible preferred stock............... 2,496,756
Conversion of Series B convertible preferred stock............... 2,117,147
Conversion of Series C convertible preferred stock............... 852,269
Exercise of outstanding warrants................................. 10,000
Exercise of stock options........................................ 1,334,791
---------
Total shares reserved.......................................... 6,810,963
=========
</TABLE>
During fiscal 1997 and the nine months ended December 31, 1997, certain
employees funded the purchase of common stock under the 1992 Stock Option Plan
with fully secured notes payable to the Company.
Stock Rights and Warrants
In connection with the issuance of a promissory note in 1992, the Company
issued warrants to the noteholder to purchase up to 128,205 shares of common
stock at $1.542 per share. The warrants expired, unexercised, on April 17,
1997.
Under the terms of an agreement with a customer, the Company granted the
customer the right to purchase up to $1,300,000 of equity securities of the
same type and price of the securities issued to third parties in the event the
Company issues at least $500,000 of such securities. This right expires upon
the closing of the first firm commitment underwritten offering of the
Company's securities to the public.
In connection with the purchase of Brio Technology Ltd. from MD in 1996, the
Company granted MD warrants to purchase 10,000 shares of the Company's common
stock at $.60 per share. The value of the warrants was not material. The
warrants expire on the earlier of the date of the closing of an initial public
offering of the Company's common stock, the sale of substantially all of the
Company's assets or the sale of more than 50% of the Company's outstanding
common stock, or December 9, 2001.
F-13
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK, CONTINUED:
Stock Options
Through December 31, 1997, the Company has reserved 2,079,795 shares of
common stock for issuance under the 1992 Stock Option Plan (the "Plan"). Under
the Plan, the Board of Directors may grant options to purchase the Company's
common stock to employees, directors, or consultants at an exercise price of
not less than 100% of the fair value of the Company's common stock, as
determined by the Board of Directors. Any options granted must be granted by
the tenth anniversary of the effective date of the Plan. Options issued under
the Plan generally have a term of five years from the date of grant and
generally vest ratably over four years.
Option activity under the Plan is as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE OUTSTANDING WEIGHTED AVERAGE
FOR GRANT OPTIONS EXERCISE PRICE
--------- ----------- ----------------
<S> <C> <C> <C>
Outstanding--March 31, 1995........ 1,304,426 370,333 $0.60
Options granted.................. (372,125) 372,125 0.60
Options exercised................ -- (16,360) 0.60
Options canceled................. 59,051 (59,051) 0.60
--------- --------- -----
Outstanding--March 31, 1996........ 991,352 667,047 0.60
Authorized....................... 400,000 -- --
Restricted shares repurchased.... 30,417 -- --
Options granted.................. (939,521) 939,521 0.72
Options exercised................ -- (665,935) 0.60
Options canceled................. 93,594 (93,594) 0.62
--------- --------- -----
Outstanding--March 31, 1997........ 575,842 847,039 0.74
Restricted shares repurchased.... 9,480 -- --
Options granted.................. (667,747) 667,747 2.68
Options exercised................ -- (97,570) 0.67
Options canceled................. 212,654 (212,654) 0.86
--------- --------- -----
Outstanding--December 31, 1997..... 130,229 1,204,562 $1.79
========= ========= =====
</TABLE>
Certain unvested options have been exercised and are subject to repurchase
by the Company until such shares vest. As of December 31, 1997, 174,021 shares
were subject to the right of repurchase at an exercise price of $0.60 per
share.
A summary of options outstanding and exercisable as of December 31, 1997, is
as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
RANGE OF AVERAGE WEIGHTED WEIGHTED
CONTRACTUAL NUMBER CONTRACTUAL LIFE AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.60 426,618 3.59 $0.60 168,397 $0.60
1.20 417,938 4.32 1.20 50,465 1.20
2.00 171,950 4.63 2.00 771 2.00
3.00 24,718 4.81 3.00 1,426 3.00
6.00 163,338 4.90 6.00 388 6.00
------- --------- ---- ----- ------- -----
$0.60 -
$6.00 1,204,562 4.19 $1.79 221,447 $0.76
======= ========= ==== ===== ======= =====
</TABLE>
F-14
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK, CONTINUED:
The Company accounts for its Plan under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Had compensation expense for the Plan been
determined consistent with SFAS No. 123, "Accounting for Stock Based
Compensation," the Company's net loss would have increased to the following
pro forma amounts (in thousands, except per share information):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------- NINE MONTHS ENDED
1996 1997 DECEMBER 31, 1997
---------- ---------- -----------------
<S> <C> <C> <C>
Net loss:
As reported......................... $ (3,196) $ (5,965) $(6,740)
Pro forma........................... $ (3,198) $ (5,988) $(6,840)
Basic net loss per share:
As reported......................... $ (0.64) $ (1.14) $ (1.18)
Pro forma........................... $ (0.64) $ (1.15) $ (1.20)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The weighted average grant date fair value of options granted during fiscal
1996 and 1997 and the nine month period ended December 31, 1997, was $0.08,
$0.12 and $2.06, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in all periods: risk-free interest rates ranging from 5.2 to 6.7
percent; expected dividend yields of zero percent; expected lives of 3 to 4
years from grant date; and expected volatility of zero percent.
Deferred Compensation
In connection with the grant of certain stock options to employees during
the nine months ended December 31, 1997, the Company recorded deferred
compensation of $580,000, representing the difference between the deemed value
of the common stock for accounting purposes and the option exercise price of
such options at the date of grant. Such amount is presented as a reduction of
shareholder's equity and amortized ratably over the vesting period of the
applicable options. Approximately $76,000 was expensed during the nine months
ended December 31, 1997, and the balance will be expensed ratably over the
next four years as the options vest. Compensation expense is decreased in the
period of forfeiture for any accrued but unvested compensation arising from
the early termination of an option holder's services. No compensation expense
related to any other periods presented has been recorded.
1998 Stock Option Plan
The Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by the
Company's Board of Directors in February 1998, subject to approval by the
stockholders. A total of 2,250,000 shares of common stock have been reserved
for issuance under the 1998 Plan. The shares reserved for issuance under the
1998 Plan increase annually on the first day of the Company's fiscal year
through April 1, 2003, by the lesser of 600,000 or three percent of the shares
outstanding on the last day of the immediately preceding fiscal year. Under
the 1998 Plan, the Board of Directors may grant options to purchase the
Company's common stock to employees, directors or consultants at an exercise
price of not less than 100% of the fair value
F-15
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK, CONTINUED:
of the Company's common stock on the date of grant, in the case of incentive
stock options, and not less than 85% of the fair value of the Company's common
stock on the date of grant, in the case of nonqualified stock options. Options
must all be granted by the tenth anniversary of the effective date of the 1998
Plan. Options issued under the 1998 Plan will generally have a term of 10
years from the date of grant and will generally vest ratably over four years.
1998 Employee Stock Purchase Plan
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in February 1998, subject to
approval by the stockholders. A total of 500,000 shares of common stock has
been reserved for issuance under the Purchase Plan. The shares reserved for
issuance under the Purchase Plan increase annually on the first day of the
Company's fiscal year through April 1, 2000, by the lesser of 300,000 or two
percent of the shares outstanding on the last day of the immediately preceding
fiscal year. The Purchase Plan permits eligible employees to purchase common
stock at 85% of the lower of the fair market value of the Company's common
stock on the first day or the last day of each six-month offering period.
1998 Directors' Stock Option Plan
The Company's 1998 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Company's Board of Directors in February 1998, subject to
approval by the stockholders. A total of 300,000 shares of common stock has
been reserved for issuance under the Directors' Plan. The Directors' Plan
provides for the initial grant of nonqualified stock options to purchase
20,000 shares of common stock on the date on which the optionee first becomes
a nonemployee director of the Company subsequent to the initial public
offering (the "First Option"), and an additional option to purchase 5,000
shares of common stock on the next anniversary to existing and future
nonemployee directors of the Company if, on such date, the director has served
on the board for at least six months (the "Subsequent Option"). The exercise
price per share of all options granted under the Directors' Plan will equal
the fair market value of a share of the Company's common stock on the date of
grant of the option. Options issued under the Directors' Plan will have a term
of 10 years from the date of grant; the First Option shall become exercisable
in installments of 25% of the total number of shares subject to the First
Option on each of the first, second, third and fourth anniversaries of the
date of grant of the First Option; each Subsequent Option shall become
exercisable in full on the day before the first anniversary of the date of
grant of that Subsequent Option.
F-16
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. CONTINGENCIES:
On January 20, 1997, Business Objects, S.A. filed a complaint (the
"Complaint") against the Company in the U.S. District Court for the Northern
District of California in San Jose, California alleging that certain of the
Company's products infringe U.S. Patent No. 5,555,403. The Complaint seeks
injunctive relief and unspecified monetary damages. In April 1997, the Company
filed an answer and affirmative defenses to the Complaint, denying certain of
the allegations in the Complaint, and asserting a counterclaim requesting
declaratory relief that the Company is not infringing the patent and that the
patent is invalid and unenforceable. In December 1997, venue for the case was
changed to the Northern District of California in San Francisco, California.
The Company believes that it has meritorious defenses to the claims made in
the Complaint on both invalidity and non-infringement grounds, and intends to
defend the suit vigorously. The Company and Business Objects, S.A. are
currently conducting discovery and are awaiting a date for the claims
construction hearing. The pending litigation could result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. Litigation is subject to inherent
uncertainties, especially in cases such as this where complex technical issues
must be decided. The Company's defense of this litigation, regardless of the
merits of the Complaint or lack thereof, could be time-consuming or costly, or
divert the attention of technical and management personnel, which could have a
material adverse effect upon the Company's business, operating results and
financial condition. There can be no assurance that the Company will prevail
in the litigation given the complex technical issues and inherent
uncertainties in patent litigation. In the event the Company is unsuccessful
in the litigation, the Company may be required to pay damages to Business
Objects, S.A. and could be prohibited from marketing certain of its products
without a license, which license may not be available on acceptable terms. If
the Company is unable to obtain such a license, the Company may be required to
license a substitute technology or redesign to avoid infringement, in which
case the Company's business, operating results and financial condition could
be materially adversely affected.
10. INCOME TAXES:
The Company accounts for income taxes using an asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
expected future tax
consequences of events which have been recognized in the Company's financial
statements. Deferred tax assets and liabilities are determined using the
current applicable enacted tax rate and provisions of the enacted tax law.
Until March 23, 1995, the Company had elected to be treated as an S
corporation under the provisions of the Internal Revenue Code; therefore, the
income and loss of the Company was reported and taxed in the shareholders'
individual income tax returns. Thus, no provision for income taxes was
recorded by the Company. On March 23, 1995, in connection with the issuance of
Series A Preferred Stock, the Company's S corporation status was terminated
and the Company became a taxable entity.
F-17
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES, CONTINUED:
The Company had a net deferred tax asset at March 31, 1996 and 1997, and
December 31, 1997 as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
--------- --------- ------------
<S> <C> <C> <C>
Allowance for sales returns and doubtful
accounts............................... $ 102 $ 152 $ 256
Accumulated depreciation................ (33) (92) (143)
Accrued expenses and other.............. 135 1,699 1,019
Federal and state credits............... 34 103 269
Capitalized research and development.... -- 161 246
Net operating losses.................... 1,119 2,003 2,979
------- ------- ------
1,357 4,026 4,626
Valuation allowance..................... (1,357) (4,026) (4,626)
------- ------- ------
Net deferred tax asset.................. $ -- $ -- $ --
======= ======= ======
</TABLE>
At December 31, 1997, the Company had Federal and state net operating loss
carryforwards of $8.0 million and $3.0 million, respectively, which expire at
various dates through 2012. The Company believes that, based on a number of
factors, there is sufficient uncertainty regarding the reliability of
carryforwards and credits that a full valuation allowance has been recorded
against the net deferred tax asset. These factors include a history of
operating losses, recent increases in expense levels to support the Company's
growth, the competitive nature of the Company's market and the lack of
predictability of revenue. Management will continue to assess the reliability
of the tax benefits available to the Company based on actual and forecasted
operating results. The Internal Revenue Code contains provisions which may
limit the net operating loss and research and development credit carryforwards
to be used in any given year upon the occurrence of certain events, including
a significant change in ownership.
11. SUBSEQUENT EVENT
In 1998, the Company was reincorporated via a merger with a newly-
formed Delaware corporation in connection with the Company's proposed IPO.
Also, the Board of Directors approved a one-for-two reverse stock split. All
common, preferred, and per share amounts have been adjusted retroactively to
give effect to this reverse stock split. In connection with the
reincorporation, the automatic conversion price for the Series A, Series B,
and Series C Preferred Stock has been reduced from $14.08, as indicated in
Note 7 above, to $7.00 per share.
F-18
<PAGE>
[DESCRIPTION OF INSIDE BACK COVER]
The back cover has a text box stretching across the entire bottom of the
page. In the text box is the phrase "Unleashing the Power of Data" followed by
a trademark symbol. Above this box, the page is divided horizontally into two
halves. The left half is darker and contains the silhouette of a planet with a
sun backlighting the planet and shining through from behind it. "Brio
Technology" lies over the graphic. The right half of the page has the phrase
"Our Mission" centered horizontally on the page and offset to the right, with
a line stretching under the phrase and off to the left. Below this phrase is
the mission statement:
Empowering organizations by delivering instant insight into information to
any user, anywhere, anytime through the best business intelligence software
for the enterprise.
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................................................... 3
The Company ........................................................... 4
Risk Factors .......................................................... 5
Use of Proceeds ....................................................... 16
Dividend Policy ....................................................... 16
Capitalization ........................................................ 17
Dilution .............................................................. 18
Selected Consolidated Financial Data .................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations ........................................................ 20
Business .............................................................. 31
Management............................................................. 44
Certain Relationships and Related Transactions ........................ 54
Principal and Selling Stockholders .................................... 56
Description of Capital Stock .......................................... 58
Shares Eligible for Future Sale ....................................... 61
Underwriting .......................................................... 63
Legal Matters ......................................................... 65
Experts ............................................................... 65
Additional Information ................................................ 65
Index to Financial Statements.......................................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
[LOGO OF BRIO TECHNOLOGY]
SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
BANCAMERICA ROBERTSON STEPHENS
FIRST ALBANY CORPORATION
PIPER JAFFRAY INC.
PROSPECTUS
, 1998
<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 the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee................................................. $9,839
NASD filing fee...................................................... 3,835
Nasdaq National Market listing fee................................... *
Printing and engraving expenses...................................... *
Legal fees and expenses.............................................. *
Accounting fees and expenses......................................... *
Blue Sky qualification fees and expenses............................. *
Transfer Agent and Registrar fees.................................... *
Miscellaneous fees and expenses...................................... *
------
Total.............................................................. $ *
======
</TABLE>
- --------
* To be disclosed by amendment.
The Registrant intends to pay all expenses of registration, issuance and
distribution with respect to the securities being offered for the account of
the Selling Stockholders, except for Underwriter's discounts and commissions
and stock transfer taxes.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII of the Company's Certificate of
Incorporation (Exhibit 3.2 hereto) and Article VI of the Company's Bylaws
(Exhibit 3.3 hereto) provide for indemnification of the Company's directors,
officers, employees and other agents to the maximum extent permitted by
Delaware Law. In addition, the Company has entered into Indemnification
Agreements (Exhibit 10.1 hereto) with its officers and directors. The
Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification
among the Company, and the Underwriters with respect to certain matters,
including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 31, 1995, the Company has sold and issued the following
securities:
1. In March 1995, the Company issued and sold, pursuant to a Series A
Preferred Stock Purchase Agreement, an aggregate of 2,496,756 shares of its
Series A Preferred Stock convertible into 2,496,756 shares of Common Stock
at a purchase price of $1.542 per share for an aggregate offering price of
$3,849,996.21.
2. In June 1996, the Company issued and sold, pursuant to a Series B Preferred
Stock Purchase Agreement, an aggregate of 2,117,147 shares of its Series B
Preferred Stock
II-1
<PAGE>
convertible into 2,117,146 shares of Common Stock at a purchase price of
$2.834 per share for an aggregate offering price of $5,999,991.76.
3. In April 1996, the Company issued and sold a warrant to purchase an
aggregate of 10,000 shares of its Common Stock an exercise price of $0.60
per share to Management Decisions Limited.
4. In June 1997, the Company issued and sold, pursuant to a Series C Preferred
Stock Purchase Agreement, an aggregate of 852,269 shares of its Series C
Preferred Stock convertible into 852,269 shares of Common Stock at a
purchase price of $7.04 per share for an aggregate offering price of
$5,999,973.76.
5. From January 31, 1995 through January 31, 1998, the Company granted options
under the 1992 Stock Option Plan to purchase an aggregate of 1,990,493
shares of Common Stock at exercise prices ranging from $0.60 to $8.00 per
share to 272 employees, directors and consultants.
6. From January 31, 1995 through January 31, 1998, an aggregate of 786,129
shares of Common Stock were issued pursuant to option exercises at exercise
prices ranging from $0.60 to $2.00 per share to 59 employees, directors and
consultants.
The issuances of the securities in Items 1, 2, 3 and 4 above were deemed to
be exempt from registration under the Act in reliance on Section 4(2) of such
Act. The issuances of the options and Common Stock issued upon exercise of
options in Items 5 and 6 above were deemed exempt from registration under the
Act in reliance upon Rule 701 promulgated under the Act. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates, options and warrants issued in such transactions. All recipients
had adequate access, through their relationships with the Company, to
information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Form of Amended and Restated Certificate of Incorporation of the
Company to be effective upon the closing of the Offering.
3.3 Bylaws of the Company.
4.1 Specimen Stock Certificate.*
4.2 Amended and Restated Rights Agreement dated as of June 27, 1997 between
the Company and the individuals and entities listed in the signature
pages thereto, as amended effective February 27, 1998.
5.1 Opinion of Venture Law Group regarding the legality of the Common Stock
being registered.*
10.1 Form of Indemnification Agreement between the Company and each of its
Officers and Directors.
10.2 Loan and Security Agreement dated December 30, 1997 between the Company
and Silicon Valley Bank.
10.3 Sublease dated February 1997 between the Company and KPMG Peat Marwick
LLP.
10.4 Lease Agreement dated June 27, 1996 between the Company and the
Arrillaga Family Trust.
10.5 Employment Agreement dated July 15, 1996 between the Company and Robert
Currie.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.6 Employment Agreement dated July 21, 1997 between the Company and Karen
Willem.
10.7 Employment Agreement dated June 30, 1994 between the Company and Yorgen
Edholm.*
10.8 1992 Stock Option Plan.
10.9 1998 Stock Option Plan.
10.10 1998 Directors' Stock Option Plan.
10.11 1998 Employee Stock Purchase Plan.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).*
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Report of Independent Public Accountants on Schedule S-1
Schedule II--Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing, as specified in the underwriting agreement, certificates in
such denominations and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC 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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Securities Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by 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) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PALO ALTO , STATE OF
CALIFORNIA ON MARCH 2, 1998.
Brio Technology, Inc.
/s/ Yorgen H. Edholm
By: _________________________________
YORGEN H. EDHOLM
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND
CHAIRMAN OF THE BOARD OF DIRECTORS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Yorgen H. Edholm
and Karen J. Willem, and each of them, as his attorney-in-fact, with full
power of substitution, for him or her in any and all capacities, to sign any
and all amendments to this Registration Statement (including post-effective
amendments), and any and all Registration Statements filed pursuant to Rule
462 under the Securities Act of 1933, as amended, in connection with or
related to this Offering contemplated by this Registration Statement and its
amendments, if any, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorney to any and all amendments to said Registration
Statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Yorgen H. Edholm President, Chief March 2, 1998
- ------------------------------------- Executive Officer
YORGEN H. EDHOLM and Chairman of the
Board of Directors
(Principal Executive
Officer)
/s/ Karen J. Willem Chief Financial March 2, 1998
- ------------------------------------- Officer (Principal
KAREN J. WILLEM Financial and
Accounting Officer)
/s/ Katherine Glassey Director March 2, 1998
- -------------------------------------
KATHERINE GLASSEY
/s/ E. Floyd Kvamme Director March 2, 1998
- -------------------------------------
E. FLOYD KVAMME
/s/ Bernard J. Lacroute Director March 2, 1998
- -------------------------------------
BERNARD J. LACROUTE
/s/ Norman Vincent Director March 2, 1998
- -------------------------------------
NORMAN VINCENT
II-4
<PAGE>
After the reincorporation and the effectiveness of the stock split discussed
in Note 11 to Brio Technology, Inc.'s consolidated financial statements, we
expect to be in a position to render the following audit report:
ARTHUR ANDERSEN LLP
San Jose, California
February 26, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Shareholders of Brio Technology, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Brio Technology, Inc. and
subsidiaries included in this Registration Statement and have issued our
report thereon dated February 26, 1998. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index above is the responsibility of the Company's
management and is presented for the purpose of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
February 26, 1998
S-1
<PAGE>
BRIO TECHNOLOGY, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------ ---------- ---------- ---------- ---------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended March 31, 1995:
Allowance for returns and doubtful
accounts........................... $ 52,000 $ 89,000 $ -- $141,000
Year ended March 31, 1996:
Allowance for returns and doubtful
accounts........................... $141,000 $108,000 $ -- $249,000
Year ended March 31, 1997:
Allowance for returns and doubtful
accounts........................... $249,000 $346,000 $224,000 $371,000
Nine-Month Period Ended December 31,
1997:
Allowance for returns and doubtful
accounts........................... $371,000 $424,000 $176,000 $619,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Form of Amended and Restated Certificate of Incorporation of the
Company to be effective upon the closing of the Offering.
3.3 Bylaws of the Company.
4.1 Specimen Stock Certificate.*
4.2 Amended and Restated Rights Agreement dated as of June 27, 1997 between
the Company and the individuals and entities listed in the signature
pages thereto, as amended effective February 27, 1998.
5.1 Opinion of Venture Law Group regarding the legality of the Common Stock
being registered.*
10.1 Form of Indemnification Agreement between the Company and each of its
Officers and Directors.
10.2 Loan and Security Agreement dated December 30, 1997 between the Company
and Silicon Valley Bank.
10.3 Sublease dated February 1997 between the Company and KPMG Peat Marwick
LLP.
10.4 Lease Agreement dated June 27, 1996 between the Company and the
Arrillaga Family Trust.
10.5 Employment Agreement dated July 15, 1996 between the Company and Robert
Currie.
10.6 Employment Agreement dated July 21, 1997 between the Company and Karen
Willem.
10.7 Employment Agreement dated June 30, 1994 between the Company and Yorgen
Edholm.*
10.8 1992 Stock Option Plan.
10.9 1998 Stock Option Plan.
10.10 1998 Directors' Stock Option Plan.
10.11 1998 Employee Stock Purchase Plan.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).*
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
<PAGE>
EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BRIO TECHNOLOGY, INC.
The undersigned, Yorgen Edholm and Mark B. Weeks hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Brio Technology, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on February 19, 1998.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
"The name of this corporation is Brio Technology, Inc. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware, County of New Castle, is The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware, 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. The 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
Sixty-two Million (62,000,000) shares, each with a par value of $0.001 per
share. Sixty Million (60,000,000) shares shall be Common Stock and Two Million
(2,000,000) shares shall be Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and
<PAGE>
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and the number of shares constituting any such series and the designation
thereof, 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 so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
ARTICLE V
(A) Exempt from Section 2115 of the California Corporations Code as used
in this Amended and Restated Certificate of Incorporation shall mean such time
when the corporation has outstanding securities listed on the New York Stock
Exchange or the American Stock Exchange or has outstanding securities designated
as qualified for trading as a national market security on the National
Association of Securities Delaers Automatic Quotation System (or such successor
national market system) and when the corporation has at least 800 holders of its
equity securities. 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, its directs and its stockholders or any class
thereo, as the case may be, it is further provided that, effective on the record
date of the first annual meeting of stockholders when the Company is Exempt from
Section 2115 of the California Corporations Code:
(B) The Board of Directors of the Corporation shall divide the directors
into two classes, as nearly equal in number as reasonably possible, with the
term of office of the first class to expire at the first annual meeting of
stockholders following the date this Article VI becomes effective (the
"Effective Date") or any special meeting in lieu thereof and the term of office
- ---------------
of the second class to expire at the second annual meeting of stockholders after
the Effective Date or any special meeting in lieu thereof. At each annual
meeting of stockholders or special meeting in lieu thereof following such
initial classification, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the second succeeding
annual meeting of stockholders or special meeting in lieu thereof after their
election and until their successors are duly elected and qualified.
(C) Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a
-2-
<PAGE>
member until the expiration of his or her current term or his or her prior
death, retirement, removal or resignation, and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall, if
reasonably possible, be apportioned by the Board of Directors between the two
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be subtracted
from those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum. In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled. Vacancies in
the Board of Directors and newly created directorships resulting from any
increase in the authorized number of directors shall be filled by a vote of the
majority of the directors then in office, though less than a quorum, or by a
sole remaining director. Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
ARTICLE VI
In the election of directors, each holder of shares of any class or series
of capital stock of the Corporation shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any election of
directors.
ARTICLE VII
No action shall be taken by the stockholders of the Corporation other than
at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Corporation's bylaws.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE IX
-3-
<PAGE>
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XI
The Corporation shall have perpetual existence.
ARTICLE XII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
If the General Corporation Law of Delaware is hereafter amended to authorize,
with the approval of a corporation's stockholders, further reductions in the
liability of the Corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this Article
XIII shall not adversely affect any right or protection of a director of the
Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIII
(A) To the fullest extent permitted by applicable law, the Corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits the Corporation
to provide indemnification) though bylaw provisions, agreements with such agents
or other persons, vote of stockholders or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by Section
145 of the Delaware General Corporation Law, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect to actions
for breach of duty to a corporation, its stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of this
Article XIV shall not adversely affect any right or protection of a director,
officer, agent or other person
-4-
<PAGE>
existing at the time of, or increase the liability of any director of the
Corporation with respect to any acts or omissions of such director, officer or
agent occurring prior to such repeal or modification."
* * *
-5-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at _______________, California, on ____________________.
_____________________________
Yorgen Edholm, President
_____________________________
Mark B. Weeks, Secretary
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
BRIO TECHNOLOGY, INC.
(a Delaware corporation)
-1-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - CORPORATE OFFICES...................................................... 1
1.1 Registered Office............................................................. 1
1.2 Other Offices................................................................. 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.............................................. 1
2.1 Place Of Meetings............................................................. 1
2.2 Annual Meeting................................................................ 1
2.3 Special Meeting............................................................... 1
2.4 Notice Of Stockholders' Meetings.............................................. 2
2.5 Advance Notice of Nominees.................................................... 2
2.6 Advance Notice Of Stockholder Business........................................ 3
2.7 Manner Of Giving Notice; Affidavit Of Notice.................................. 4
2.8 Quorum........................................................................ 4
2.9 Adjourned Meeting; Notice..................................................... 4
2.10 Conduct Of Business........................................................... 5
2.11 Voting........................................................................ 5
2.12 Waiver Of Notice.............................................................. 5
2.13 Stockholder Action By Written Consent Without A Meeting....................... 5
2.14 Record Date For Stockholder Notice; Voting; Giving Consents................... 6
2.15 Proxies....................................................................... 6
ARTICLE III - DIRECTORS............................................................ 7
3.1 Powers........................................................................ 7
3.2 Number Of Directors........................................................... 7
3.3 Election, Qualification And Term Of Office Of Directors....................... 7
3.4 Place Of Meetings; Meetings By Telephone...................................... 9
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
Page
- ----
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.5 Regular Meetings............................................................. 9
3.6 Special Meetings; Notice..................................................... 9
3.7 Quorum....................................................................... 9
3.8 Waiver Of Notice............................................................. 10
3.9 Board Action By Written Consent Without A Meeting............................ 10
3.10 Fees And Compensation Of Directors........................................... 10
3.11 Approval Of Loans To Officers................................................ 10
3.12 Removal Of Directors......................................................... 11
3.13 Chairman Of The Board Of Directors........................................... 11
ARTICLE IV - COMMITTEES........................................................... 11
4.1 Committees Of Directors...................................................... 11
4.2 Committee Minutes............................................................ 11
4.3 Meetings And Action Of Committees............................................ 12
ARTICLE V - OFFICERS.............................................................. 12
5.1 Officers..................................................................... 12
5.2 Appointment Of Officers...................................................... 12
5.3 Subordinate Officers......................................................... 12
5.4 Removal And Resignation Of Officers.......................................... 12
5.5 Vacancies In Offices......................................................... 13
5.6 Chief Executive Officer...................................................... 13
5.7 President.................................................................... 13
5.8 Vice Presidents.............................................................. 13
5.9 Secretary.................................................................... 14
5.10 Chief Financial Officer...................................................... 14
5.11 Representation Of Shares Of Other Corporations............................... 14
5.12 Authority And Duties Of Officers............................................. 15
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.. 15
6.1 Indemnification Of Directors And Officers.................................... 15
6.2 Indemnification Of Others.................................................... 15
6.3 Payment Of Expenses In Advance............................................... 15
6.4 Indemnity Not Exclusive...................................................... 16
</TABLE>
-3-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
- ----
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.5 Insurance.................................................................... 16
6.6 Conflicts.................................................................... 16
ARTICLE VII - RECORDS AND REPORTS................................................. 16
7.1 Maintenance And Inspection Of Records........................................ 16
7.2 Inspection By Directors...................................................... 17
7.3 Annual Statement To Stockholders............................................. 17
ARTICLE VIII - GENERAL MATTERS.................................................... 17
8.1 Checks....................................................................... 17
8.2 Execution Of Corporate Contracts And Instruments............................. 17
8.3 Stock Certificates; Partly Paid Shares....................................... 18
8.4 Special Designation On Certificates.......................................... 18
8.5 Lost Certificates............................................................ 19
8.6 Construction; Definitions.................................................... 19
8.7 Dividends.................................................................... 19
8.8 Fiscal Year.................................................................. 19
8.9 Seal......................................................................... 19
8.10 Transfer Of Stock............................................................ 20
8.11 Stock Transfer Agreements.................................................... 20
8.12 Registered Stockholders...................................................... 20
ARTICLE IX - AMENDMENTS........................................................... 20
</TABLE>
<PAGE>
BYLAWS
OF
BRIO TECHNOLOGY, INC.
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE.
-----------------
The registered office of the corporation shall be in the City of
Dover, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is CT Corporation System.
1.2 OTHER OFFICES.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING.
--------------
The annual meeting of stockholders shall be held on such date, time
and place, either within or without the State of Delaware, as may be designated
by resolution of the Board of Directors each year. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING.
---------------
A special meeting of the stockholders may be called at any time by the
Board of Directors, the chairman of the board, the president or by one or more
stockholders holding shares in the aggregate entitled to cast not less than ten
percent of the votes at that meeting.
-1-
<PAGE>
If a special meeting is called by any person or persons other than the
Board of Directors, the president or the chairman of the board, the request
shall be in writing, specifying the time of such meeting and 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, the president, any vice president, or the secretary of
the corporation. No business may be transacted at such special meeting
otherwise than specified in such notice. The officer receiving the request
shall cause notice to be promptly given to the stockholders entitled to vote, in
accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that
a meeting will be held at the time requested by the person or persons calling
the meeting, not less than thirty-five (35) nor more than sixty (60) days after
the receipt of the request. If the notice is not given within twenty (20) days
after the receipt of the request, the person or persons requesting the meeting
may give the notice. Nothing contained in this paragraph of this Section 2.3
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.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.
--------------------------------
All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.7 of these Bylaws
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. The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF NOMINEES.
---------------------------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 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 for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. 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 corporation.
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<PAGE>
To be timely, a stockholder's notice shall be delivered to or mailed
and received at the principal executive offices of the corporation (a) in the
case of an annual meeting, not less than sixty (60) days nor more than ninety
(90) days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than thirty (30) days from such anniversary date, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the earlier of the day on which such
notice of the date of the meeting was mailed or such public disclosure was made;
and (b) in the case of a special meeting at which Directors are to be elected,
not later than the close of business on the tenth (10th) day following the
earlier of the day on which notice of the date of the meeting was mailed or
public disclosure was made. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or re-
election as a Director (i) the name, age, business address and residence address
of such person, (ii) the principal occupation or employment of such person,
(iii) the class and number of shares of the corporation which are beneficially
owned by such person and (iv) 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 Securities Exchange Act of 1934, as amended (including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
corporation's books, of such stockholder, (ii) the class and number of shares of
the corporation which are beneficially owned by such stockholder and also which
are owned of record by such stockholder and (iii) a description of all
arrangements or understandings between such stockholder and each nominee and any
other person or persons (naming such person or persons) relating to the
nomination. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a director shall furnish to the secretary
of the corporation that information required to be set forth in a 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
Section 2.5. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the Bylaws, and if he or she should so determine, he or
she shall so declare to the meeting and the defective nomination shall be
disregarded. Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Bylaw.
2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS.
--------------------------------------
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<PAGE>
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before an annual meeting, business must be: (a) pursuant to
the corporation's notice of meeting (or any supplement thereto), (b) by or at
the direction of the Board of Directors, or (c) by any stockholder of the
corporation who is a stockholder of record at the time of giving of the notice
provided for in this Section 2.6, who shall be entitled to vote at such meeting
and who complies with the notice procedures set forth in this Section 2.6.
Business to be brought before an annual meeting by a stockholder shall not be
considered properly brought if the stockholder has not 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 less than
sixty (60) nor more than ninety (90) days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the meeting is changed by more than thirty (30) days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the earlier
of the day on which such notice of the date of the meeting was mailed or such
public disclosure was made. A stockholder's notice to the secretary shall set
forth as to each matter the stockholder proposes to bring before the meeting:
(i) a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (iii) the class and number of shares of the
corporation, which are owned by the stockholder of record and by the beneficial
owner, if any, on whose behalf the proposal is made, (iv) any material interest
of the stockholder of record and the beneficial owner, if any, on whose behalf
the proposal is made in such business, and (v) any other information that is
required by law to be provided by the stockholder in his or her capacity as a
proponent of a stockholder proposal.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2.6. The chairman of the meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section,
and, if he or she should so determine, he or she shall so declare at the meeting
that any
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such business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also
comply with all applicable requirements of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder with respect to the matters
set forth in this Bylaw.
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.8 QUORUM.
------
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.9 ADJOURNED MEETING; NOTICE.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, 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
that 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.
2.10 CONDUCT OF BUSINESS.
-------------------
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The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
2.11 VOTING.
------
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.14 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.12 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person 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. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.13 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the corporation, or any action that may be taken at any annual or special
meeting of such 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, is signed by the holders of outstanding stock having not less than the
minimum number
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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.
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 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 notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Notwithstanding the foregoing, immediately upon the closing of the
Company's first public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering any of the Corporation's
securities (as that term is defined under the Securities Act of 1933, as then in
effect) no action shall be taken by the stockholders of the corporation except
at an annual or special meeting of the stockholders called in accordance with
the Bylaws and no action shall be taken by the stockholders by written consent.
2.14 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.
-----------------------------------------------------------
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, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) 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.
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<PAGE>
(b) The record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is delivered to the corporation.
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
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.
2.15 PROXIES.
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 POWERS.
------
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<PAGE>
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
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<PAGE>
3.2 NUMBER OF DIRECTORS.
-------------------
Upon the adoption of these bylaws, the number of directors
constituting the entire Board of Directors shall be six (6). Thereafter, this
number may be changed by a resolution of the Board of Directors or of the
stockholders, subject to Section 3.4 of these Bylaws. No reduction of the
authorized number of directors shall have the effect of removing any director
before such director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
-------------------------------------------------------
(a) The Board of Directors of the corporation shall divide the
directors into two classes, as nearly equal in number as possible. The term of
office of the first class shall expire at the 1999 annual meeting of
stockholders or any special meeting in lieu thereof (or the next consecutive
annual meeting of stockholders when the corporation is Exempt from Section 2115
of the California Corporations Code), and the term of office of the second class
shall expire at the 2000 annual meeting of stockholders or any special meeting
in lieu thereof (or the next consecutive annual meeting of stockholders when the
corporation is Exempt from Section 2115 of the California Corporations Code).
At each annual meeting of stockholders or special meeting in lieu thereof
following such initial classification, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire at
the second succeeding annual meeting of stockholders or special meeting in lieu
thereof after their election and until their successors are duly elected and
qualified. Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws, wherein other qualifications for
Directors may be prescribed.
(b) Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation and
(ii) the newly created or eliminated directorships resulting from such
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<PAGE>
increase or decrease shall if reasonably possible be apportioned by the Board of
Directors among the two classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent reasonably
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation and newly eliminated directorships shall
be subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.
Notwithstanding the foregoing, each director shall serve until his or her
successor is duly elected and qualified or until his or her death, resignation,
or removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(c) For the purposes of this Section 3.3, "Exempt from Section 2115 of
the California Corporation Code" as used in these Bylaws shall mean such time
when the corporation has outstanding securities listed on the New York Stock
Exchange or the American Stock Exchange or outstanding securities designated as
qualified for trading as a national market security on the National Association
of Securities Dealers Automatic Quotation System (or such successor national
market system) with at least 800 holders of its equity securities. 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, its directors and its stockholders or any class thereof, as
the case may be, it is further provided that, effective on the record date of
the first annual meeting of stockholders when the Company is Exempt from Section
2115 of the California Corporations Code:
(d) At the next consecutive annual or special meeting of stockholders
when the corporation is Exempt from Section 2115 of the California Corporations
Code, there shall be no right with respect to shares of stock of the corporation
to cumulate votes in the election of directors.
(e) Election of Directors need not be by written ballot.
3.4 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
----------------------------------------
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
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Unless otherwise restricted by the certificate of incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.5 REGULAR MEETINGS.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.6 SPECIAL MEETINGS; NOTICE.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.7 QUORUM.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the
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directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum is not present at
any meeting of the Board of Directors, then the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.8 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person 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. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A 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 or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee. Written consents representing actions taken by the
board or committee may be executed by telex, telecopy or other facsimile
transmission, and such facsimile shall be valid and binding to the same extent
as if it were an original.
3.10 FEES AND COMPENSATION OF DIRECTORS.
----------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such
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compensation shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
3.11 APPROVAL OF 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
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty 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 this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.12 REMOVAL OF DIRECTORS.
--------------------
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.13 CHAIRMAN OF THE BOARD OF DIRECTORS.
----------------------------------
The corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the corporation.
ARTICLE IV
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COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS.
-----------------------
The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate 1 or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, or in these Bylaws,
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 the following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by this chapter to be
submitted to stockholders for approval or (ii) adopting, amending or repealing
any Bylaw of the corporation.
4.2 COMMITTEE MINUTES.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.4 (place of meetings and
meetings by telephone), Section 3.5 (regular meetings), Section 3.6 (special
meetings and notice), Section 3.7 (quorum), Section 3.8 (waiver of notice), and
Section 3.9 (action without a meeting) of these Bylaws, with such changes in the
context of such provisions as are necessary to substitute the committee and its
members for the Board of Directors and its members; provided, however, that the
time of regular meetings of committees may be determined either by resolution of
the Board of Directors or by resolution of the committee, that special meetings
of committees may also be called by resolution of the Board of Directors and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
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ARTICLE V
OFFICERS
--------
5.1 OFFICERS.
--------
The officers of the corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS.
-----------------------
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
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Any officer may resign at any time by giving written notice to the
attention of the Secretary of the corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
--------------------
Any vacancy occurring in any office of the corporation shall be filled
by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these bylaws.
5.7 PRESIDENT.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
-17-
<PAGE>
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 SECRETARY.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
-18-
<PAGE>
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (a) who is or was
a director or officer of the corporation, (b) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
-19-
<PAGE>
or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS.
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (a) who is or was an employee or
agent of the corporation, (b) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (c) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation
-20-
<PAGE>
6.5 INSURANCE.
---------
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 CONFLICTS.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the certificate
of incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
-------------------------------------
The corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its
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<PAGE>
stockholders, and its other books and records and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent is the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing that
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS.
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
-22-
<PAGE>
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so 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.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
--------------------------------------
The shares of a corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the Board of Directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
-----------------------------------
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<PAGE>
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the 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.
8.5 LOST CERTIFICATES.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
-24-
<PAGE>
8.7 DIVIDENDS.
---------
The directors of the corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the certificate
of incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR.
-----------
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
----
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
-----------------
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
-------------------------
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.
-25-
<PAGE>
8.12 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, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
-26-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
BRIO TECHNOLOGY, INC.
Adoption by Incorporator
The undersigned person appointed in the certificate of incorporation to act
as the Incorporator of Brio Technology, Inc. hereby adopts the foregoing bylaws
as the Bylaws of the corporation.
Executed this 19th day of February, 1998.
/s/ Maribeth T. Younger
---------------------------
Maribeth T. Younger, Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
----------------------------------------------------
The undersigned hereby certifies that the undersigned is the duly elected,
qualified, and acting Secretary of Brio Technology, Inc. and that the foregoing
Bylaws were adopted as the Bylaws of the corporation on February __, 1998 by the
person appointed in the certificate of incorporation to act as the Incorporator
of the corporation.
Executed this _____ day of February, 1998.
Mark B. Weeks, Assistant Secretary
-27-
<PAGE>
EXHIBIT 4.2
================================================================================
BRIO TECHNOLOGY, INC.
AMENDED AND RESTATED RIGHTS AGREEMENT
June 27, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Termination Of Prior Rights...................................... 1
Section 2. Amendment........................................................ 2
Section 3. Registration Rights.............................................. 2
3.1 Definitions...................................................... 2
3.2 Requested Registration........................................... 3
3.3 Company Registration............................................. 4
3.4 Obligations of the Company....................................... 4
3.5 Furnish Information.............................................. 6
3.6 Expenses of Demand Registration.................................. 6
3.7 Expenses of Company Registration................................. 6
3.8 Underwriting Requirements........................................ 6
3.9 Delay of Registration............................................ 7
3.10 Indemnification.................................................. 7
3.11 Reports Under Securities Exchange Act of 1934.................... 9
3.12 Form S-3 Registration............................................ 10
3.13 Assignment of Registration Rights................................ 11
3.14 Limitations on Subsequent Registration Rights.................... 11
3.15 "Market Stand-Off" Agreement..................................... 11
3.16 Termination of Registration Rights............................... 11
Section 4. Additional Rights................................................ 12
4.1 Right of First Offer............................................. 12
4.2 Information Rights............................................... 14
Section 5. Waiver of Right of First Refusal................................. 15
Section 6. Miscellaneous.................................................... 15
6.1 Assignment....................................................... 15
6.2 Third Parties.................................................... 15
6.3 Governing Law.................................................... 15
6.4 Counterparts..................................................... 15
6.5 Notices.......................................................... 15
5.6 Severability..................................................... 16
5.7 Amendment and Waiver............................................. 16
5.8 Effect of Amendment or Waiver.................................... 16
5.9 Rights of Holders................................................ 16
5.10 Delays or Omissions.............................................. 16
5.11 Aggregation of Stock............................................. 17
</TABLE>
<PAGE>
AMENDED AND RESTATED RIGHTS AGREEMENT
THIS AMENDED AND RESTATED RIGHTS AGREEMENT (the "AGREEMENT") is entered
into as of June 27, 1997, by and among Brio Technology, Inc., a California
corporation (the "COMPANY"), and the individuals and entities set forth on
EXHIBIT A attached hereto (the "SHAREHOLDERS").
RECITALS
--------
WHEREAS, the Company and certain of the Shareholders have entered into a
-------
Series A Preferred Stock Purchase Agreement dated March 21, 1995 (the "SERIES A
AGREEMENT"), pursuant to which the Company sold, and the purchasers party
thereto acquired, shares of the Company's Series A Preferred Stock (the "SERIES
A SHARES");
WHEREAS, the Company and certain of the Shareholders have entered into a
-------
Series B Preferred Stock Purchase Agreement (the "SERIES B AGREEMENT") dated
June 12, 1996, pursuant to which the Company sold, and the purchasers party
thereto acquired, shares of the Company's Series B Preferred Stock (the "SERIES
B SHARES");
WHEREAS, the Company and certain of the Shareholders have entered into a
-------
Series C Preferred Stock Purchase Agreement (the "SERIES C AGREEMENT") of even
date herewith, pursuant to which the Company will sell, and the purchasers party
thereto will acquire, shares of the Company's Series C Preferred Stock (the
"SERIES C SHARES" and collectively with the Series A Shares and the Series B
Shares, the "SHARES");
WHEREAS, the Company and the Shareholders, exclusive of Shareholders
-------
purchasing only under the Series C Agreement, are also parties to an Amended and
Restated Rights Agreement dated as of June 12, 1996 (the "SERIES B AGREEMENT"),
pursuant to which the Company granted to such Shareholders certain registration
rights and a right of first offer;
WHEREAS, the parties desire that the Shareholders be granted substantially
-------
identical registration rights and rights of first offer with respect to the
Series C Shares;
WHEREAS, the execution of this Agreement by the Company is a condition to
-------
the obligations of the purchasers under the Series C Agreement;
WHEREAS, the Company wishes to execute this Agreement and grant to the
-------
Shareholders the rights contained herein in order to fulfill such condition;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
Section 1. Termination of Series B Agreement. The Shareholders, who
---------------------------------
include a majority in interest of the "Shareholders" who are parties to the
Series B Agreement, and the Company hereby
<PAGE>
terminate the Series B Agreement and in place thereof enter into this Agreement
which shall be the sole agreement among the Shareholders and the Company
relating to the subject matter hereof.
Section 2. Amendment. Except as expressly provided herein, neither this
---------
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
--------
however, that any provisions hereof may be amended, waived, discharged or
- -------
terminated upon the written consent of the Company and the holders of a majority
of the Registrable Securities then outstanding (as defined below), determined on
the basis of assumed conversion of all Shares into Registrable Securities.
Section 3. Registration Rights.
-------------------
3.1 Definitions. As used in this Agreement:
-----------
(a) The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "SECURITIES ACT")
and the subsequent declaration or ordering of the effectiveness of such
registration statement.
(b) The term "REGISTRABLE SECURITIES" means:
(i) the shares of Common Stock issuable or issued upon
conversion of the Series A Shares, Series B Shares or Series C Shares issued
pursuant to the Series A Agreement, the Series B Agreement or Series C Agreement
(such shares of Common Stock are referred to hereafter as the "STOCK"), and
(ii) any other shares of Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, the Stock, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
his or her rights under this Agreement are not assigned;
provided, however, that Common Stock or other securities shall only be treated
- -------- -------
as Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions, and restrictive legends
with respect thereto, if any, are removed upon the consummation of such sale.
(c) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
-2-
<PAGE>
(d) The term "HOLDER" means any holder of outstanding
Registrable Securities who, subject to the limitations set forth in Section 3.13
below, acquired such Registrable Securities in a transaction or series of
transactions not involving any registered public offering.
(e) The term "FORM S-3" means such form under the Securities Act
as in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the Securities and Exchange Commission ("SEC") which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
3.2 Requested Registration.
----------------------
(a) If the Company shall receive at any time after the earlier
of (i) March 21, 1998, or (ii) six (6) months after the effective date of the
first registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or an SEC Rule 145 transaction), a written request from the Holders
of at least a majority of the Registrable Securities then outstanding that the
Company file a registration statement under the Securities Act covering the
registration of at least twenty percent (20%) of the Registrable Securities then
outstanding (or a lesser percent if the anticipated aggregate offering price,
net of underwriting discounts and commissions, would exceed $2,000,000), then
the Company shall, within ten (10) days of the receipt thereof, give written
notice of such request to all Holders and shall, subject to the limitations of
subsection 3.2(b), effect as soon as practicable, and in any event within 90
days of the receipt of such request, the registration under the Securities Act
of all Registrable Securities which the Holders request to be registered within
thirty (30) days of the effective date of such notice delivered by the Company
in accordance with Section 5.5.
(b) If the Holders initiating the registration request hereunder
("INITIATING HOLDERS") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 3.2 and the Company
shall include such information in the written notice referred to in subsection
3.2(a). In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
3.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 3.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
-------- -------
that the number of shares of Registrable
-3-
<PAGE>
Securities to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from such underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 3.2.
(d) Notwithstanding the foregoing, 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 filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
the Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
3.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for Shareholders other than the Holders) any of its
Common Stock or other securities under the Securities Act in connection with the
public offering of such securities solely for cash (other than a registration
relating either to the sale of securities to participants in a Company stock
option, stock purchase or similar plan or to an SEC Rule 145 transaction, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 5.5, the Company shall,
subject to the provisions of Section 3.8, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be registered.
3.4 Obligations of the Company. Whenever required under this Section
--------------------------
3 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for the earlier of one hundred twenty (120)
days or until the distribution contemplated in the registration statement has
been completed; provided, however, that (i) such 120-day period shall be
-------- -------
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis, and the obligation to file a post-effective amendment permit, in
lieu of filing a post-effective amendment which (A) includes any prospectus
-4-
<PAGE>
required by Section 10(a)(3) of the Securities Act or (B) reflects facts or
events representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (A) and (B) above to be contained in
periodic reports filed pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), in the registration
statement.
(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 numbers 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 its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 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) Cause all such Registrable Securities registered pursuant to
this Section 3 to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to this Section 3 and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 3, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 3, if such
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<PAGE>
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, an opinion, dated 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, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
3.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 3 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
3.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions and the fees and disbursements of special
counsel for the selling Holders, if any, incurred in connection with
registrations, filings or qualifications pursuant to Section 3.2, including
(without limitation), all registration, filing and qualification fees, printers
and accounting fees, fees and disbursements of counsel for the Company shall be
borne by the Company; provided, however, that the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to Section
3.2 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all Participating Holders shall bear such expenses), unless the Holders of
a majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 3.2; provided further, however, that if
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to
Section 3.2.
3.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with registrations, filings or
qualifications of Registrable Securities with respect to the registrations
pursuant to Section 3.3 for each Holder (which right may be assigned as provided
in Section 3.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto, but excluding underwriting discounts and commissions relating to
Registrable Securities and the fees and disbursements of special counsel for the
selling Holders, if any.
3.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 3.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters reasonably believe compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities which the
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<PAGE>
underwriters believe will not jeopardize the success of the offering (the
"Selling Shareholder Securities"), provided, however, that the Selling
-------- -------
Shareholder Securities shall first be allocated among the requesting Holders pro
rata according to the total amounts of Registrable Securities entitled to be
included in such offering by such requesting Holders and then among all other
holders of securities requesting and legally entitled to include securities in
such offering pro rata based on the total amount of such securities entitled to
be included in such offering by such holders and provided, further, that in no
-------- -------
event shall (i) the amount of Registrable Securities of the selling Holders
included in the offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities, in which case the selling
shareholders may be excluded if the underwriters make the determination
described above and no other shareholder's securities are included or (ii)
notwithstanding (i) above, any shares being sold by a Holder exercising a demand
registration right similar to that granted in Section 3.2 be excluded from such
offering. For purposes of the preceding parenthetical concerning apportionment,
for any selling Holder which is a holder of Registrable Securities and which is
a partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder," and any pro rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
3.9 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
3.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 3:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless 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 1934 Act, against
any losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the 1934 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"): (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 1934 Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any state securities law; and the Company will pay as
incurred to each such Holder, underwriter or controlling person, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 3.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent
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<PAGE>
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 any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the 1934 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 expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 3.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 3.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided that in no event shall any indemnity under this subsection
3.10(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 3.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 3.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof 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 prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 3.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
3.10.
d) If the indemnification provided for in this Section 3.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, will contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to
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<PAGE>
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage, or expense as well as any
other relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party will be determined 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.
(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 will control.
(f) The obligations of the Company and Holders under this
Section 3.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 3, and otherwise.
3.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the 1934
Act (at any time after it has become subject to such reporting requirements), or
that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of
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<PAGE>
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
3.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders owning in the aggregate at least twenty percent (20%) of
the Registrable Securities then outstanding a written request or requests that
the Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 3.12, (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 (net of any
underwriters' discounts or commissions) of less than $250,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the president of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
Shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than ninety (90) days after
receipt of the request of the Holder or Holders under this Section 3.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve month period; (iv) if the Company has, within the twelve-month
period preceding the date of such request, already effected two registrations on
Form S-3 for the Holders pursuant to this Section 3.12; or (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
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 3.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, shall be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration and, if it participates, the Company
(on a pro rata basis); provided, however, that the Company shall bear any
auditing expenses that shall be incurred in the normal course of business and
shall bear all regular salary expenses of its employees. Registrations effected
pursuant to this Section 3.12 shall not be counted as demands for registration
or registrations effected pursuant to Sections 3.2 or 3.3.
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<PAGE>
3.13 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 provided the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
3.14 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of at least a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company which would grant such holder or prospective
holder any or all of the registration rights contemplated herein; provided,
--------
however, that such restriction shall not apply to registration rights granted in
- -------
conjunction with the issuance of up to an aggregate of 200,000 shares of Common
Stock, including rights to acquire Common Stock or securities convertible into
Common Stock, issued or issuable in connection with capital equipment leases,
technology acquisitions and other comparable transactions approved by the Board
of Directors.
3.15 "Market Stand-Off" Agreement. Each Shareholder hereby agrees
---------------------------
that during the 180-day period following the effective date of the registration
statement filed by the Company with respect to its initial public offering under
the Securities Act, it shall not, to the extent requested by the Company and
such underwriter, sell or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any Common Stock of the Company held by it at
any time during such period except Common Stock included in such registration
and, in the case of Integral Capital Partners III, L.P., Integral Capital
Partners International III, L.P., Raptor Global Fund, L.P., Raptor Global Fund,
Ltd., Tudor BVI Futures, Ltd., and Tudor Arbitrage Partners, L.P. only, Common
Stock acquired in the Company's initial public offering or acquired in the open
market after such initial public offering; provided, however, that (a) the
officers and the directors of the Company enter into similar agreements and (b)
the restrictions set forth in this Section 3.15 shall be applicable only to the
first such registration statement of the Company covering securities to be sold
on its behalf in an underwritten public offering.
To enforce the foregoing covenant, the Company may impose stop-
transfer instructions with respect to the Registrable Securities of the
Purchaser (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
3.16 Termination of Registration Rights . No Holder shall be
----------------------------------
entitled to exercise any right provided for in this Section 3 (a) after seven
(7) years following the consummation of the Company's sale of its Common Stock
in a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Securities Act (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction) or (b) at such time following the Company's initial public offering
if, and for so long as, such Holder may sell all of such Holder's Registrable
Securities in any one three-month period pursuant to Rule 144 (or such successor
rule as may be adopted).
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<PAGE>
Section 4. Additional Rights.
-----------------
4.1 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 4.1, the Company hereby grants to each Shareholder, so
long as such Shareholder holds not less than 560,000 shares of Common Stock
issued or issuable upon conversion of the Preferred Stock held thereby (the
"RIGHTHOLDER"), a right of first offer with respect to future sales by the
Company of its New Securities (as hereinafter defined). For purposes of this
Section 4.1, the term Shareholder includes any partners, shareholders or
affiliates of the Shareholder and shall further include all mutual funds or
other pooled investment vehicles or entities under the control or management of
such Shareholder, or of the general partner or investment advisor thereof, or
any affiliate of any of the foregoing. The Rightholder shall be entitled to
apportion the right of first offer hereby granted among itself and its partners,
Shareholders and affiliates in such proportions as it deems appropriate.
(a) In the event the Company proposes to issue New
Securities, it shall give the Rightholder written notice (the "NOTICE") of its
intention stating (i) a description of the New Securities it proposes to issue,
(ii) the number of shares of New Securities it proposes to offer, (iii) the
price per share at which, and other terms on which, it proposes to offer such
New Securities and (iv) the number of shares that the Rightholder has the right
to purchase under this Section 4.1, based on the Rightholder's Percentage (as
defined in Subsection 4.1(d)(ii)).
(b) Within fifteen (15) days after the Notice is given (in
accordance with Section 6.5), the Rightholder may elect to purchase, at the
price specified in the Notice, up to the number of shares of the New Securities
proposed to be issued that the Rightholder has the right to purchase as
specified in the Notice. An election to purchase shall be made in writing and
must be given to the Company within such 15-day period (in accordance with
Section 6.5). The closing of the sale of New Securities by the Company to the
participating Rightholder upon exercise of its rights under this Section 4.1
shall take place simultaneously with the closing of the sale of New Securities
to third parties.
(c) The Company shall have ninety (90) days after the last
date on which the Rightholder's right of first offer lapsed to enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within forty-five days from the execution thereof) to sell
the New Securities which the Rightholder did not elect to purchase under this
Section 4.1, at or above the price and upon terms not materially more favorable
to the purchasers of such securities than the terms specified in the initial
Notice given in connection with such sale. In the event the Company has not
entered into an agreement to sell the New Securities within such ninety day
period (or sold and issued New Securities in accordance with the foregoing
within forty-five days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such New
Securities to the Rightholder in the manner provided in this Section 4.1.
(d) (i) "NEW SECURITIES" shall mean any shares of, or
securities convertible into or exercisable for any shares of, any class of the
Company's capital stock; provided that "New Securities" does not include: (A)
the Series A Shares, Series B Shares, or Series C Shares (or the Common Stock
issuable upon conversion thereof); (B) securities issued pursuant to the
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<PAGE>
acquisition of another business entity by the Company by merger, purchase of
substantially all of the assets of such entity, or other reorganization whereby
the Company owns not less than a majority of the voting power of such entity;
(C) shares, or options to purchase shares, of the Company's Common Stock and the
shares of Common Stock issuable upon exercise of such options, issued pursuant
to any arrangement approved by the Board of Directors to employees, officers and
directors of, or consultants, advisors or other persons performing services for,
the Company; (D) shares of the Company's Common Stock or Preferred Stock of any
series issued in connection with any stock split, stock dividend or
recapitalization of the Company; (E) Common Stock issued upon exercise of
warrants, options or convertible securities if the issuance of such warrants,
options or convertible securities was a result of the exercise of the right of
first offer granted under this Section 4.1 or was subject to the right of first
offer granted under this Section 4.1; (F) capital stock or warrants or options
for the purchase of shares of capital stock issued by the Company to a lender in
connection with any loan or lease financing transaction; and (G) securities sold
to the public in an offering pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act.
(ii) The applicable "PERCENTAGE" for the Rightholder
shall be the number of shares of New Securities calculated by dividing (A) the
total number of shares of Common Stock issued or issuable upon conversion of the
Preferred Stock then owned by the Rightholder by (B) the total number of shares
of Common Stock outstanding at the time the Notice is given (assuming conversion
of all Shares of Preferred Stock).
(e) The right of first offer granted under this Section 4.1
shall not apply to and shall expire upon the consummation of the Company's sale
of its Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Securities Act which results in
aggregate gross cash proceeds to the Company in excess of $10,000,000 and the
public offering price of which is not less than $7.04 per share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization) (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction).
(f) The right of first offer granted under this section may be
assigned by the Rightholder to a transferee or assignee of the Rightholder's
shares of the Company's stock acquiring at least 560,000 of the Rightholder's
shares of the Company's Common Stock (treating all shares of Preferred Stock for
this purpose as though converted into Common Stock) (equitably adjusted for any
stock splits, subdivision stock dividends, changes, combinations or the like).
In the event that the Rightholder shall assign its right of first offer pursuant
to this Section 4.1 in connection with the transfer of less than all of its
shares of the Company's stock, the Rightholder shall also retain its right of
first offer to the extent then applicable under this Section 4.1.
4.2 Information Rights.
------------------
(a) The Company shall deliver to each Shareholder as soon as
practicable, but in any event within ninety (90) days after the end of each
fiscal year of the Company, an income statement for such fiscal year, a balance
sheet of the Company as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be
-13-
<PAGE>
in reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company;
(b) The Company shall deliver to each Shareholder, so long as
it holds not less than 560,000 shares of Preferred Stock (or Common Stock
issuable upon conversion thereof);
(i) within thirty (30) days of the end of each month,
an unaudited income statement and schedule as to the sources and application of
funds and balance sheet and comparison to budget for and as of the end of such
month, in reasonable detail;
(ii) as soon as practicable, but in any event 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 and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
(iii) such other information relating to the financial
business, prospects or corporate affairs of the Company as the or any assignee
of the Purchaser may from time to time request, provided, however, that the
Company shall not be obligated to provide information which it deems in good
faith to be proprietary.
(c) The Company shall permit each Shareholder holding not less
than 560,000 shares of Preferred Stock, at such Shareholder's expense, to visit
and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by such Shareholder;
provided, however, that the Company shall not be obligated pursuant to this
subsection 4.2(c) to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
(d) The covenants set forth in this Section 4.2 shall
terminate as to all Shareholders and be of no further force or effect
immediately upon the consummation of the Company's sale of its Common Stock in a
bona fide, firm commitment underwriting pursuant to a registration statement on
Form S-1 under the Act (other than a registration statement relating either to
the sale of securities to employees of the Company pursuant to a stock option,
stock purchase or similar plan or a SEC Rule 145 transaction).
Section 5. Waiver of Right of First Refusal. With respect to the issuance
--------------------------------
of up to 1,704,546 shares of Series C Shares pursuant to the Series C Agreement
and the shares of Common Stock issuable upon conversion of such shares, each
Series A Investor and each Series B Investor holding a right of first refusal to
purchase securities of the Company, by its execution hereof, hereby waives any
rights it may have to purchase such Series C Shares, if any.
-14-
<PAGE>
Section 6. Miscellaneous.
-------------
6.1 Assignment. Subject to the provisions of Section 3.13 hereof,
----------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
6.2 Third Parties. Nothing in this Agreement, express or implied,
-------------
is intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
6.3 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California in the United States of
America.
6.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5 Notices.
-------
(a) All notices, requests, demands and other communications
under this Agreement or in connection herewith shall be given to or made upon
the respective parties as follows:
To the Company: Brio Technology, Inc.
3430 W. Bayshore
Palo Alto, CA 94303
(415) 856-8000
(415) 856-8020 fax
Attention: President
To a Shareholder: At the Shareholder's address as set forth on EXHIBIT A
hereto.
(b) All notices, requests, demands and other communications
given or made in accordance with the provisions of this Agreement shall be in
writing, and shall be sent by airmail, return receipt requested, or by telex or
telecopy (facsimile) with confirmation of receipt, and shall be deemed to be
given or made when receipt is so confirmed.
(c) Any party may, by written notice to the other, alter its
address or respondent, and such notice shall be considered to have been given
twenty (20) days after the airmailing, or one (1) day after the telexing or
telecopying thereof.
6.6 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to
-15-
<PAGE>
the extent necessary, shall be severed from this Agreement, and the balance of
this Agreement shall be enforceable in accordance with its terms.
6.7 Amendment and Waiver. Any provision of this Agreement may be
--------------------
amended 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 paragraph shall be binding upon each Holder of
Registrable Securities, and the Company. In addition, the Company may waive
performance of any obligation owing to it, as to some or all of the Holders of
Registrable Securities, or agree to accept alternatives to such performance,
without obtaining the consent of any Holder of Registrable Securities. In the
event that an underwriting agreement is entered into between the Company and any
Holder, and such underwriting agreement contains terms differing from this
Agreement, as to any such Holder the terms of such underwriting agreement shall
govern.
6.8 Effect of Amendment or Waiver. Investor and its successors and
-----------------------------
assigns acknowledge that by the operation of Section 2 hereof the holders of a
majority of the outstanding Registrable Securities, acting in conjunction with
the Company, will have the right and power to diminish or eliminate all rights
pursuant to this Agreement.
6.9 Rights of Holders. Each holder of Registrable Securities shall
-----------------
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
6.10 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party to this Agreement, upon any breach
or default of the other party, shall impair any such right, power or remedy of
such non-breaching party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
6.11 Aggregation of Stock. All shares of Registrable Securities held
--------------------
or acquired by affiliated entities or persons, including Registrable Securities
distributed by a Shareholder which is a partnership to the partners of such
partnership, or shares of Registrable Securities held by a mutual fund or other
pooled investment vehicle or entity under the control or management of such
Shareholder, or of the general partner or investment advisor thereof, or any
affiliate of any of the foregoing, shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
-16-
<PAGE>
IN WITNESS WHEREOF, this Rights Agreement is hereby executed as of the date
first above written.
COMPANY:
-------
BRIO TECHNOLOGY, INC.
By:/s/ Yorgen H. Edholm
----------------------
Its: President
----------------------
SHAREHOLDERS:
------------
INTEGRAL CAPITAL PARTNERS III, L.P. KLEINER PERKINS CAUFIELD &
By: Integral Capital Management III, L.P. BYERS VII
Its: General Partner
/s/ E. Floyd Kvamme
By: /s/ Pamela K. Heganan --------------------------
---------------------- By: KPCB VII Associates
Its: General Partner
Its: General Partner
INTEGRAL CAPITAL PARTNERS KPCB INFORMATION SCIENCES
INTERNATIONAL III, L.P. ZAIBATSU FUND II
BY: Integral Capital Management III, L.P.
its: Investment General Partner
/s/ E. Floyd Kvamme
By: /s/ Pamela K. Heganan ----------------------------
- -------------------------- By: KPCB VII Associates
Its: General Partner
Its: General Partner
NOVUS VENTURES L.P.
By: DT Associates, its General Partner
By: /s/ Dan Tompkins
-----------------
General Partner
[Signature page to the Brio Technology, Inc. Amended and Restated Rights
Agreement dated June 27, 1997.]
-17-
<PAGE>
SHAREHOLDERS (CONTINUED):
- ------------------------
RAPTOR GLOBAL FUND, L.P. RAPTOR GLOBAL FUND, LTD.
By: /s/ Robert Forlenza By: /s/ Robert Forlenza
----------------------- ------------------------
Name Robert Forlenza Name Robert Forlenza
------------------- -------------------
Title: Vice President Title: Vice President
----------------- -----------------
TUDOR BVI FUTURES, LTD. TUDOR ARBITRAGE PARTNERS, L.P .
By: /s/ Robert Forlenza By: /s/ Robert Forlenza
------------------------ ------------------------
Name Robert Forlenza Name Robert Forlenza
-------------------- --------------------
Title: Vice President Title: Vice President
----------------- ------------------
EMC CORPORATION DMG TECHNOLOGY VENTURES, L.L.C.
By: /s/ Meir Weinstein By: /s/ W.J. Brady
---------------------- ------------------
Its: VP Corporate Business Development Its: Managing Director DMG
---------------------------------- ----------------------
Technology Group
----------------
VENTURE LAW GROUP INVESTMENTS 1997 CRAIG W. JOHNSON
By: /s/ Craig W. Johnson /s/ Craig W. Johnson
---------------------- -----------------
its: Partner
---------
MARK B. WEEKS
/s/ Mark B. Weeks
-------------------
[Signature page to the Brio Technology, Inc. Amended and Restated Rights
Agreement dated June 27, 1997.]
<PAGE>
EXHIBIT A
---------
SHAREHOLDERS
<TABLE>
<S> <C>
Integral Capital Partners III, L.P. KPCB Information Sciences Zaibatsu Fund II
2750 Sand Hill Road 750 Sand Hill Road
Menlo Park, CA 94025 Menlo Park, CA 94025
Attn: Pamela Hagenah Attn: E. Floyd Kvamme
Integral Capital Partners International III, L.P. Kleiner Perkins Caufield & Byers VII
2750 Sand Hill Road 2750 Sand Hill Road
Menlo Park, CA 94025 Menlo Park, CA 94025
Attn: Pamela Hagenah Attn: E. Floyd Kvamme
Novus Ventures L.P. Jonathan Morgan
20111 Stevens Creek Blvd. c/o Prudential Securities
Suite 130 4 Embarcadero Center, Suite 2501
Cupertino, CA 95014 San Francisco, CA 94111
Attn: Dan Tompkins
C. Roger Glassey VLG Investments 1995
1163 Keeler Avenue c/o Venture Law Group
Berkeley, CA 94708 Attn: Mark B. Weeks
2800 Sand Hill Road
Menlo Park, CA 94025
Cotran Investments Limited High Peak Ltd.
11 Burton Street 7 Old Park Lane
5th Floor London W1Y 3LH England
London W1Y 8AD England Attn: Samir Sanbar
Attn: Camille Coltran Fax: 011-44-171-377-5742
Fax: 011-44-171-495-3004
Cudd & Co.
c/o Henderson Administration PLC
3 Finsbury Avenue
London EC2M 2PA England
Attn: Tim Woolley
Fax: 011-44-171-377-5742
Send stock certificate to:
Chase Manhattan Bank
1211 Avenue of Americas
New York, NY 10036
Attn: Mike Degangi
Account CMB London
Account PS75350
Ref: GTI 2345029
</TABLE>
<PAGE>
EXHIBIT A
---------
SHAREHOLDERS (CONTINUED)
<TABLE>
<S> <C>
Grangethorpe Pension Scheme
11 Bruton Street Dennis S. Crow
5th Floor c/o Pierce & Crow
London W1Y 8AD England 100 Drake's Landing Road, Suite 300
Attn: Samir Sanbar Greenbrae, CA 94904
Fax: 011-44-171-495-3004
Raptor Global Fund L. P. DMG Technology Ventures, L.L.C.
c/o Tudor Investment Corporation, Inc. 1550 El Camino Real, Suite 100
40 Rowes Wharf, 2nd Floor Menlo Park CA 94025
Boston, MA 02110 Attn: Bill Brady
Attn: Rick Ganong
Raptor Global Fund, Ltd. Tudor BVI Futures, Ltd.
c/o Tudor Investment Corporation, Inc. c/o Tudor Investment Corporation, Inc.
40 Rowes Wharf, 2nd Floor 40 Rowes Wharf, 2nd Floor
Boston, MA 02110 Boston, MA 02110
Attn: Rick Ganong Attn: Rick Ganong
Tudor Arbitrage Partners, L.P. EMC Corporation
c/o Tudor Investment Corporation, Inc. 35 Parkwood Drive
40 Rowes Wharf, 2nd Floor Hopkinton, MA 01748-9103
Boston, MA 02110 Attn: Meir Weinstein
Attn: Rick Ganong
Venture Law Group Investments 1997 Craig W. Johnson
2800 Sand Hill Road c/o Venture Law Group
Menlo Park, CA 94025 2800 Sand Hill Road
Menlo Park, CA 94025
Mark B. Weeks
c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of
---------
____________, 199__, by and between Brio Technology, Inc. a Delaware corporation
(the "Company"), and <IndemniteeName> (the "Indemnitee").
------- ----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
---------------
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if
-----------------------
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
<PAGE>
3. EXPENSES; INDEMNIFICATION PROCEDURE.
-----------------------------------
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition
--------------------------------
precedent to his or her right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification
<PAGE>
of Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
-------------------------------------------------
(a) SCOPE. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any
<PAGE>
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, such changes, to the extent not otherwise required by such law, statute
or rule to be applied to this Agreement shall have no effect on this Agreement
or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
---
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement.
<PAGE>
Among other considerations, the Company will weigh the costs of obtaining such
insurance coverage against the protection afforded by such coverage. In all
policies of director and officer liability insurance, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, if Indemnitee is not an officer or director but is a
key employee. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company determines in
good faith that such insurance is not reasonably available, if the premium costs
for such insurance are disproportionate to the amount of coverage provided, if
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a parent or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
<PAGE>
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" 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
if Indemnitee 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, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company 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 if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. ATTORNEYS' FEES. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee
<PAGE>
with respect to such action, unless as a part of such action, the court of
competent jurisdiction determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
12. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth
---------------------------------------
the entire agreement and understanding of the parties relating to the subject
matter herein and merges all prior discussions between them. No modification of
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, shall be effective unless in writing signed by the parties to this
Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations between
------------
and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to be
-------
given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
<PAGE>
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
[Signature Page Follows]
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
BRIO TECHNOLOGY, INC.
By:
Title:
Address: 3430 West Bayshore Rd.
Palo Alto, CA 94303
AGREED TO AND ACCEPTED:
<INDEMNITEENAME>
[SIGNATURE]
Address: <IndemniteeAddress1>
<IndemniteeAddress2>
<PAGE>
EXHIBIT 10.2
BRIO TECHNOLOGY, INC.
LOAN AND SECURITY AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS AND CONSTRUCTION......................................... 1
1.1 Definitions................................................ 1
1.2 Accounting Terms........................................... 7
2. LOAN AND TERMS OF PAYMENT............................................ 7
2.1 Advances................................................... 7
2.2 Overadvances............................................... 8
2.3 Interest Rates, Payments, and Calculations................. 8
2.4 Crediting Payments......................................... 8
2.5 Fees....................................................... 9
2.6 Additional Costs........................................... 9
2.7 Term....................................................... 10
3. CONDITIONS OF LOANS.................................................. 10
3.1 Conditions Precedent to Initial Advance.................... 10
3.2 Conditions Precedent to all Advances....................... 10
4. CREATION OF SECURITY INTEREST........................................ 10
4.1 Grant of Security Interest................................. 10
4.2 Delivery of Additional Documentation Required.............. 11
4.3 Right to Inspect........................................... 11
5. REPRESENTATIONS AND WARRANTIES....................................... 11
5.1 Due Organization and Qualification......................... 11
5.2 Due Authorization; No Conflict............................. 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.3 No Prior Encumbrances...................................... 11
5.4 Bona Fide Eligible Accounts................................ 11
5.5 Merchantable Inventory..................................... 12
5.6 Intellectual Property...................................... 12
5.7 Name; Location of Chief Executive Office................... 12
5.8 Litigation................................................. 12
5.9 No Material Adverse Change in Financial Statements......... 12
5.10 Solvency................................................... 12
5.11 Regulatory Compliance...................................... 13
5.12 Environmental Condition.................................... 13
5.13 Taxes...................................................... 13
5.14 Subsidiaries............................................... 13
5.15 Government Consents........................................ 13
5.16 Full Disclosure............................................ 13
6. AFFIRMATIVE COVENANTS................................................ 14
6.1 Good Standing.............................................. 14
6.2 Government Compliance...................................... 14
6.3 Financial Statements, Reports, Certificates................ 14
6.4 Inventory; Returns......................................... 15
6.5 Taxes...................................................... 15
6.6 Insurance.................................................. 15
6.7 Principal Depository....................................... 15
6.8 Quick Ratio................................................ 15
6.9 Tangible Net Worth......................................... 16
6.10 Profitability.............................................. 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.11 Registration of Intellectual Property Rights............... 16
6.12 Further Assurances......................................... 16
7. NEGATIVE COVENANTS................................................... 16
7.1 Dispositions............................................... 17
7.2 Change in Business......................................... 17
7.3 Mergers or Acquisitions.................................... 17
7.4 Indebtedness............................................... 17
7.5 Encumbrances............................................... 17
7.6 Distributions.............................................. 17
7.7 Investments................................................ 17
7.8 Transactions with Affiliates............................... 17
7.9 Intellectual Property Agreements........................... 18
7.10 Subordinated Debt.......................................... 18
7.11 Inventory.................................................. 18
7.12 Compliance................................................. 18
8. EVENTS OF DEFAULT.................................................... 18
8.1 Payment Default............................................ 18
8.2 Covenant Default........................................... 19
8.3 Material Adverse Change.................................... 19
8.4 Attachment................................................. 19
8.5 Insolvency................................................. 19
8.6 Other Agreements........................................... 19
8.7 Subordinated Debt.......................................... 19
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.8 Judgments.................................................. 20
8.9 Misrepresentations......................................... 20
9. BANK'S RIGHTS AND REMEDIES........................................... 20
9.1 Rights and Remedies........................................ 20
9.2 Power of Attorney.......................................... 21
9.3 Accounts Collection........................................ 21
9.4 Bank Expenses.............................................. 21
9.5 Bank's Liability for Collateral............................ 22
9.6 Remedies Cumulative........................................ 22
9.7 Demand; Protest............................................ 22
10. NOTICES.............................................................. 22
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER........................... 23
12. GENERAL PROVISIONS................................................... 23
12.1 Successors and Assigns..................................... 23
12.2 Indemnification............................................ 23
12.3 Time of Essence............................................ 23
12.4 Severability of Provisions................................. 24
12.5 Amendments in Writing, Integration......................... 24
12.6 Counterparts............................................... 24
12.7 Survival................................................... 24
</TABLE>
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of December 30, 1997,
by and between SILICON VALLEY BANK ("Bank") and BRIO TECHNOLOGY, INC.
("Borrower").
RECITALS
--------
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 Definitions.
-----------
As used in this Agreement, the following terms shall have the
following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a cash advance under the Revolving
Facility.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of
appeal), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1 hereof.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
<PAGE>
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
---------
hereto.
"Committed Line" means Ten Million Dollars ($10,000,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Advances made
under this Agreement, including all Indebtedness that is payable upon demand or
within one year from the date of determination thereof unless such Indebtedness
is renewable or extendable at the option of Borrower or any Subsidiary to a date
more than one year from the date of determination, but excluding Subordinated
Debt.
"Daily Balance" means the amount of the Obligations owed at the end of
a given day.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's representations
and warranties to Bank set forth in Section 5.4; provided, that standards of
--------
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has failed to pay within one
hundred fifty (150) days of invoice date;
<PAGE>
(b) Accounts with respect to an account debtor, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days of
due date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the account debtor may be conditional;
(e) Accounts with respect to which the account debtor is an Affiliate
of Borrower;
(f) Accounts with respect to which the account debtor does not have
its principal place of business in the United States, except for Eligible
Foreign Accounts, and Accounts arising from products shipped to or services
provided to branches or offices located in the United States of any account
debtor that does not have its principal place of business in the United States;
(g) Accounts with respect to which the account debtor is the United
States or any department, agency, or instrumentality of the United States;
(h) Accounts with respect to which Borrower is liable to the account
debtor for goods sold or services rendered by the account debtor to Borrower,
but only to the extent of any amounts owing to the account debtor against
amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including Subsidiaries
and Affiliates, whose total obligations to Borrower exceed twenty-five percent
(25%) of all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank, except for the accounts with
respect to one account debtor with a Standard & Poors rating of BBB or better,
for which the applicable percentage shall be thirty-five percent (35%);
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a case-
by-case basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
<PAGE>
"Equity Event" means the date that Borrower receives proceeds
from the sale of its equity securities pursuant to a registration statement
filed in accordance with the 1933 Securities Act, as amended.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual
<PAGE>
or constructive, of Borrower, including such inventory as is temporarily out of
its custody or possession or in transit and including any returns upon any
accounts or other proceeds, including insurance proceeds, resulting from the
sale or disposition of any of the foregoing and any documents of title
representing any of the above, and Borrower's Books relating to any of the
foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means December 1, 1999.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
<PAGE>
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt; and
(d) Indebtedness to trade creditors incurred in the ordinary
course of business.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having at least an "A" rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank; and
(c) Investments in any foreign Subsidiary not to exceed an
aggregate of Five Hundred Thousand Dollars ($500,000), provided that an Event of
Default does not exist before, or after giving effect to such transaction.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
--------
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
--------
acquired and improvements thereon, and the proceeds of such equipment;
(d) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license provided that such leases, subleases, licenses and sublicenses do not
prohibit the grant of the security interest granted hereunder; and
<PAGE>
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
--------
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the unrestricted cash and cash-equivalents; net, billed
accounts receivable; and investments, with maturities not to exceed one year, of
Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Vice President of Finance of Borrower.
"Revolving Maturity Date" means the date immediately preceding
the first anniversary of the date of this Agreement.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
-----
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
---
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
<PAGE>
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
1.2 Accounting Terms.
----------------
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP and all calculations made hereunder shall be
made in accordance with GAAP. When used herein, the terms "financial
statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Advances.
--------
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate amount not
to exceed the lesser of the Committed Line or the Borrowing Base. For purposes
of this Agreement, "Borrowing Base" shall mean an amount equal to One Million
Five Hundred Thousand Dollars ($1,500,000) plus eighty percent (80%) of Eligible
Accounts; provided that, as of June 30, 1998 and September 30, 1998, and at all
times after September 30, 1998, "Borrowing Base" shall mean an amount equal to
eighty percent of Eligible Accounts. Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time prior to the Revolving Maturity Date.
(b) Whenever Borrower desires an Advance, Borrower will notify
Bank by facsimile transmission or telephone no later than 3:00 p.m. California
time, on the Business Day that the Advance is to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
---------
based upon instructions received from a Responsible Officer or any individual
duly authorized by Borrower in writing to Bank, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to Borrower's deposit account.
(c) The Revolving Facility shall terminate on the Revolving
Maturity Date (unless otherwise extended in writing by Bank) at which time all
Advances under this Section 2.1 and other amounts due under this Agreement shall
be immediately due and payable.
2.1.1 Term Loan.
---------
(a) On the Closing Date, Borrower may request a one-time
advance (the "Term Loan") from Bank in an aggregate principal amount of up to
Five Hundred Seventy-Five Thousand Dollars ($575,000). The Term Loan shall be
used to repay all amounts that Borrower owes to Comerica Bank-California.
(b) Interest shall accrue from the date of the Term Loan
at the rate specified in Section 2.3(a). The Term Loan will be payable in
twenty-four equal monthly installments of principal, plus accrued interest,
beginning on January 29, 1998 and continuing on the 29th day of each
<PAGE>
month thereafter through December 1, 1999, on which day the remaining principal
amount and all accrued but unpaid interest shall be immediately due and payable.
2.1.2 Cash Management Sublimit. Subject to the terms and
------------------------
conditions of this Agreement, Borrower may utilize up to an aggregate amount not
to exceed Five Hundred Thousand Dollars ($500,000) (the "Cash Management
Sublimit") for cash management services provided by Bank, which services may
include merchant services, PC-ACH, direct deposit of payroll, business credit
card, Firstax, and other related check cashing services as defined in that
certain Cash Management Services Agreement entered into by Bank and Borrower
from time to time (a "Cash Management Service", or the "Cash Management
Services"). Any amounts actually paid by Bank in respect of a Cash Management
Service or Cash Management Services shall, when paid, constitute an Advance
under the Committed Line.
2.2 Overadvances.
------------
If, at any time or for any reason, the amount of Obligations owed
by Borrower to Bank pursuant to Section 2.1 of this Agreement is greater than
the lesser of (i) the Committed Line or (ii) the Borrowing Base, Borrower shall
immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate. Except as set forth in Section 2.3(b), any
-------------
Advances and the Term Loan shall bear interest, on the average Daily Balance, at
a rate equal to the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and
------------
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on the
--------
twenty-ninth (29th) day of the month immediately prior to the date of this
Agreement calendar day of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time
-----------
to time hereafter, the applicable rate of interest hereunder shall be increased
or decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by
an amount equal to such change in the Prime Rate. All interest chargeable under
the Loan Documents shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.
<PAGE>
2.4 Crediting Payments.
------------------
Prior to the occurrence of an Event of Default, Bank shall credit
a wire transfer of funds, check or other item of payment to such deposit account
or Obligation as Borrower specifies. After the occurrence of an Event of
Default, the receipt by Bank of any wire transfer of funds, check, or other item
of payment shall be immediately applied to conditionally reduce Obligations, but
shall not be considered a payment on account unless such payment is of
immediately available federal funds or unless and until such check or other item
of payment is honored when presented for payment. Notwithstanding anything to
the contrary contained herein, any wire transfer or payment received by Bank
after 12:00 noon California time shall be deemed to have been received by Bank
as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such
extension.
2.5 Fees.
----
Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Twenty-Five Thousand
------------
Dollars ($25,000), which fee shall be due on the Closing Date and shall be fully
earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
----------------------------------------
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents; and
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
-------------
incurred through the Closing Date, including reasonable attorneys' fees and
expenses (of which Bank will pay the initial One Thousand Five Hundred Dollars
($1,500)), and, after the date hereof, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs.
----------------
In case any change in any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law), in each case after the date
of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
<PAGE>
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term.
----
This Agreement shall become effective on the Closing Date, and
subject to Section 12.7, shall continue in full force and effect for a term
ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Advances under this Agreement
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Advance.
---------------------------------------
The obligation of Bank to make the initial Advance is subject to
the condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) an intellectual property security agreement;
(d) financing statement (Form UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and
(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances.
------------------------------------
The obligation of Bank to make each Advance, including the
initial Advance, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
<PAGE>
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrower on the date of such
Advance as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest.
--------------------------
Borrower grants and pledges to Bank a continuing security
interest in all presently existing and hereafter acquired or arising Collateral
in order to secure prompt repayment of any and all Obligations and in order to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents. Except as set forth in the Schedule, such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required.
---------------------------------------------
Borrower shall from time to time execute and deliver to Bank, at
the request of Bank, all Negotiable Collateral, all financing statements and
other documents that Bank may reasonably request, in form satisfactory to Bank,
to perfect and continue perfected Bank's security interests in the Collateral
and in order to fully consummate all of the transactions contemplated under the
Loan Documents.
4.3 Right to Inspect.
----------------
Bank (through any of its officers, employees, or agents) shall
have the right, upon reasonable prior notice, from time to time during
Borrower's usual business hours, to inspect Borrower's Books and to make copies
thereof and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, condition of, or any other matter
relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification.
----------------------------------
Borrower and each Subsidiary is a corporation duly existing and
in good standing under the laws of its state of incorporation and qualified and
licensed to do business in, and is in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be so
qualified.
<PAGE>
5.2 Due Authorization; No Conflict.
------------------------------
The execution, delivery, and performance of the Loan Documents
are within Borrower's powers, have been duly authorized, and are not in conflict
with nor constitute a breach of any provision contained in Borrower's Articles
of Incorporation or Bylaws, nor will they constitute an event of default under
any material agreement to which Borrower is a party or by which Borrower is
bound except to the extent that certain intellectual property agreements
prohibit the assignment of the rights thereunder to a third party without the
Borrower's or other party's consent and the Loan Documents constitute an
assignment. Borrower is not in default under any agreement to which it is a
party or by which it is bound, which default could have a Material Adverse
Effect.
5.3 No Prior Encumbrances.
---------------------
Borrower has good and indefeasible title to the Collateral, free
and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts.
---------------------------
The Eligible Accounts are bona fide existing obligations. The
property giving rise to such Eligible Accounts has been delivered to the account
debtor or to the account debtor's agent for immediate shipment to and
unconditional acceptance by the account debtor. Borrower has not received
notice of actual or imminent Insolvency Proceeding of any account debtor that is
included in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory.
----------------------
All Inventory is in all material respects of good and marketable
quality, free from all material defects.
5.6 Intellectual Property.
---------------------
Borrower is the sole owner of the Intellectual Property
Collateral, except for non-exclusive licenses granted by Borrower to its
customers in the ordinary course of business. Each of the Patents is valid and
enforceable, and no part of the Intellectual Property Collateral has been judged
invalid or unenforceable, in whole or in part, and no claim has been made that
any part of the Intellectual Property Collateral violates the rights of any
third party. Except for and upon the filing with the United States Patent and
Trademark Office with respect to the Patents and Trademarks and the Register of
Copyrights with respect to the Copyrights necessary to perfect the security
interests created hereunder, and except as has been already made or obtained, no
authorization, approval or other action by, and no notice to or filing with, any
United States governmental authority or United States regulatory body is
required either (i) for the grant by Borrower of the security interest granted
hereby or for the execution, delivery or performance of Loan Documents by
Borrower in the United States or (ii) for the perfection in the United States or
the exercise by Bank of its rights and remedies hereunder.
<PAGE>
5.7 Name; Location of Chief Executive Office.
----------------------------------------
Except as disclosed in the Schedule, Borrower has not done
business under any name other than that specified on the signature page hereof.
The chief executive office of Borrower is located at the address indicated in
Section 10 hereof.
5.8 Litigation.
----------
Except as set forth in the Schedule, there are no actions or
proceedings pending by or against Borrower or any Subsidiary before any court or
administrative agency in which an adverse decision could have a Material Adverse
Effect or a material adverse effect on Borrower's interest or Bank's security
interest in the Collateral. Borrower does not have knowledge of any such
pending or threatened actions or proceedings.
5.9 No Material Adverse Change in Financial Statements.
--------------------------------------------------
All consolidated financial statements related to Borrower and any
Subsidiary that have been delivered by Borrower to Bank fairly present in all
material respects Borrower's consolidated financial condition as of the date
thereof and Borrower's consolidated results of operations for the period then
ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank.
5.10 Solvency.
--------
The fair saleable value of Borrower's assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; the Borrower
is not left with unreasonably small capital after the transactions contemplated
by this Agreement; and Borrower is able to pay its debts (including trade debts)
as they mature.
5.11 Regulatory Compliance.
---------------------
Borrower and each Subsidiary has met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA. No event has occurred resulting from Borrower's failure to comply with
ERISA that is reasonably likely to result in Borrower's incurring any liability
that could have a Material Adverse Effect. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940. Borrower is not engaged principally, or
as one of the important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve System).
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
<PAGE>
5.12 Environmental Condition.
-----------------------
None of Borrower's or any Subsidiary's properties or assets has
ever been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous owners or operators, in the disposal of, or to produce,
store, handle, treat, release, or transport, any hazardous waste or hazardous
substance other than in accordance with applicable law; to the best of
Borrower's knowledge, none of Borrower's properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned by Borrower or any Subsidiary; and
neither Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal, state
or other governmental agency concerning any action or omission by Borrower or
any Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.
5.13 Taxes.
-----
Borrower and each Subsidiary has filed or caused to be filed all
tax returns required to be filed, and has paid, or has made adequate provision
for the payment of, all taxes reflected therein.
5.14 Subsidiaries.
------------
Borrower does not own any stock, partnership interest or other
equity securities of any Person, except for Permitted Investments.
5.15 Government Consents.
-------------------
Borrower and each Subsidiary has obtained all consents, approvals
and authorizations of, made all declarations or filings with, and given all
notices to, all governmental authorities that are necessary for the continued
operation of Borrower's business as currently conducted.
5.16 Full Disclosure.
---------------
No representation, warranty or other statement made by Borrower
in any certificate or written statement furnished to Bank contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained in such certificates or statements not
misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
<PAGE>
6.1 Good Standing.
-------------
Borrower shall maintain its and each of its Subsidiaries'
corporate existence and good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could have a Material Adverse Effect. Borrower shall maintain, and shall cause
each of its Subsidiaries to maintain, to the extent consistent with prudent
management of Borrower's business, in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
6.2 Government Compliance.
---------------------
Borrower shall meet, and shall cause each Subsidiary to meet, the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to
comply, with all statutes, laws, ordinances and government rules and regulations
to which it is subject, noncompliance with which could have a Material Adverse
Effect or a material adverse effect on the Collateral or the priority of Bank's
Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates.
-------------------------------------------
Borrower shall deliver to Bank: (a) as soon as available, but in
any event within thirty (30) days after the end of each month, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during such period, certified by a Responsible Officer;
(b) as soon as available, but in any event within one hundred twenty (120) days
after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
within five (5) days upon becoming available, copies of all statements, reports
and notices sent or made available generally by Borrower to its security holders
or to any holders of Subordinated Debt and all reports on Form 10-K and 10-Q
filed with the Securities and Exchange Commission; (d) promptly upon receipt of
notice thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of Five Hundred Thousand Dollars ($500,000) or more; (e) prompt
notice of any material change in the composition of the Intellectual Property
Collateral, including, but not limited to, any subsequent ownership right of the
Borrower in or to any Copyright, Patent or Trademark not specified in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially adversely effects the value of the Intellectual
Property Collateral; and (f) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time.
Within twenty (20) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto, together with
---------
aged listings of accounts receivable and accounts payable. If no Advances have
been made under the Committed Line, the requirement in the preceding sentence
shall be performed within thirty (30) days after the last day of each month.
Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto.
---------
<PAGE>
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more often than every six (6) months unless an Event of Default has
occurred and is continuing.
6.4 Inventory; Returns.
------------------
Borrower shall keep all Inventory in good and marketable
condition, free from all material defects. Returns and allowances, if any, as
between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Two Hundred and Fifty
Thousand Dollars ($250,000).
6.5 Taxes.
-----
Borrower shall make, and shall cause each Subsidiary to make, due
and timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
<PAGE>
6.7 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank. Borrower will either (i) maintain
in deposit or other accounts at Bank the lesser of $4,000,000 or fifty-one
percent (51%) of Borrower's cash, or (ii) pay Bank a fee of $2,000 for each
month (payable monthly, following the date of measurement) in which such
deposits are not maintained.
6.8 Quick Ratio. Beginning with the quarter ending December 31,
-----------
1997, Borrower shall maintain, as of the last day of each fiscal quarter, a
ratio of Quick Assets to Current Liabilities (excluding deferred revenue and
Advances made within the overadvance limit of Section 2.1(a)) of at least 1.20
to 1.0. After an Equity Event, Borrower shall maintain a Quick Ratio of at
least 2.0 to 1.0.
6.9 Tangible Net Worth. After an Equity Event, Borrower shall
------------------
maintain, as of the last day of each fiscal quarter, a Tangible Net Worth
mutually agreed upon by Bank and Borrower.
6.10 Profitability. Beginning with the quarter ending December 31,
-------------
1997, Borrower may incur net losses in the quarters ending on the following
dates in amounts not to exceed the following for such respective quarters:
December 31, 1997 in the amount of Two Million Four Hundred Thousand Dollars
($2,400,000); March 31, 1998 in the amount of One Million Five Hundred Thousand
Dollars ($1,500,000); and June 30, 1998 in the amount of Seven Hundred Fifty
Thousand Dollars ($750,000). Borrower shall be profitable for each fiscal
quarter thereafter. Notwithstanding the foregoing, this Section 6.10 shall have
no effect after an Equity Event.
6.11 Registration of Intellectual Property Rights.
--------------------------------------------
(a) Borrower shall register or cause to be registered (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement. Borrower shall
register or cause to be registered with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those additional
intellectual property rights developed or acquired by Borrower from time to time
in connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Bank in writing of material infringements detected and (iii) not
allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Bank determines that reasonable business practices
suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation, to take,
at Borrower's sole expense, any actions that Borrower is required under this
Section 6.11 to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.11.
<PAGE>
6.12 Further Assurances.
------------------
At any time and from time to time Borrower shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Advances, Borrower will
not do any of the following:
7.1 Dispositions.
------------
Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment.
7.2 Change in Business.
------------------
Engage in any business, or permit any of its Subsidiaries to
engage in any business, other than the businesses currently engaged in by
Borrower and any business substantially similar or related thereto (or
incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.
7.3 Mergers or Acquisitions.
-----------------------
Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with or into any other business organization, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person, except the merger or consolidation
of one Subsidiary into another Subsidiary or into the Borrower.
7.4 Indebtedness.
------------
Create, incur, assume or be or remain liable with respect to any
Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
7.5 Encumbrances.
------------
Create, incur, assume or suffer to exist any Lien with respect to
any of its property, or assign or otherwise convey any right to receive income,
including the sale of any Accounts, or permit any of its Subsidiaries so to do,
except for Permitted Liens.
<PAGE>
7.6 Distributions.
-------------
Pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock except
that Borrower may repurchase the stock of any former employees pursuant to stock
repurchase agreements, in an aggregate amount not to exceed Two Hundred Thousand
($200,000) Dollars, provided in each instance that an Event of Default does not
exist before, or after giving effect to, such transaction.
7.7 Investments.
-----------
Directly or indirectly acquire or own, or make any Investment in
or to any Person, or permit any of its Subsidiaries so to do, other than
Permitted Investments.
7.8 Transactions with Affiliates.
----------------------------
Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a nonaffiliated Person.
7.9 Intellectual Property Agreements.
--------------------------------
Borrower shall not permit the inclusion in any material contract
to which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Borrower's rights and interests
in any property included within the definition of the Intellectual Property
Collateral acquired under such contracts, except to the extent that such
provisions are necessary in Borrower's exercise of its reasonable business
judgement.
7.10 Subordinated Debt.
-----------------
Make any payment in respect of any Subordinated Debt, or permit
any of its Subsidiaries to make any such payment, except in compliance with the
terms of such Subordinated Debt, or amend any provision contained in any
documentation relating to the Subordinated Debt without Bank's prior written
consent.
7.11 Inventory.
---------
Store the Inventory with a bailee, warehouseman, or similar party
unless Bank has received a pledge of the warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrower shall
keep the Inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest. In connection with the foregoing storage of Inventory,
Borrower shall obtain a consent to release of collateral, in a form
substantially similar to Exhibit E attached hereto, from each bailee,
---------
warehouseman, or similar party listed on the Schedule.
<PAGE>
7.12 Compliance.
----------
Become an "investment company" controlled by an "investment
company," within the meaning of the Investment Company Act of 1940, or become
principally engaged in, or undertake as one of its important activities, the
business of extending credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Advance for such purpose. Fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair
Labor Standards Act or violate any law or regulation, which violation could have
a Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral, or permit any of its Subsidiaries to
do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default.
---------------
If Borrower fails to pay the principal of, or any interest on,
any Advances when due and payable; or fails to pay any portion of any other
Obligations not constituting such principal or interest, including without
limitation Bank Expenses, within thirty (30) days of receipt by Borrower of an
invoice for such other Obligations;
8.2 Covenant Default.
----------------
If Borrower fails to perform any obligation under Sections 6.8,
6.9, 6.10 or 6.11 violates any of the covenants contained in Article 7 of this
Agreement, or fails or neglects to perform, keep, or observe any other material
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after Borrower receives notice thereof or
any officer of Borrower becomes aware thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Advances will be required to be made during such
cure period);
8.3 Material Adverse Change.
-----------------------
If there occurs a material adverse change in Borrower's business
or financial condition, or if there is a material impairment of the prospect of
repayment of any portion of the Obligations or a material impairment of the
value or priority of Bank's security interests in the Collateral;
<PAGE>
8.4 Attachment.
----------
If any material portion of Borrower's assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the
possession of any trustee, receiver or person acting in a similar capacity and
such attachment, seizure, writ or distress warrant or levy has not been removed,
discharged or rescinded within ten (10) days, or if Borrower is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment or other
claim becomes a lien or encumbrance upon any material portion of Borrower's
assets, or if a notice of lien, levy, or assessment is filed of record with
respect to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency.
----------
If Borrower becomes insolvent, or if an Insolvency Proceeding is
commenced by Borrower, or if an Insolvency Proceeding is commenced against
Borrower and is not dismissed or stayed within ten (10) days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements.
----------------
If there is a default in any agreement to which Borrower is a
party with a third party or parties resulting in a right by such third party or
parties, whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount in excess of Two Hundred Fifty Thousand Dollars
($250,000) and that could have a Material Adverse Effect;
8.7 Subordinated Debt.
-----------------
If Borrower makes any payment on account of Subordinated Debt,
except to the extent such payment is allowed under any subordination agreement
entered into with Bank;
8.8 Judgments.
---------
If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars
($250,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of thirty (30) days (provided that no Advances will be
made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations.
------------------
If any material misrepresentation or material misstatement exists
now or hereafter in any warranty or representation set forth herein or in any
certificate delivered to Bank by any Responsible Officer pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan
Document.
<PAGE>
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies.
-------------------
Upon the occurrence and during the continuance of an Event of
Default, Bank may, at its election, without notice of its election and without
demand, do any one or more of the following, all of which are authorized by
Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the Collateral
if Bank so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien which in Bank's determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
<PAGE>
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower;
(j) Notwithstanding anything in this Agreement or any other Loan
Document to the contrary, and notwithstanding any security interest of Bank in
any of the Intellectual Property Collateral, upon the earlier to occur of: (i)
an Equity Event; or (ii) September 30, 1998; and provided that no Event of
Default has occurred and is continuing, Bank's security interest in the
Intellectual Property Collateral shall be solely for the purpose of providing
Bank with assurances regarding the perfection of its security interest in
accounts receivable and other proceeds arising with respect to the Intellectual
Property Collateral, and Bank shall have no right to exercise any foreclosure
remedies, either by sale, strict foreclosure or otherwise, with respect to the
Intellectual Property Collateral, other than with respect to related accounts
receivable or other proceeds thereof.
9.2 Power of Attorney.
-----------------
Effective only upon the occurrence and during the continuance of
an Event of Default, Borrower hereby irrevocably appoints Bank (and any of
Bank's designated officers, or employees) as Borrower's true and lawful attorney
to: (a) send requests for verification of Accounts or notify account debtors of
Bank's security interest in the Accounts; (b) endorse Borrower's name on any
checks or other forms of payment or security that may come into Bank's
possession; (c) sign Borrower's name on any invoice or bill of lading relating
to any Account, drafts against account debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to account debtors; (d) make,
settle, and adjust all claims under and decisions with respect to Borrower's
policies of insurance; (e) settle and adjust disputes and claims respecting the
accounts directly with account debtors, for amounts and upon terms which Bank
determines to be reasonable; (f) to modify, in its sole discretion, any
intellectual property security agreement entered into between Borrower and Bank
without first obtaining Borrower's approval of or signature to such modification
by amending Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to
include reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Borrower after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Borrower no longer has or claims any right, title or
interest; (g) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Borrower where permitted by law; and (h) to
dispose of the Collateral pursuant to the California Uniform Commercial Code;
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred. The appointment of Bank as Borrower's attorney in fact,
and each and every one of Bank's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid and
performed and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection.
-------------------
At any time from the date of this Agreement, Bank may notify any
Person owing funds to Borrower of Bank's security interest in such funds and
verify the amount of such Account. Borrower shall collect all amounts owing to
Borrower for Bank, receive in trust all payments as Bank's trustee, and
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
<PAGE>
9.4 Bank Expenses.
-------------
If Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the terms
of this Agreement, then Bank may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves under the
Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement. Bank shall have a
non-exclusive, royalty-free license to use the Intellectual Property Collateral
to the extent reasonably necessary to permit Bank to exercise its rights and
remedies upon the occurrence of an Event of Default.
9.5 Bank's Liability for Collateral.
-------------------------------
So long as Bank complies with reasonable banking practices, Bank
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other person whomsoever. All risk of loss, damage or destruction of the
Collateral shall be borne by Borrower.
9.6 Remedies Cumulative.
-------------------
Bank's rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Bank shall have all
other rights and remedies not inconsistent herewith as provided under the Code,
by law, or in equity. No exercise by Bank of one right or remedy shall be deemed
an election, and no waiver by Bank of any Event of Default on Borrower's part
shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless
made in a written document signed on behalf of Bank and then shall be effective
only in the specific instance and for the specific purpose for which it was
given.
9.7 Demand; Protest.
---------------
Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
<PAGE>
If to Borrower: Brio Technology, Inc.
3430 W. Bayshore
Palo Alto, CA 94303
Attn: Karen Willem, CFO
FAX: (650) 856-0794
If to Bank: Silicon Valley Bank
1731 Embarcadero Road, Suite 220
Palo Alto, CA 94303
Attn: Mr. Mike Devery
FAX: (650) 812-0640
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns.
----------------------
This Agreement shall bind and inure to the benefit of the respective
successors and permitted assigns of each of the parties; provided, however, that
-------- -------
neither this Agreement nor any rights hereunder may be assigned by Borrower
without Bank's prior written consent, which consent may be granted or withheld
in Bank's sole discretion. Bank shall have the right without the consent of or
notice to Borrower to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
hereunder.
<PAGE>
12.2 Indemnification.
---------------
Borrower shall defend, indemnify and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities claimed or asserted by any other party in connection with the
transactions contemplated by the Loan Documents; and (b) all losses or Bank
Expenses in any way suffered, incurred, or paid by Bank as a result of or in any
way arising out of, following, or consequential to transactions between Bank and
Borrower whether under the Loan Documents, or otherwise (including without
limitation reasonable attorneys fees and expenses), except for losses caused by
Bank's gross negligence or willful misconduct.
12.3 Time of Essence.
---------------
Time is of the essence for the performance of all obligations set
forth in this Agreement. Notwithstanding the foregoing, an Event of Default
shall not occur if Borrower cures its failure to perform an obligation under
this Agreement within the cure periods provided for in Article 8.
12.4 Severability of Provisions.
--------------------------
Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
12.5 Amendments in Writing, Integration.
----------------------------------
This Agreement cannot be amended or terminated orally. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts.
------------
This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.
12.7 Survival.
--------
All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BRIO TECHNOLOGY, INC.
By: /s/ Tamara MacDuff
---------------------------------
Title: VP Finance
------------------------------
SILICON VALLEY BANK
By: /s/ Jim Marshall
---------------------------------
Title: Vice President
------------------------------
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, financial assets,
securities accounts, securities entitlements, letters of credit, certificates of
deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
FAX#: (408) 496-2426 TIME:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FROM:
CLIENT NAME (BORROWER)
REQUESTED BY:
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
PHONE NUMBER:
FROM ACCOUNT # __________________________________ TO ACCOUNT #
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
________________________________
Authorized Requester Phone #
________________________________
Received By (Bank) Phone #
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_____________________________________
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: BRIO TECHNOLOGY, INC. Lender: Silicon Valley Bank
Commitment Amount: $10,000,000
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C> <C>
1. Accounts Receivable Book Value as of $_______________
2. Additions (please explain on reverse) $_______________
3. TOTAL ACCOUNTS RECEIVABLE $_______________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 150 days due $_______________
5. Balance of 50% over 150 day accounts $_______________
6. Concentration Limits $_______________
7. Foreign Accounts $_______________
8. Governmental Accounts $_______________
9. Contra Accounts $_______________
10. Promotion or Demo Accounts $_______________
11. Intercompany/Employee Accounts $_______________
12. Other (please explain on reverse) $_______________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_______________
14. Eligible Accounts (#3 minus #13) $_______________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_______________
16. NON-FORMULA SUBLIMIT* $1,500,000
BALANCES
17. Maximum Loan Amount $_______________
18. Total Funds Available [Lesser of #15 plus #16, or #17] $_______________
19. Present balance owing on Line of Credit $_______________
20. Outstanding under Sublimits ( ) $_______________
21. RESERVE POSITION (#18 minus #19 and #20) $_______________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
* Non-formula Sublimit is void on June 30, 1998, on September 30, 1998, and at
all times after September 30, 1998.
COMMENTS:
BRIO TECHNOLOGY, INC.
By:
Authorized Signer
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: BRIO TECHNOLOGY, INC.
The undersigned authorized officer of Brio Technology, Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days No
Annual (CPA Audited) FYE within 120 days Yes No
A/R & A/P Agings Monthly within 20 days* Yes No
A/R Audit Initial and Semi-Annual Yes No
*If no Advances under the Committed Line, requirement shall be 30 days
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Quick Ratio/1/ 1.2:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth/2/ $________ $________ Yes No
Profitability: Quarterly/3/ $1.00 $________ Yes No
1 After Equity Event: 2.0 to 1.0.
2 After Equity Event: TBD by Bank
3 12/31/97 net loss less than $2,400,000; 3/31/98 net loss less than $1,500,000; 6/30/98 net loss less than
$750,000. Profitability covenant not applicable after Equity Event.
</TABLE>
- --------------------------------------------------------------------------------
BANK USE ONLY
- --------------------------------------------------------------------------------
Received by:
AUTHORIZED SIGNER
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Date:
Verified:
AUTHORIZED SIGNER
Date:
Compliance Status: Yes No
- --------------------------------------------------------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
SIGNATURE
TITLE
DATE
<PAGE>
EXHIBIT E
CONSENT TO RELEASE OF COLLATERAL
To:
From: Silicon Valley Bank
Date:
Brio Technology, Inc. ("BRIO") has requested a credit facility from Silicon
Valley Bank. The line of credit is to be secured by all the personal property
of BRIO, including but not limited to software (the "Products") in which BRIO
has any interest. BRIO has advised us that some of its Products are stored on
your premises. It is important to us that, if we need to exercise our remedies
under the line of credit, we have the right to remove the Products from your
premises and sell or otherwise dispose of the Products.
Please confirm that you have no interest in the Products and that you
irrevocably give us or our agents permission to promptly remove the Products
from your premises upon our giving notice to you that we are exercising our
remedies under the line of credit. Please confirm also that you have not given
to any person (other than BRIO) the right to remove the Products. Finally,
please confirm that you will not issue any warehouse receipts or documents of
title, or release any of the Products, to any person except in the ordinary
course of business and that, upon our notice to you that a default has occurred
under our agreement with BRIO, you will release the Products only to Silicon
Valley Bank or any other person designated by us.
Your agreement with the above is important to our making the proposed line of
credit available to BRIO. Please sign and return a copy of this Consent as
promptly as possible to the undersigned, in the envelope provided. Thank you
for your consideration.
SILICON VALLEY BANK
By:_______________________________
Title:
_____________________________
We confirm the foregoing.
By:
Date:
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: BRIO TECHNOLOGY, INC.
Bank: Silicon Valley Bank
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $10,000,000, and a Variable Rate, Term Loan of a principal amount
up to $575,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
<TABLE>
<CAPTION>
Term Loan Revolving Line
--------- --------------
<S> <C> <C>
Amount paid to Borrower directly: $_____ $_____
Undisbursed Funds $_____ $_____
Principal $575,000 $10,000,000
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Charges Paid in Cash:
$25,000 Loan Fee
________$Accounts Receivables Audit
$100 UCC Search Fees
$100 UCC Filing Fees
________$Patent Filing Fees
________$Trademark Filing Fees
________$Copyright Filing Fees
________$Outside Counsel Fees and Expenses (Estimate)
Total Charges Paid in Cash $________
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered ______________ the amount of any loan payment.
If the funds in the account are insufficient to cover any payment, Bank shall
not be obligated to advance funds to cover the payment. At any time and for any
reason, Borrower or Bank may voluntarily terminate Automatic Payments.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF DECEMBER 30, 1997.
<PAGE>
BORROWER:
Brio Technology
________________________________
Authorized Officer
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: Brio Technology, Inc.
BANK: Silicon Valley Bank
INSURANCE REQUIREMENTS. Brio Technology, Inc. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Bank. These
requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that coverage
will not be cancelled or diminished without a minimum of
twenty (20) days' prior written notice to Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or before
closing, evidence of the required insurance as provided above, with an effective
date of December 30, 1997, or earlier. Grantor acknowledges and agrees that if
Grantor fails to provide any required insurance or fails to continue such
insurance in force, Bank may do so at Grantor's expense as provided in the Loan
and Security Agreement. The cost of such insurance, at the option of Bank,
shall be payable on demand or shall be added to the indebtedness as provided in
the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
<PAGE>
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE
INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Bank to provide to any person (including any insurance agent or
company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER 30,
1997.
GRANTOR:
BRIO TECHNOLOGY, INC.
_______________________________________
Authorized Officer
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: ______________ PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
================================================================================
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
BORROWER: BRIO TECHNOLOGY, INC.
I, the undersigned Secretary or Assistant Secretary of BRIO TECHNOLOGY,
INC. (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the state of its incorporation.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
- ----- --------- -----------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Loan and Security Agreement dated as of December 30, 1997 (the "Loan
Agreement").
<PAGE>
EXECUTE NOTES. To execute and deliver to Bank the promissory note or notes
of the Corporation, on Lender's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Bank, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT; FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on December ____, 1997 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
<PAGE>
EXHIBIT 10.3
SUBLEASE
THIS SUBLEASE (the "Sublease") is entered into as of February,
--------
1997, by and between KPMG PEAT MARWICK LLP, a Delaware limited liability
partnership ("Sublandlord"), and BRIO TECHNOLOGY, INC., a California corporation
-----------
("Subtenant").
---------
WHEREAS, by that certain Lease, dated as of November 6, 1989 (the
"Lease"), by and between BAYSHORE INVESTMENTS, a California General Partnership
(as predecessor-in-interest to SOBRATO BAYSHORE INVESTMENTS, a California
Limited Partnership), as landlord (the "Landlord"), and TFB/BBDO, INC., a
--------
California Corporation, as tenant and assignor, (the "Assignor"), Assignor
--------
leased a portion of that real property situated in the City of Palo Alto, County
of Santa Clara, State of California, commonly known and referred to as 3460 West
Bayshore Road (the "Premises"), and more particularly described in the Lease. A
--------
true and correct copy of the Lease is attached hereto as Exhibit "A" and
incorporated herein by this reference.
WHEREAS, by that certain Sublease, dated as of June 7, 1993 (the
"Original Sublease"), by and between Assignor and Sublandlord, Sublandlord
-----------------
subleased the Premises from Assignor. A true and correct copy of the Original
Sublease is attached hereto as Exhibit "B" and incorporated herein by this
reference.
WHEREAS, by that certain Lease and Sublease Assignment and Assumption
Agreement dated as of May 31, 1994 (the "Assumption Agreement"), by and among
--------------------
Landlord, Assignor and Sublandlord, Assignor assigned to Landlord all of
Assignor's right, title and interest in and to the Lease and the Original
Sublease. Pursuant to the terms of the Assumption Agreement, the Original
Sublease became a direct lease between Landlord and Sublandlord on the terms of
the Original Sublease except as expressly modified by the Assumption Agreement.
A true and correct copy of the Assumption Agreement is attached hereto as
Exhibit "C" and incorporated herein by this reference. The Lease, Original
Sublease and Assumption Agreement are hereinafter collectively referred to as
the "Master Lease." All capitalized terms used but not otherwise defined herein
------------
shall have the meaning described to them in the Master Lease.
<PAGE>
WHEREAS, Sublandlord desires to sublease to Subtenant and Subtenant
desires to hire and take from Sublandlord the Premises, consisting of
approximately 30,000 square feet of space.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Subleasing of the Premises. Sublandlord hereby subleases to
--------------------------
Subtenant and Subtenant hereby takes and hires from Sublandlord the Premises
upon and subject to the terms and conditions hereinafter set forth. Subtenant
agrees that the actual area of the Premises for purposes of this Sublease and
any and all calculations hereunder or in connection herewith shall be 30,000
square feet.
2. Term. Unless sooner terminated as provided for herein, this
----
Sublease is for the term (the "Term"), commencing on the day on which
----
Sublandlord delivers possession of the Premises to Subtenant (the "Commencement
------------
Date"), which Commencement Date is estimated to occur on or before March 1,
- ----
1998, subject to completion of Sublandlord's new facility located at 500 East
Middlefield Road, Mountain View, California. The Term shall expire at 11:59
p.m. on March 13, 2000 (the "Expiration Date"). Notwithstanding the foregoing,
---------------
if Sublandlord's new facility is completed early, such that Sublandlord has
vacated the Premises prior to March 1, 1998, Sublandlord shall use commercially
reasonable efforts to deliver possession of the Premises to Subtenant upon such
earlier date. In the event that Sublandlord delivers a written confirmation of
the Commencement Date at the time possession of the Premises is delivered to
Subtenant, Subtenant shall execute such confirmation and immediately return the
same to Sublandlord. Notwithstanding anything to the contrary contained in this
Section, if Sublandlord has not delivered possession of the Premises to
Subtenant by August 1, 1998, Subtenant shall have the right to terminate this
Sublease, in which event Sublandlord shall promptly return to Subtenant all sums
paid by Subtenant to Sublandlord upon or in connection with its execution of
this Sublease, and neither party shall have any further rights or obligations
hereunder.
<PAGE>
3. Rent.
----
(a) Basic Rent. Commencing on the Commencement Date, Subtenant
----------
shall pay to Sublandlord, in lawful money of the United States of America, a
monthly rental (the "Basic Rent") of Two Dollars and Seventy Cents ($2.70) per
----------
square foot of the Premises, per month, prorated for any partial month. Based
on this calculation, the Basic Rent shall be Eighty-One Thousand Dollars
($81,000) per month. The Basic Rent shall be due and payable, in advance, on
the first day of each month during the Term, without set-off or deduction of any
kind. The first monthly installment of Basic Rent shall be due on June 1, 1997.
(b) Additional Rent. In addition to the Basic Rent, Subtenant
---------------
covenants and agrees to pay to Sublandlord as additional rent (the "Additional
----------
Rent"), in lawful money of the United States of America, within five (5) days
- ----
after personal delivery or within ten (10) days after mailing of a notice of
Additional Rent due (together with a copy of the applicable bill or statement
received by Sublandlord from Landlord and/or other evidence, if any, that
Additional Rent is due), the following amounts:
(i) all additional rent, taxes, utilities, maintenance and
operating expenses, and other amounts attributable to the Premises which are
payable by Sublandlord in accordance with the terms of the Master Lease
(collectively, the "Operating Expenses"); and
------------------
(ii) any and all other costs, charges or expenses (other
than the fixed rent payable by Sublandlord under the Master Lease) attributable
to the Premises and payable by Sublandlord pursuant to the provisions of the
Master Lease.
In the event that the amount payable by Sublandlord under the Mater
Lease for Operating Expenses and other amounts is adjusted by Landlord at the
end of a year or other period, then (i) if there has been a corresponding
underpayment of Additional Rent paid by Subtenant, Subtenant shall pay to
Sublandlord, at least seven (7) days prior to the date that same are due and
payable to Landlord, an amount equal to Subtenant's share of the adjustment; or
(ii) if there has been an overpayment in the Additional Rent paid by Subtenant,
Sublandlord shall credit against the next pay-
<PAGE>
ments of Additional Rent coming due hereunder an amount equal to Subtenant's
share of such adjustment, or promptly refund such amount to Subtenant if no
further Additional Rent shall be due hereunder. The provisions of this paragraph
shall survive the Expiration Date or earlier termination of this Sublease.
Subtenant's obligation to pay accrued Additional Rent hereunder and
Sublandlord's obligation to refund any overpayments of Additional Rent hereunder
shall survive the expiration or earlier termination of this Sublease.
In the event that Landlord reduces or abates Sublandlord's rental
obligations pursuant to the terms of the Master Lease, Subtenant shall be
entitled to its allocable share of such abatement or diminution.
(c) Place for Payment of Rent. All Basic Rent and Additional
-------------------------
Rent payments shall be made in lawful money of the United States of America and
shall be paid to KPMG Peat Marwick LLP at 3 Embarcadero Center, Suite 2000, San
Francisco, California 94111-4073, Attention: Accounts Receivable Department, or
to such other party or address as Sublandlord may designate in writing to
Subtenant.
(d) Late Charge. Subtenant acknowledges and agrees that any
-----------
late payment of Basic Rent and/or Additional Rent will cause Sublandlord to
incur certain additional costs and expenses which are difficult or not
reasonably susceptible to being calculated. Accordingly, (i) any and all Basic
Rent which is not both postmarked on or before the fifth (5th) day of the month
and received by Sublandlord on or before the tenth (10th) day of the month, and
(ii) any and all Additional Rent which is not received by Sublandlord within
five (5) days after receipt of written notice from Sublandlord that such amount
is due, will be subject to a late charge equal to five percent (5%) of the
amount due. Subtenant agrees that such late charge represents a fair and
reasonable estimate of the costs which may be incurred by Sublandlord.
(e) Security Deposit. Subtenant shall deposit with
----------------
Sublandlord, in immediately available funds, Two Hundred Forty-Three Thousand
Dollars ($243,000) as security for Subtenant's faithful performance of
Subtenant's obligations hereunder (the "Deposit"). The Deposit shall be payable
-------
in three equal installments of Eighty-One Thousand Dollars ($81,000). Subtenant
shall pay the
<PAGE>
first installment to Sublandlord upon execution hereof, Subtenant shall pay the
second installment to Sublandlord on the Commencement Date, and Subtenant shall
pay the third installment to Sublandlord on the thirtieth (30th) day after the
Commencement Date. If Subtenant fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublandlord may use, apply or retain all or any portion of the Deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublandlord may become obligated by reason of Subtenant's default,
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 Deposit,
Subtenant shall have ten (10) calendar days after receipt of written demand
therefor to deposit, in immediately available funds with Sublandlord, an amount
sufficient to restore the Deposit to the full amount hereinabove stated, and any
failure of Subtenant to restore the Deposit as set forth herein shall constitute
a material breach of this Sublease. If Subtenant performs all of Subtenant's
obligations hereunder, the Deposit, or so much thereof as has not theretofore
been applied by Sublandlord, shall be returned, without payment of interest or
other increment for its use, to Subtenant within thirty (30) calendar days from
the later of either the Expiration Date or the date upon which Subtenant
completely vacates the Premises. Sublandlord shall be entitled to commingle the
Deposit with its general funds.
4. Signage. Subtenant shall be entitled, at its sole cost and
-------
expense, to place signs on the Premises; provided, however, that (i) Subtenant
must obtain the prior written consent of Sublandlord as to the design and exact
placement of such signs, which consent shall not be unreasonably withheld or
delayed, and (ii) such signs must conform to all requirements of the Master
Lease including, without limitation, obtaining the prior written consent of
Landlord.
<PAGE>
5. Subordination to and Incorporation of Terms of Master Lease.
-----------------------------------------------------------
(a) Subordination. This Sublease is in all respects subject and
-------------
subordinate to the terms and conditions of the Master Lease and to the matters
to which the Master Lease is subordinate. This Sublease shall also be subject
to and Subtenant accepts the Sublease also subject to any amendments,
modifications or supplements to the Master Lease hereafter made, provided that
Sublandlord shall not enter into any amendment, modification or supplement that
would prevent or materially adversely affect the use by Subtenant of the
Premises in accordance with the terms hereof, increase the obligations of
Subtenant or decrease its rights hereunder, shorten or lengthen the term hereof
or increase the rent required to be paid by Subtenant hereunder. Sublandlord
shall provide written notice to Subtenant of any permitted amendment,
modification or supplement to the Master Lease. Except as otherwise expressly
provided in this Sublease, Subtenant assumes and shall keep, observe and perform
every term, provision, covenant and condition on Sublandlord's part to be kept,
observed and performed pursuant to the Master Lease, insofar as such pertain to
the Premises, for the Term. Subtenant hereby agrees that it will conduct itself
and its operations, and cause its agents, contractors, servants, employees,
partners, invitees and any subtenants and licensees (collectively, "Agents") to
------
conduct themselves and their operations, so as not to cause Sublandlord to be in
default under the Master Lease. Sublandlord has delivered a true and correct
copy of the Master Lease (subject to the redaction of certain financial
information). Subtenant hereby acknowledges receipt of a copy of the Master
Lease and that it is familiar with all of the terms and conditions thereof. As
an inducement to Subtenant to enter into this Sublease, Sublandlord represents
and warrants with respect to the Premises that, to Sublandlord's actual
knowledge, (i) the Master Lease is in full force and effect, and Sublandlord has
received no written notice from Landlord that there exists under the Master
Lease any default or event of default, or that any event has occurred which,
with the giving of notice or passage of time or both, could constitute such a
default or event of default; and (ii) there are no pending or threatened
actions, suits or proceedings before any court or administrative agency against
Sublandlord which could, in the aggregate, adversely affect the Premises or
Sublandlord's ability to perform its obligations under this Sublease, and
Sublandlord is not aware of any facts which might result in any such actions,
suits or proceedings.
<PAGE>
(b) Incorporation of Terms of Master Lease. Except as otherwise
--------------------------------------
expressly provided in this Sublease, the terms, provisions, covenants,
stipulations, conditions, rights, obligations, remedies and agreements contained
in the Master Lease are incorporated herein by reference and are made a part
hereof, and shall, as between Sublandlord and Subtenant (as if Sublandlord were
the Landlord under the Master Lease and Subtenant were the Tenant under the
Master Lease) constitute the terms of this Sublease except to the extent that
they are inapplicable, inconsistent with, or modified by the terms of this
Sublease. Notwithstanding the foregoing, as between Sublandlord and Subtenant,
the following provisions of the Master Lease do not apply and shall be of no
force or effect with respect to this Sublease: Sections 1, 4, 5, 6, 7, the first
two sentences of Section 8, 26, 37, 38, and 45 of the Lease; the first sentence
of Section 1, Sections 2, 10(B), 11, 14, 15, 18, 22, 23, 24, 25, 26, and 27 of
the Original Sublease; and Sections 2 and the last 3 sentences of Section 4 of
the Assumption Agreement.
(c) Provision of Services; Enforcement. Subtenant agrees that,
----------------------------------
notwithstanding anything to the contrary in this Sublease or in the Master
Lease, (i) Sublandlord shall not be required to keep, observe or perform any of
Landlord's obligations under the Master Lease, including, without limitation, to
provide any of the services or make any of the repairs or restorations that
Landlord has agreed to provide or make or cause to be provided or made under the
Master Lease, and Sublandlord's sole obligation with respect thereto shall be to
use reasonable efforts to cause Landlord to provide such services and make such
repairs or restorations as are required to be provided or made under the Master
Lease, and (ii) any and all requests for any special or additional services
furnished at the expense of Sublandlord under the Master Lease shall be made
only with Sublandlord's prior written consent, which shall not be unreasonably
withheld or delayed, and Sublandlord shall reasonably cooperate with Subtenant
in such requests. Subtenant shall pay all reasonable out-of-pocket costs and
expenses incurred by Sublandlord in connection with any such requests and all
costs and expenses incurred in connection with the provision by Landlord of any
such special or additional services. Subtenant shall not make any claim against
Sublandlord for any damage which may arise nor shall Subtenant's obligations
hereunder be impaired by reason of (a) the failure of Landlord to keep, observe
or perform its obligations pursuant to the Master Lease, except to the extent
caused by the gross negligence or willful misconduct of Sublandlord or its
agents, or (b) the acts or omissions of Landlord, its agents, contractors,
servants, employees,
<PAGE>
invitees or licensees. In the event of any default by Landlord under the Master
Lease, Subtenant may, at its option, conduct proceedings in its own name, and at
its sole cost and expense, in order to obtain Landlord's performance of
Landlord's obligations pursuant to the Master Lease; provided, however, that
prior to initiating any such proceeding, Subtenant shall obtain Sublandlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed.
6. Use of the Premises. Subtenant covenants not to use the Premises
-------------------
for any purpose other than for the conduct of Subtenant's business or any other
lawful business use specifically permitted by the terms of the Master Lease, and
in a manner consistent in all respects with the provisions of the Master Lease.
7. Parking. Subtenant shall be entitled only to the parking spaces
-------
expressly provided to Sublandlord under the Master Lease.
8. Condition of the Premises; Alterations.
--------------------------------------
(a) Condition of the Premises. Subtenant has examined the
-------------------------
Premises, is familiar with the physical condition thereof and agrees to take the
same "AS IS" in the condition in which they exist as of the date hereof and on
the Commencement Date. Subtenant hereby acknowledges that Sublandlord has made
no representations or warranties with respect to the condition of the Premises,
including, without limitation, the suitability of the Premises for Subtenant's
intended use, and that Sublandlord shall not, now or at any time in the future,
be required to make any expenditures whatsoever with respect to the Premises.
Subtenant further agrees that its act of taking possession of the Premises will
be an acknowledgement that the Premises are in a tenantable and good condition.
(b) Consent to Alterations. Subtenant shall not make any
----------------------
alterations to the Premises without the prior written consent of Sublandlord
(which shall not be unreasonably withheld or delayed) and Landlord in accordance
with the terms and provisions of Section 10 of the Lease. Subtenant shall obtain
all necessary permits and deliver copies of all plans and specifications to
Sublandlord and obtain Sublandlord's consent to and approval of all plans,
specifications and the costs of the work, prior to the commencement of
construction of any alterations to the Premises by Subtenant. In addition,
Subtenant shall coordinate any and all construction activi-
<PAGE>
ties in connection with any alterations with Landlord and Sublandlord, shall
otherwise conduct such activities in accordance with all procedures required
under the terms of the Master Lease (including, but not limited to, Section 10
of the Lease), and shall give Sublandlord reasonable advance notice of any
meetings between Subtenant and Landlord or Landlord's agents or employees in
connection with any proposed alterations. In the event that Subtenant alters,
changes or modifies the Premises or the improvements thereon in any way,
Subtenant shall, to the extent required by Sublandlord or Landlord, completely
restore and reconstruct the Premises (including all improvements) to
substantially the same condition as that which existed immediately prior to the
Commencement Date. The foregoing provisions are in addition to, and not in lieu
of, any terms of the Master Lease, which may require, among other things,
Landlord's consent to any alterations to the Premises.
(c) Alterations. Subtenant shall reimburse Sublandlord for
-----------
any and all actual reasonable costs, fees and expenses incurred by Sublandlord
in connection with any alterations to the Premises by Subtenant.
9. Assignment and Subletting.
-------------------------
(a) Consent Required. Subtenant shall not assign this Sublease
----------------
or further sublet the Premises without the prior written consent of the
Sublandlord and Landlord (with respect to both Sublandlord and Landlord, any
such consent shall not be unreasonably withheld or delayed, and shall be subject
to and in accordance with the provisions of Section 29 of the Lease, except as
otherwise provided herein). Any such subletting or assignment shall be subject
to all of the rights of Landlord under the Master Lease, and such rights shall
apply equally to Sublandlord. Subtenant agrees that any consent to an assignment
or subletting of this Sublease or the Premises shall not be deemed to be a
consent to any other subletting or assignment and shall not thereby release or
discharge Subtenant of its obligations or liabilities hereunder.
(b) Profits. Sublandlord shall be entitled to 100% of the
-------
amount by which any amounts paid or any other consideration received pursuant to
or in connection with any permitted subleasing of the Premises or assignment of
this Sublease exceeds the sum of the amount required to be paid by Subtenant
under this Sublease.
<PAGE>
10. Time Limits. The time limits set forth in the Master Lease for
-----------
the giving of notices, making demands, performance of any act, condition or
covenant, or the exercise of any right, remedy or option, apply with equal force
and effect to the terms of this Sublease.
11. Brokers and Finders. In connection with the transaction
-------------------
contemplated by this Sublease, each party hereby represents and warrants that it
has not had, and shall not have, any dealings with any third party to whom the
payment of any broker's fee, finder's fee, commission or other similar
compensation shall or may become due or payable; provided, however, that
Subtenant has engaged the services of BT Commercial through a separate written
agreement. Any commission due to BT Commercial shall be paid by Sublandlord
pursuant to a separate written agreement executed by Sublandlord. Sublandlord
and Subtenant shall each indemnify, defend, and hold the other harmless from and
against, any and all claims of or liability to any broker, finder or like agent
who shall claim to have dealt with Sublandlord or Subtenant, respectively, in
connection with this transaction and this Sublease. The provisions of this
Section 11 shall survive the expiration or earlier termination of this Sublease;
provided, however, in no event shall Sublandlord have any obligation hereunder,
or under any separate agreement, to pay any commissions to BT Commercial in the
event that this Sublease is terminated pursuant to Section 16 hereof.
12. Quiet Enjoyment. Sublandlord covenants with Subtenant that as
---------------
long as Subtenant shall pay the Basic Rent and Additional Rent and shall duly
perform all the terms, covenants, conditions and agreements of this Sublease on
its part to be performed, Subtenant shall, subject to the terms hereof and of
the Master Lease, peaceably have, hold and enjoy the Premises during the Term
without hindrance or molestation by Sublandlord.
13. Indemnification. Neither Sublandlord nor its agents shall be
---------------
liable to Subtenant, its Agents, and Subtenant shall indemnify, defend and hold
Sublandlord harmless from and against any and all losses, costs, claims,
damages, expenses or liabilities (including, without limitation, reasonable
attorneys' fees, charges and disbursements), incurred in connection with or
arising from any injury to Subtenant or to any other person or for any damage to
or loss (by theft or otherwise) of any of Subtenant's property and/or the
property of any other person, irrespective of the cause
<PAGE>
of such injury, damage or loss. Sublandlord shall, however, be responsible for
any of the foregoing if caused by or due to the gross negligence or willful
misconduct of Sublandlord or its agents. Subtenant agrees to indemnify, defend
and hold Sublandlord harmless from and against any and all losses, costs,
claims, damages, expenses or liabilities (including, without limitation,
reasonable attorneys' fees, charges and disbursements), incurred in connection
with or arising from (i) any default by Subtenant in the observance or
performance of any of the terms, covenants, conditions or agreements of this
Sublease on Subtenant's part to be observed or performed, or (ii) the use or
occupancy or manner of use or occupancy of the Premises by Subtenant or any
person claiming through or under Subtenant, or (iii) the condition of the
Premises, or (iv) any acts, omissions or negligence of Subtenant or its agents
on the Premises either prior to, during, or after the expiration of the Term.
Sublandlord shall indemnify, defend and hold Subtenant free and harmless from
and against any and all liability, judgments, costs, damages, claims or demands
arising out of (i) any default by Sublandlord of Sublandlord's obligations under
this Sublease; (ii) any default by Sublandlord of Sublandlord's remaining
obligations under the Master Lease to the extent such obligations are not the
obligations of Subtenant pursuant hereto; (iii) any breach of any representation
or warranty made by Sublandlord in this Sublease; or (iv) the gross negligence
or willful misconduct of Sublandlord or its agents to the extent the same has a
material adverse impact on Subtenant's use or enjoyment of the Premises. The
provisions of this Section 13 shall survive the expiration or sooner termination
of this Sublease.
14. Notices. All notices, requests, demands and other communications
-------
which are required or may be given pursuant to the terms of this Sublease shall
be in writing and shall be given personally, by registered or certified mail, by
a reputable national overnight delivery service, or by facsimile transmission as
follows:
<PAGE>
If to Sublandlord:
KPMG Peat Marwick LLP
Three Chestnut Ridge Road
Montvale, New Jersey 07645
Attn: Mr. Kenneth J. Boland
Tel: (201) 307-7636
Fax: (201) 307-7010
With a copy to:
KPMG Peat Marwick LLP
3 Embarcadero Center, Suite 2000
San Francisco, California 94111-4073
Attention: Kenneth A. Hansen
Tel: (415) 951-7888
Fax: (415) 397-1128
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071-3144
Attention: Allan G. Mutchnik, Esq.
Tel: (213) 687-5391
Fax: (213) 687-5600
If to Subtenant:
Brio Technology, Inc.
3430 West Bayshore Road
Palo Alto, California 94303
Attention: George Wikle
Tel: (415) 856-8000
Fax: (415) 856-0794
With a copy to:
General Counsel Associates LLP
1891 Landings Drive
Mountain View, California 94043
<PAGE>
Attention: Deborah C. Aikins, Esq.
Tel: (415) 428-3916
Fax: (415) 428-3901
If to Landlord:
Sobrato Bayshore Investments
1600 N. De Anza Boulevard
Suite 200
Cupertino, California 95014-2075
Attn: ___________________
Tel: (408) 446-0700
Fax: (408) 446-0583
With a copy to:
________________________
________________________
________________________
________________________
<PAGE>
Every notice, demand, request or other communication hereunder shall be deemed
to have been given or served at the time that the same is personally delivered,
deposited in the United States mails (postage prepaid, in the manner aforesaid),
or received by facsimile transmission. Sublandlord and Subtenant may, by notice
given hereunder, designate any further or different addresses to which
subsequent notices, demands, requests, or other communications shall be sent.
15. Termination of the Master Lease. Sublandlord shall not
-------------------------------
voluntarily terminate the Master Lease during the Term unless and until Landlord
has agreed in writing to continue this Sublease in full force and effect as a
direct lease between Landlord and Subtenant upon and subject to all of the
terms, covenants and conditions of this Sublease for the balance of the Term
hereof. If Landlord so consents, Subtenant shall attorn to Landlord in
connection with any such voluntary termination and shall execute an attornment
agreement in such form as may reasonably be requested by Landlord; provided,
however, that the attornment agreement does not materially adversely affect the
use by Subtenant of the Premises in accordance with the terms of this Sublease,
materially increase Subtenant's obligations under this Sublease, or materially
decrease Subtenant's rights under this Sublease. If the Master Lease terminates
solely due to a breach by Sublandlord under the Master Lease or this Sublease,
with the result that this Sublease is terminated, Sublandlord shall indemnify,
defend and hold Subtenant harmless from any and all liability, judgments, costs,
damages, claims or demands arising out of such termination, including, without
limitation, Subtenant's reasonable attorneys' fees, charges and disbursements.
If the Master Lease is terminated as a result of damage, destruction or
condemnation, this Sublease thereupon shall terminate. If the Master Lease
terminates as a result of any breach by Subtenant under this Sublease, then this
Sublease shall terminate and Subtenant shall indemnify, defend and hold
Sublandlord harmless from any and all loss, costs, liability and expense as a
result thereof, including, without limitation, Sublandlord's reasonable
attorneys' fees, charges and disbursements, and any liability to Landlord under
the Master Lease and any losses (including, without limitation, lost profits due
to Sublandlord's inability to sublease the Premises) incurred by Sublandlord as
a result of such termination. The provisions of this Section 15 shall survive
the expiration or sooner termination of this Sublease.
16. Landlord Consent. Sublandlord and Subtenant agree and
----------------
acknowledge that this Sublease is subject to and contingent upon the consent of
Landlord to the provisions of this Sublease, including, without limitation, the
Commencement Date hereof. Sublandlord shall use its reasonable good faith
efforts to secure Landlord's consent and approval prior to the Commencement
Date, but in no event shall Sublandlord be required to pay more than One
Thousand Dollars ($1,000) or engage in any litigation to secure such consent or
approval. In the event that (i) Landlord has not consented to this Sublease
within ninety (90) days following execution
<PAGE>
hereof, or (ii) Landlord expressly withholds its consent to this Sublease, then,
in either such event, this Sublease shall terminate and be of no further force
or effect whatsoever and, except for those obligations contained herein which
expressly survive the termination of this Sublease, neither party shall have any
further rights or obligations against the other, except that Sublandlord shall
promptly return to Subtenant all sums paid by Subtenant to Sublandlord upon or
in connection with its execution of this Sublease, and, if Subtenant has taken
possession of the Premises, Subtenant shall, without any further demand by
Sublandlord, restore the Premises to their condition existing immediately prior
to the Commencement Date and immediately vacate and surrender the Premises.
17. Holding Over. Subtenant shall not be permitted to hold over in
------------
or remain in possession of the Premises or any part thereof following the
Expiration Date or earlier termination of this Sublease. Subtenant acknowledges
that the Expiration Date occurs one (1) day prior to the expiration of the term
of the Master Lease with respect to the Premises, and any such holding over may
result in or cause Sublandlord to suffer significant direct and consequential
damages. Subtenant shall indemnify, defend and hold Sublandlord harmless from
any and all loss, costs, liability and expense (including, without limitation,
the payment of any holdover rent or penalties and Sublandlord's reasonable
attorneys' fees, charges and disbursements) incurred in connection with
Subtenant's holdover beyond the Expiration Date or earlier termination of this
Sublease.
18. Subtenant Representations. Subtenant represents and warrants
-------------------------
that (a) it is a corporation duly organized and validly existing under the laws
of the State of California, (b) it has full power and authority to execute and
deliver this Sublease, and (c) each person executing this Sublease on behalf of
Subtenant is authorized and empowered to do so.
19. Surrender. Notwithstanding anything to the contrary contained in
---------
this Sublease or the Master Lease, Subtenant's obligation to surrender the
Premises shall be fulfilled if Subtenant surrenders possession of the Premises
in the condition existing immediately prior to the Commencement Date, except
for: (i) ordinary wear and tear, (ii) hazardous materials or waste placed on or
about the Premises prior to the Commencement Date, (iii) other conditions which
Landlord and Sublandlord state in writing may remain upon the termination of
this Sublease, and (iv) any additions, alterations or improvements made to the
Premises by Sublandlord or any predecessor in interest of Sublandlord prior to
the Commencement Date.
20. Right to Cure. In the event that Sublandlord defaults in the
-------------
performance or observance of any of Sublandlord's remaining obligations under
the Master Lease, or fails to perform Sublandlord's stated obligations under
this Sublease, including, without limitation, the
<PAGE>
enforcement, for Subtenant's benefit, of Landlord's obligations under the Master
Lease, then Subtenant shall 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 said 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 possible), then in addition, Subtenant shall be
entitled, at Subtenant's option, to cure such default and promptly collect from
Sublandlord Subtenant's reasonable expenses in so doing (including, without
limitation, reasonable attorneys' fees and court costs).
21. Access by Sublandlord and Landlord. Notwithstanding anything to
----------------------------------
the contrary in this Sublease, in entering upon the Premises in non-emergency
situations only, Sublandlord shall use reasonable efforts to minimize
interference with Subtenant's use of the Premises to the extent possible and
shall comply with Subtenant's reasonable safety and security regulations.
Sublandlord agrees that prior to entering the Premises under any right conferred
under the Master Lease, Sublandlord shall give Subtenant twenty-four (24) hours'
prior telephonic or written notice, except in the case of an emergency.
22. Entire Agreement. This Sublease sets forth the entire agreement
----------------
between the parties and there are no other agreements or understandings of any
kind or nature between the parties with respect to the subject matter, except as
set forth herein. This Sublease may not be modified, altered, or amended, other
than by an agreement in writing, signed by the party against whom enforcement of
said agreement is sought.
23. Counterparts. This Sublease may be executed in as many
------------
counterparts as may be deemed necessary and convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original, but all such counterparts shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Sublease as of
the date first above written.
SUBLANDLORD:
KPMG PEAT MARWICK LLP, a Delaware limited liability
partnership
<PAGE>
By: /s/ Joseph E. Heintz
_________________________________
Name: Joseph E. Heintz
__________________________
Title: Chief Financial Officer
__________________________
SUBTENANT:
BRIO TECHNOLOGY, INC., a California corporation
By: /s/ George R. Wikle
_________________________________
Name: George R. Wikle
__________________________
Title: Executive Vice President,
Operations and CFO
__________________________
<PAGE>
LANDLORD'S CONSENT
The undersigned is the Landlord under the Master Lease described in
the foregoing Sublease, and hereby consents to all of the terms and conditions
of the Sublease, including, but not limited to, the sublease of the Premises to
BRIO TECHNOLOGY, INC., a California corporation. Landlord agrees that the
provisions of Section 12 of the Lease regarding waiver of subrogation shall be
extended to Subtenant and effective by and between Subtenant and Landlord.
LANDLORD:
SOBRATO BAYSHORE INVESTMENTS, a California Limited
Partnership (as successor-in-interest to BAYSHORE
INVESTMENTS, a California General Partnership)
By: /s/ John M. Sobrato
________________________________
Name: John M. Sobrato
_________________________
Title:
_________________________
<PAGE>
EXHIBIT 10.4
LEASE AGREEMENT
THIS LEASE, made this 27th day of June, 1996 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (the ARRILLAGA FAMILY
TRUST) as amended, hereinafter called Landlord, and BRIO TECHNOLOGY, INC., a
California corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A,"
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
A portion of that certain 20,160 plus/minus square foot, two-story
building located at 3430 West Bayshore Road, Suite 102, Palo Alto, California
94303 (but which address is subject to approval by the City of Palo Alto),
consisting of approximately 12,415 plus/minus square feet of space (on the 1st
and 2nd floors of the building). Said Premises is more particularly shown within
the area outlined in Red on Exhibit A. The entire parcel, of which the Premises
---------
is a part, is shown within the area outlined in Green on Exhibit A attached
---------
hereto. The Premises is leased on an "as-is" basis, in its present condition,
and in the configuration as shown in Red on Exhibit B to be attached hereto.
---------
The interior of the building leased hereunder shall be improved by
Landlord and leased by Tenant in the configuration as shown in Red on Exhibit B
---------
to be attached hereto.
* The word "Premises" as used throughout this lease is hereby defined to include
the nonexclusive use of landscaped areas, sidewalks and driveways in front of or
adjacent to the Premises, and the nonexclusive use of the area directly
underneath or over such sidewalks and driveways. The gross leasable area of the
building shall be measured from outside of exterior walls to outside of exterior
walls, and shall include any atriums, covered entrances or egresses and covered
loading areas. Said letting and hiring is upon and subject to the terms,
covenants and conditions hereinafter set forth and Tenant covenants as a
material part of the consideration for this Lease to perform and observe each
and all of said terms, covenants and conditions. This Lease is made upon the
conditions of such performance and observance.
1. USE. Tenant shall use the Premises only in conformance with
applicable governmental laws, regulations, rules and ordinances for the purpose
of general office, light manufacturing, research and development, and storage
and other uses necessary for Tenant to conduct Tenant's business, provided that
such uses shall be in accordance with all applicable governmental laws and
ordinances, and for no other purpose. Tenant shall not do or permit to be done
in or about the Premises nor bring or keep or permit to be brought or kept in or
about the Premises anything which is prohibited by or will in any way increase
the existing rate of (or
<PAGE>
otherwise affect) fire or any insurance covering the Premises or any part
thereof, or any of its contents, or will cause a cancellation of any insurance
covering the Premises or any part thereof, or any of its contents. Tenant shall
not do or permit to be done anything in, on or about the Premises which will in
any way obstruct or interfere with the rights of other tenants or occupants of
the Premises or neighboring premises or injure or annoy them, or use or allow
the Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about
the Premises. No sale by auction shall be permitted on the Premises. Tenant
shall not place any loads upon the floors, walls, or ceiling which endanger the
structure, or place any harmful fluids or other materials in the drainage system
of the building, or overload existing electrical or other mechanical systems. No
waste materials or refuse shall be dumped upon or permitted to remain upon any
part of the Premises or outside of the building in which the Premises are a
part, except in trash containers placed inside exterior enclosures designated by
Landlord for that purpose or inside of the building proper where designated by
Landlord. No materials, supplies, equipment, finished products or semi-finished
products, raw materials or articles of any nature shall be stored upon or
permitted to remain outside the Premises. Tenant shall not place anything or
allow anything to be placed near the glass of any window, door partition or wall
which may appear unsightly from outside the Premises. No loudspeaker or other
device, system or apparatus which can be heard outside the Premises shall be
used in or at the Premises without the prior written consent of Landlord. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises.
Tenant shall indemnify, defend and hold Landlord harmless against any loss,
expense, damage, reasonable attorneys' fees, or liability arising out of failure
of Tenant to comply with any applicable law related to Tenant's use of the
Premises. Tenant shall comply with any covenant, condition, or restriction
("CC&R's") affecting the Premises. The provisions of this paragraph are for the
benefit of Landlord only and shall not be construed to be for the benefit of any
tenant or occupant of the Premises.
2. TERM.*
A. The term of this Lease shall be for a period of SEVEN (7) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2B
and 3, shall commence on the 1st day of September, 1996 and end on the 31st day
of August, 2003.
B. Possession of the Premises shall be deemed tendered and the term
of the Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the
proper governmental agency, or, if the governmental agency having jurisdiction
over the area in which the Premises are situated does not issue
<PAGE>
certificates occupancy, then the same number of days after certification by
Landlord's architect or contractor that Landlord's construction work has been
completed; or
(b) Upon the occupancy of the Premises by any of Tenant's
operating personnel; or
(c) When the Tenant Improvements have been substantially
completed for Tenant's use and occupancy, in accordance and compliance with
Exhibit B of this Lease Agreement; or
(d) As otherwise agreed in writing.
* It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting partial
month will be pro-rated (for the number of days in the partial month) at the
Basic Rent rate scheduled for the projected commencement date as shown in
Paragraph 39.
3. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom; but in that event
the commencement and termination dates of the Lease, and all other dates
affected thereby shall be revised to conform to the date of Landlord's delivery
of possession, as specified in Paragraph 2B above. The above is, however,
subject to the provision that the period of delay of delivery of the Premises
shall not exceed 60 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.
4. RENT.
A. Basic Rent. Tenant agrees to pay Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum of
TWO MILLION NINE HUNDRED SEVENTY THREE THOUSAND SIX HUNDRED FORTY AND 80/100
Dollars ($2,973,640.80) in lawful money of the United States of America, payable
as follows:
SEE PARAGRAPH 39 FOR BASIC RENT SCHEDULE.
B. Time for Payment. Full monthly rent is due in advance of
the first day of each calendar month. In the event that the term of this Lease
commences on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to such date of commencement to the first
<PAGE>
day of the next succeeding calendar month that portion of the monthly rent
hereunder which the number of days between such date of commencement and the
first day of the next succeeding calendar month bears to thirty (30). In the
event that the term of this Lease for any reason ends on a date other than the
last day of a calendar month, on the first day of the last calendar month of the
term hereof Tenant shall pay to Landlord as rent for the period from said first
day of said last calendar month to and including the last day of the term hereof
that proportion of the monthly rent hereunder which the number of days between
said first day of said last calendar month and the last day of the term hereof
bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this
Lease, if Tenant is in default in the payment of rental as set forth in this
Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in
addition to the delinquent rental due, a late charge for each rental payment in
default ten (10) days. Said late charge shall equal ten percent (10%) of each
rental payment so in default.
D. Additional Rent. Beginning with the commencement date of
the term of this Lease, Tenant shall pay to Landlord or to Landlord's designated
agent in addition to the Basic Rent and as Additional Rent the following:
(a) All Taxes relating to the Premises as set forth in Paragraph
9, and
(b) All insurance premiums relating to the Premises, as set
forth in Paragraph 12, and
(c) All charges, costs and expenses, which Tenant is required to
pay hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys' fees and legal expenses, that may accrue thereto
in the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses, which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of this Lease. In
the event of nonpayment by Tenant of Additional Rent, Landlord shall have all
the rights and remedies with respect thereto as Landlord has for nonpayment for
rent.
The Additional Rent due hereunder shall be paid to Landlord or
Landlord's agent (i) within five days for taxes and insurance and within thirty
(30) days for all other Additional Rent items after presentation of invoice from
Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at
the option of Landlord, Tenant shall pay to Landlord monthly, in advance,
Tenant's prorata share of an amount estimated by Landlord to be Landlord's
approximate average monthly expenditure for such Additional Rent items, which
estimated amount shall be reconciled
<PAGE>
within 120 days of the end of each calendar year or more frequently if Landlord
elects to do so at Landlord's sole and absolute discretion as compared to
Landlord's actual expenditure for said Additional Rent items, with Tenant paying
to Landlord, upon demand, any amount of actual expenses expended by Landlord in
excess of said estimated amount, or Landlord refunding to Tenant (providing
Tenant is not in default in the performance of any of the terms, convenants and
conditions of this Lease) any amount of estimated payments made by Tenant in
excess of Landlord's actual expenditures for said Additional Rent items. Within
thirty (30) days after receipt of Landlord's reconciliation, Tenant shall have
the right, at Tenant's sole expense, to audit, at a mutually convenient time at
Landlord's office, Landlord's records relating to the foregoing expenses. Such
audit must be conducted by Tenant or an independent nationally recognized
accounting firm that is not being compensated by Tenant or other third party on
a contingency fee basis. If such audit reveals that Landlord has overcharged
Tenant, the amount overcharged shall be credited to Tenant's account within
thirty (30) days after the audit is concluded.
The respective obligations of Landlord and Tenant under this
paragraph shall survive the expiration or other termination of the term of this
Lease, and if the term hereof shall expire or shall otherwise terminate on a day
other than the last day of a calendar year, the actual Additional Rent incurred
for the calendar year in which the term hereof expires or otherwise terminates
shall be determined and settled on the basis of the statement of actual
Additional Rent for such calendar year and shall be prorated in the proportion
which the number of days in such calendar year preceding such expiration or
termination bears to 365.
E. Fixed Management Fee. Beginning with the Commencement Date of
the Term of this Lease, Tenant shall pay to Landlord, in addition to the Basic
Rent and Additional Rent, a fixed monthly management fee ("Management Fee")
equal to 2% of the Basic Rent due for each month during the Lease Term.
F. Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at Arrillaga Family Trust, c/o
Peery/Arrillaga, 2560 Mission College Blvd., #101, Santa Clara, CA 95054 or to
such other person or to such other place as Landlord may from time to time
designate in writing.
G. Security Deposit. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of SEVENTY TWO THOUSAND TWO
HUNDRED FIFTY FIVE AND 30/100 Dollars ($72,255.30) .
<PAGE>
Said sum shall be held by Landlord as a Security Deposit for the faithful
performance by Tenant of all of the terms, covenants, and conditions of this
Lease to be kept and performed by Tenant during the term hereof. If Tenant
defaults with respect to any provision of this Lease, including but not limited
to, the provisions relating to the payment of rent and any of the monetary sums
due herewith, Landlord may (but shall not be required to) use, apply or retain
all or any part of this Security Deposit for the payment of any other amount
which Landlord may spend by reason of Tenant's default or to compensate Landlord
for any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within then (10) days after written demand therefor, deposit cash with Landlord
in the amount sufficient to restore the Security Deposit to its original amount.
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep this Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on such Deposit. If Tenant
fully and faithfully performs every provision of this Lease to be performed by
it, the Security Deposit or any balance thereof shall be returned to Tenant (or
at Landlord's option, to the last assignee of Tenant's interest hereunder) at
the expiration of the Lease term and after Tenant has vacated the Premises. In
the event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest whereupon Tenant
agrees to release Landlord from liability for the return of such Deposit or the
accounting therefor.
5. ACCEPTANCE AND SURRENDER OF PREMISES. Subject to Paragraph 41 and by
entry hereunder, Tenant accepts the Premises as being in good and sanitary
order, condition and repair and accepts the building and improvements included
in the Premises in their present condition and without representation or
warranty by Landlord as to the condition of such building or as to the use or
occupancy which may be made thereof. Any exceptions to the foregoing must be by
written agreement executed by Landlord and Tenant. Tenant agrees on the last day
of the Lease term, or on the sooner termination of this Lease, to surrender the
Premises promptly and peaceably to Landlord in good condition and repair (damage
by Acts of God, fire, normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; all broken, marred or nonconforming acoustical ceiling tiles
replaced; all windows washed; the airconditioning and heating systems serviced
by a reputable and licensed service firm and in good operating condition and
repair; the plumbing and electrical systems and lighting in good order and
repair, including replacement of any burned out or broken light bulbs or
ballasts; the lawn and shrubs in good condition including the replacement of any
dead or damaged plantings; the sidewalk, driveways and parking areas in good
order, condition and repair; together with all alterations, additions, and
improvements which may have been made in, to, or on the Premises (except
moveable trade fixtures installed at the expense of Tenant) except that Tenant
shall ascertain from Landlord within thirty (30) days before the end of the term
of this Lease whether Landlord desires to have the Premises or any part or parts
thereof restored to their condition and configuration as when the Premises were
delivered to Tenant and if Landlord shall so desire, then Tenant shall restore
said Premises or such part or parts thereof before the end of this Lease at
Tenant's sole cost and expense. Tenant, on or before the end of the term or
sooner termination of this Lease, shall remove all of Tenant's personal property
and trade fixtures from the Premises, and all property not so removed on
<PAGE>
or before the end of the term or sooner termination of this Lease shall be
deemed abandoned by Tenant and title to same shall thereupon pass to Landlord
without compensation to Tenant. Landlord may, upon termination of this Lease,
remove all moveable furniture and equipment so abandoned by Tenant, at Tenant's
sole cost, and repair any damage caused by such removal at Tenant's sole cost.
If the Premises be not surrendered at the end of the term or sooner termination
of this Lease, Tenant shall indemnify Landlord against loss or liability
resulting from the delay by Tenant in so surrendering the Premises including,
without limitation, any claims made by any succeeding tenant founded on such
delay. Nothing contained herein shall be construed as an extension of the term
hereof or as a consent of Landlord to any holding over by Tenant. The voluntary
or other surrender of this Lease or the Premises by Tenant or a mutual
cancellation of this Lease shall not work as a merger and, at the option of the
Landlord, shall either terminate all or any existing subleases or subtenancies
or operate as an assignment to Landlord of all or any such subleases or
subtenancies.
6. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be
made, any alteration or addition to the Premises, or any part thereof, without
the written consent of Landlord first had and obtained by Tenant (such consent
not to be unreasonably withheld), but at the cost of Tenant, and any addition
to, or alteration of, the Premises except moveable furniture and trade fixtures,
shall at once become a part of the Premises and belong to Landlord. Landlord
reserves the right to approve all contractors and mechanics proposed by Tenant
to make such alterations and additions. Tenant shall retain title to all
moveable furniture and trade fixtures placed in the Premises. All heating,
lighting, electrical, airconditioning, floor to ceiling partitioning, drapery,
carpeting, and floor installations made by Tenant together with all property
that has become an integral part of the Premises, shall not be deemed trade
fixtures. Tenant agrees that it will not proceed to make such alteration or
additions, without having obtained consent from Landlord to do so, and until
five (5) days from the receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work. Tenant
shall if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Promises for work claimed to have been done for, or materials claimed to have
been furnished to Tenant, will be discharged by Tenant, by bond or otherwise,
within ten (10) after the filing thereof, at the cost and expense of Tenant. Any
exceptions to the foregoing must be made in writing and executed by both
Landlord and Tenant.
7. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep
and maintain the Premises (including appurtenances) and every part thereof in a
high standard of maintenance and repair, and in good and sanitary condition.
Tenant's maintenance and repair
<PAGE>
responsibilities herein referred to include, but are not limited to,
janitorization, plumbing systems within the non-common areas of the Premises
(such as water and drain lines, sinks), electrical systems within the non-common
areas of the Premises (such as outlets, lighting fixtures, lamps, bulbs, tubes,
ballasts), heating and airconditioning controls within the non-common areas of
the Premises (such as mixing boxes, thermostats, time clocks, supply and return
grills), all interior improvements within the premises including but not limited
to: wall coverings, acoustical ceilings, vinyl tile, carpeting, partitioning,
doors (both interior and exterior, including closing mechanisms, latches,
locks), and all other interior improvements of any nature whatsoever. Tenant
agrees to provide carpet shields under all rolling chairs or to otherwise be
responsible for wear and tear of the carpet caused by such rolling chairs if
such wear and tear exceeds that caused by normal foot traffic in surrounding
areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon
Lease termination.
8. DELETED IN ITS ENTIRETY.
9. TAXES.
A. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord, or if Landlord so directs, directly to the
Tax Collector, all Real Property Taxes relating to the Premises. In the event
the Premises leased hereunder consist of only a portion of the entire tax
parcel, Tenant shall pay to Landlord Tenant's proportionate share of such real
estate taxes allocated to the leased Premises by square footage or other
reasonable basis as calculated and determined by Landlord. If the tax billing
pertains 100% to the leased Premises, and Landlord chooses to have Tenant pay
said real estate taxes directly to the Tax Collector, then in such event it
shall be the responsibility of Tenant to obtain the tax and assessment bills and
pay, prior to delinquency, the applicable property taxes and assessments
pertaining to the leased Premises, and failure to receive a bill for taxes
and/or assessments shall not provide a basis for cancellation of or
nonresponsibility for payment of penalties for nonpayment or late payment by
Tenant. The term "Real Property Taxes", as used herein, shall mean (i) all
taxes, assessments, levies and other charges of any kind or nature whatsoever,
general and special, foreseen and unforeseen (including all installments of
principal and interest required to pay any general or special assessments for
public improvements and any increases unforeseen (including all installments of
principal and interest required to pay any general or special assessments for
public improvements and any increases resulting from reassessments caused by any
change in ownership of the Premises) now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of, all or any
portion of the Premises (as now constructed or as may at any time hereafter be
constructed, altered, or otherwise changed) or Landlord's interest therein; any
improvements located within the Premises (regardless of ownership); the
fixtures, equipment
<PAGE>
and other property of Landlord, real or personal, that are an integral part of
and located in the Premises (regardless of ownership); the fixtures, equipment
and other property of Landlord, real or personal, that are an integral part of
and located in the Premises; or parking areas, public utilities, or energy
within the Premises; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Premises; and
(iii) all costs and fees (including reasonable attorneys' fees) incurred by
Landlord in reasonably contesting any Real Property Tax and in negotiating with
public authorities as to any Real Property Tax. If at any time during the term
of this Lease the taxation or assessment of the Premises prevailing as of the
commencement date of this Lease shall be altered so that in lieu of or in
addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value use or occupancy of the Premises or
Landlord's interest therein or (ii) on or measured by the gross receipts, income
or rentals from the Premises, on Landlord's business of leasing the Premises, or
computed in any manner with respect to the operation of the Premises, then any
such tax or charge, however designated shall be included within the meaning of
the term "Real Property Taxes" for purposes of this Lease. If any Real Property
Tax is based upon property or rents unrelated to the Premises, then only that
part of such Real Property Tax that is fairly allocable to the Premises shall be
included within the meaning of the term "Real Property Taxes." Notwithstanding
the foregoing, the term "Real Property Taxes" shall not include estate,
inheritance, gift or franchise taxes of Landlord or the federal or state net
income tax imposed on Landlord's income from all sources.
B. Taxes on Tenant's Property. Tenant shall be liable for and shall pay
ten days before delinquency, taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased by the
inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to Tenant, pays the
taxes based on such increased assessment, which Landlord shall have the right to
do regardless of the validity thereof, but only under proper protest if
requested by Tenant, Tenant shall upon demand, as the case may be, repay to
Landlord the taxes so levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment; provided that in any such event
Tenant shall have the right, in the name of Landlord and with Landlord's full
cooperation, to bring suit in any court of competent jurisdiction to recover the
amount of such taxes so paid under protest, and any amount so recovered shall
belong to Tenant.
10. LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease policy of commercial general insurance with
combined single limit coverage of not less than Two Million Dollars ($2,000,000)
for bodily injury and property damage occurring in, on or about the Premises,
including parking and landscaped areas. Such insurance shall be primary and
noncontributory as respects any insurance carried by Landlord. The policy or
policies effecting such insurance shall name Landlord as additional insureds,
and shall insure any liability of Landlord, contingent or otherwise, as respects
acts or omissions of Tenant, its agents, employees or invitees or otherwise by
any conduct or transactions of any of said persons in or about or
<PAGE>
concerning the Premises, including any failure of Tenant to observe or perform
any of its obligations hereunder; shall be issued by an insurance company
admitted to transact business in the State of California; and shall provide that
the insurance effected thereby shall not be canceled, except upon thirty (30)
days' prior written notice to Landlord. A certificate of insurance of said
policy shall be delivered to Landlord. If, during the term of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this Paragraph 10 is not adequate, Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate.
11. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION
INSURANCE. Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures, and leasehold
improvements within the leased Premises for the full replacement value thereof.
The proceeds from any of such policies shall be used for the repair or
replacement of such items so insured.
Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
12. PROPERTY INSURANCE. Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (allocated to the leased Premises by square footage or other
equitable basis as calculated and determined by Landlord) of the deductibles on
insurance claims and the cost of, policy or policies of insurance covering loss
or damage to the Premises (excluding routine maintenance and repairs and
incidental damage or destruction caused by accidents or vandalism for which
Tenant is responsible under Paragraph 7) in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake insurance,
if available, plus a policy of rental income insurance in the amount of one
hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as
Additional Rent. If such insurance cost is increased due to Tenant's use of the
Premises, Tenant agrees to pay to Landlord the full cost of such increase.
Tenant shall have no interest in nor any right to the proceeds of any insurance
procured by Landlord for the Premises.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for loss
or damage caused by fire or any of the extended coverage casualties included in
the releasing party's insurance policies, irrespective of the cause of such fire
or casualty; provided, however, that if the insurance policy of either releasing
party prohibits such waiver, then this waiver shall not take effect until
consent to such waiver is obtained. If such waiver is so prohibited, the insured
party affected shall promptly notify the other party thereof.
<PAGE>
13. INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises by or from any
cause whatsoever, including, without limitation, gas, fire, oil, electricity or
leakage of any character from the roof, walls, basement or other portion of the
Premises but excluding, however, the willful misconduct or negligence of
Landlord, its agents, servants, employees, invitees, or contractors of which
negligence Landlord has knowledge and reasonable time to correct. Except as to
injury to persons or damage to property to the extent arising from the willful
misconduct or the negligence of Landlord, its agents, servants, employees,
invitees, or contractors, Tenant shall hold Landlord harmless from and defend
Landlord against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in , on or about the Premises, or
any part thereof, from any cause whatsoever.
14. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. Tenant shall, at its
sole cost and expense, comply with any and all requirements pertaining to said
Premises, or any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering
requirements pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public liability
insurance covering the Premises. See Paragraph 52.
15. LIENS. Tenant shall keep the Premises free from arising out of any work
performed, materials furnished or obligation incurred by Tenant. In the event
that Tenant shall not, within ten (10) days following the imposition of such
lien, cause the same to be released of record, Landlord shall have, in addition
to all remedies provided herein and by law, the right, but no obligation, to
cause the same to be released by such means as it shall deem proper, including
payment of the claim giving rise to such lien. All sums paid by Landlord for
such purpose, and all expenses incurred by it in connection therewith, shall be
payable to Landlord by Tenant on demand with interest at the prime rate of
interest as quoted by the Bank of America.
16. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein, and
shall not sublet the Premises, or any part hereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises, or any portion thereof, without, in each case, the prior written
consent
<PAGE>
of Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer, or subletting, Landlord may
require that Tenant agrees to pay to Landlord, as additional rent, fifty percent
(50%) of all rents or additional consideration received by Tenant from its
assignees, transferees, or subtenants in excess of the rent payable by Tenant to
Landlord hereunder. Tenant shall, by thirty (30) days written notice, advise
Landlord of its intent to assign or transfer Tenant's interest in the Lease or
sublet the Premises or any portion thereof for any part of the term hereof.
Within fifteen (15) days after receipt of said written notice, Landlord may, in
its sole discretion, elect to terminate this Lease as to the portion of the
Premises described in Tenant's notice on the date specified in Tenant's notice
by giving written notice of such election to terminate. If no such notice to
terminate is given to Tenant within said fifteen (15) day period, Tenant may
proceed to locate an acceptable sublessee, assignee, or other transferee for
presentment to Landlord for Landlord's approval, all in accordance with the
terms, covenants, and conditions of this paragraph 16. If Tenant intends to
sublet fifty percent (50%) or more of the Premises and Landlord elects to
terminate this Lease, this Lease shall be terminated on the date specified in
Tenant's notice. If, however, this Lease shall terminate pursuant to the
foregoing with respect to less than all the Premises, the rent, as defined and
reserved hereinabove shall be adjusted on a pro rata basis to the number of
square feet retained by Tenant, and this Lease as so amended shall continue in
full force and effect. In the event Tenant is allowed to assign, transfer or
sublet the whole or any part of the Premises, with the prior written consent of
Landlord, no assignee, transferee or subtenant shall assign or transfer this
Lease, either in whole or in part, or sublet the whole or any part of the
Premises, without also having obtained the prior written consent of Landlord,
which consent shall not be unreasonably withheld. A consent of Landlord to one
assignment, transfer, hypothecation, subletting, occupation or use by any other
person shall not release Tenant from any of Tenant's obligations hereunder or be
deemed to be a consent to any subsequent similar or dissimilar assignment,
transfer, hypothecation, subletting, occupation or use by any other person. Any
such assignment, transfer, hypothecation, subletting, occupation or use without
such consent shall be void and shall constitute a breach of this Lease by Tenant
and shall, at the option of Landlord exercised by written notice to Tenant,
terminate this Lease. The leasehold estate under this Lease shall not, nor shall
any interest therein, be assignable for any purpose by operation of law without
the written consent of Landlord, which consent shall not be unreasonably
withheld. As a condition to its consent, Landlord may require Tenant to pay all
expenses in connection with the assignment, and Landlord may require Tenant's
assignee or transferee (or other assignees or transferees) to assume in writing
all of the obligations under this Lease and for Tenant to remain liable to
Landlord under the Lease. See Paragraph 50.
17. SUBORDINATION AND MORTGAGES. In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in
<PAGE>
writing an agreement subordinating its rights under this Lease to the lien of
such deed of trust, or, if so requested, agreeing that the lien of Lender's deed
of trust shall be or remain subject and subordinate to the rights of Tenant
under this Lease and provided Lender executes a reasonable non-disturbance
agreement. Notwithstanding any such subordination, Tenant's possession under
this Lease shall not be disturbed if Tenant is not in default and so long as
Tenant shall pay all rent and observe and perform all of the provisions set
forth in this Lease.
18. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to make repairs or provide any services to a contiguous tenant(s); to
submit the Premises to prospective purchasers, mortgagors or tenants; to post
notices of nonresponsibility; and to alter, improve or repair the Premises or
other parts of the building, all without abatement of rent, and may erect
scaffolding and other necessary structures in or through the Premises where
reasonably required by the character of the work to be performed; provided,
however that the business of Tenant shall be interfered with to the least extent
that is reasonably practical. Any entry to the Premises by Landlord for the
purposes provided for herein shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.
19. BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other
<PAGE>
similar act. Nothing contained in this Lease shall be construed as giving or
granting or creating an equity in the demised Premises to Tenant. In no event
shall the leasehold estate under this Lease, or any interest therein, be
assigned by voluntary or involuntary bankruptcy proceeding without the prior
written consent of Landlord. In no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment thereto.
Tenant shall have a period of thirty (30) days from the date of written notice
from Landlord within which to cure any other default under this Lease; provided,
however, that if the nature of Tenant's failure is such that more than thirty
(30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured default
of this Lease by Tenant, Landlord shall have the following rights and remedies
in addition to any other rights or remedies available to Landlord at law or in
equity:
(a) The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to, recovery of 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 rental loss for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of
Section 1951.2 of the California Civil code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner: Landlord and
Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. such two real estate brokers shall select a third licensed
real estate broker, and the three licensed real estate brokers so selected shall
determine the amount of the rental loss that could be reasonably avoided from
the balance of the term of this Lease after the time of award. The decision of
the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.
(b) The rights and remedies provided by California Civil code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
<PAGE>
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) To the extent permitted by law the right and power to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord may from time to time sublet the Premises or
any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its reasonable
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately
liable to pay Landlord, in addition to indebtedness other than rent due
hereunder, the reasonable cost of such subletting, including, but not limited
to, reasonable attorneys' fees, and any real estate commissions actually paid,
and the cost of such reasonable alterations and repairs incurred by Landlord and
the amount, if any, by which the rent hereunder for the period of such
subletting (to the extent such period does not exceed the term hereof) exceeds
the amount to be paid as rent for the Premises for such period or (ii) at the
option of Landlord, rents received from such subletting shall be applied first
to payment of indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such subletting and of such
alterations and repairs; third to payment of rent due and unpaid hereunder; and
the residue, if any, shall be held by Landlord and applied in payment of future
rent as the same becomes due hereunder. If Tenant has been credited with any
rent to be received by such subletting under option (i) and such rent shall not
be promptly paid to Landlord by the subtenant(s), or if such rentals received
from such subletting under option (ii) during any month be less than that to be
paid during that month by Tenant hereunder, Tenant shall pay any such deficiency
to Landlord. such deficiency shall be calculated and paid monthly. No taking
possession of the Premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention be given
to Tenant. Notwithstanding any such subletting without termination, Landlord may
at any time hereafter elect to terminate this Lease for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application by
Landlord, to take possession of the Premises and to apply any rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph d above (except that Tenant may vacate so long
as it pays rent, provides an on-site security guard during normal business hours
from Monday through Friday, and otherwise performs its obligations hereunder).
20. ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
21. DESTRUCTION. In the event the Premises are destroyed in whole or in part
from any cause, except for routing maintenance and repairs and incidental damage
and destruction caused
<PAGE>
from vandalism and accidents for which Tenant is responsible under Paragraph 7,
Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the damage
or destruction, or
(b) Terminate this Lease (providing that the Premises is damaged to the
extent of 33-1/3% of the replacement cost)
If Landlord does not give Tenant notice in writing within thirty (30) days
from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, except for any deductible, which is the responsibility of Tenant,
promptly to rebuild or restore the Premises to their condition prior to the
damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete the rebuilding or restoration within one
hundred eighty (180) days following the date of destruction (such period of time
to be extended for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense
provided this Lease is not cancelled according to the
provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect. Tenant hereby expressly waives the
provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the
California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not.
<PAGE>
22. EMINENT DOMAIN. If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If any action or proceeding is commenced for such taking of the Premises or
any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
premises or any portion thereof, then Landlord shall have the right to terminate
this Lease by giving Tenant written notice thereof within sixty (60) days of the
date of receipt of said written advice, or commencement of said action or
proceeding, or taking conveyance, which termination shall take place as of the
first to occur of the last day of the calendar month next following the month in
which such notice is given or the date on which title to the Premises shall vest
in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the rent to be paid
by Tenant shall be in the ration that the area of the portion of the Premises
not so taken or conveyed bears to the total area of the Premises prior to such
taking.
23. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale of conveyance of
the Premises or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such transfer
is concerned. Tenant agrees to look solely to the responsibility of the
successor in
<PAGE>
interest or such transferor in and to the Premises and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.
24. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
25. HOLDING OVER. Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty percent (150%) of the monthly Basic Rent
required during the last month of the Lease term.
26. CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less than ten
(10) days prior written notice to Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that no more than one month's rent has been paid in
advance.
27. CONSTRUCTION CHANGES. It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein are
subject to such minor changes as Landlord or Landlord's architect determines to
be desirable in the course of construction of the Premises, and no such changes
shall affect this Lease or entitle Tenant to any reduction of rent hereunder or
result in any liability of Landlord to Tenant. Landlord does not guarantee the
accuracy
<PAGE>
of any drawings supplied to Tenant and verification of the accuracy of such
drawings rests with Tenant.
28. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder or shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may, but shall not be obliged
to, make any such payment or perform any such other term or covenant on Tenant's
part to be performed. All sums so paid by Landlord and all necessary costs of
such performance by Landlord together with interest thereon at the rate of the
prime rate of interest per annum as quoted by the Bank of America from the date
of such payment on performance by Landlord, shall be paid (and Tenant covenants
to make such payment) to Landlord on demand by Landlord, and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment by Tenant as in the case of failure by
Tenant in the payment of rent hereunder.
29. ATTORNEYS' FEES.
A. In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees incurred by the prevailing party herein shall be paid
by the other party, which obligation on the part of the other party shall be
deemed to have accrued on the date of the commencement of such action and shall
be enforceable whether or not the action is prosecuted to judgment.
B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its cots and expenses incurred in such suit, including a
reasonable attorney's fee.
30. WAIVER. The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
31. NOTICES. All notices, demands, requests, advices of designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands,
<PAGE>
requests, advices or designations by Landlord to Tenant shall be sufficiently
given, made or delivered if personally served on Tenant by leaving the same at
the Premises of if sent by United States certified or registered mail, postage
prepaid, addressed to Tenant at the Premises. All notices, demands, requests,
advices or designations by Tenant to Landlord shall be sent by United States
certified or registered mail, postage prepaid, addressed to Landlord at its
offices at Arrillaga Family Trust, c/o Peery/Arrillaga, 2560 Mission College
Blvd., #101, Santa Clara, CA 95054. Each notice, request, demand, advice or
designation referred to in this paragraph shall be deemed received on the date
of the personal service or mailing thereof in the manner herein provided, as the
case may be.
32. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
33. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event earlier than (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
34. CORPORATE AUTHORITY. If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the by-
laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
35. Deleted in its entirety.
36. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder. Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach of default hereunder by Landlord:
(a) the sole and exclusive remedy shall be against Landlord and Landlord's
assets;
(b) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
(c) No service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);
<PAGE>
(d) no partner of Landlord shall be required to answer or otherwise plead
to any service of process;
(e) no judgment will be taken against any partner of Landlord;
(f) any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;
(g) no writ of execution will ever by levied against the assets of any
partner of Landlord;
(h) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
37. SIGNS. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved by Landlord.
Tenant shall not place anything or allow anything to be placed near the glass of
any window, door partition or wall which may appear unsightly from outside the
Premises.
38. MISCELLANEOUS AND GENERAL PROVISIONS.
A. Use of Building Name. Tenant shall not, without the written consent
of Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.
<PAGE>
B. Choice of Law; Severability. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provision of this Lease shall be invalid, unenforceable or
ineffective for any reason whatsoever, all other provisions hereof shall be and
remain in full force and effect.
C. Definition of Terms. The term "Pre mises" includes the space leased
hereby and any improvements now or hereafter installed therein or attached
thereto. The term "Landlord" or any pronoun used in place thereof includes the
plural as well as the singular and the successors and assigns of Landlord. The
term "Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and bind
such heirs, executors, administrators, successors and permitted assigns.
The term "pe rson" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings of
this Lease are for convenience of reference only and shall have no effect upon
the construction or interpretation of any provisions hereof.
D. Time of Essence. Time is of the essence of this Lease and of
each and all of its provisions.
E. Quitclaim. At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in the
State of California, to remove the cloud or encumbrance created by this Lease
from the real property of which Tenant's Premises are a part.
F. Incorporation of Prior Agreements; Amendments. This instrument along
with any exhibits and attachments hereto constitutes the entire agreement
between Landlord and Tenant relative to the Premises and this agreement and the
exhibits and attachments may be altered, amended or revoked only by an
instrument in writing signed by both Landlord and Tenant. Landlord and Tenant
agree hereby that all prior or contemporaneous oral agreements between and among
themselves and their agents or representatives relative to the leasing of the
Premises are merged in or revoked by this agreement.
<PAGE>
G. Recording. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.
H. Amendments for Financing. Tenant further agrees to execute any
amendments required by a lender to enable Landlord to obtain financing, so long
as Tenant's rights hereunder are not substantially affected.
I. Additional Paragraphs. Paragraphs 39 through 55 are added hereto and
are included as a part of this Lease.
J. Clauses, Plats and Riders. Clauses, plats and riders, if any, signed
by Landlord and Tenant and endorsed on or affixed to this Lease are a part
hereof.
K. Diminution of Light, Air or View. Tenant covenants and agrees that no
diminution or shutting off of light, air or view by any structure which maybe
hereafter erected (whether or not by Landlord) shall in any way affect his
Lease, entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
ARRILLAGA FAMILY TRUST BRIO TECHNOLOGY, INC.
a California corporation
By /s/ J. Arrillaga By /s/ George R. Wikle
---------------- -------------------
Dated: 7/22/96
-------
Title Vice President
--------------
Type or Print Name George R. Wikle
----------------
Dated: 7/18/96
-------------------
<PAGE>
Paragraphs 39 through 55 to Lease Agreement Dated June 27, 1996, By and Between
the Arrillaga Family Trust, as Landlord, and BRIO TECHNOLOGY, INC., a California
corporation, as Tenant for 12,415+ Square Feet of Space Located at 3430 West
-
Bayshore Road, Palo Alto, California 94303.
39. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
sum of TWO MILLION NINE HUNDRED SEVENTY THREE THOUSAND SIX HUNDRED FORTY AND
80/100 DOLLARS ($2,973,640.80), shall be payable as follows:
On September 1, 1996, the sum of THIRTY ONE THOUSAND THIRTY SEVEN AND
50/100 DOLLARS ($31,037.50) shall be due, and a like sum due on the first day of
each month thereafter, through and including August 1, 1997.
On September 1, 1997, the sum of THIRTY SIX THOUSAND ONE HUNDRED TWENTY
SEVEN AND 65/100 DOLLARS ($36,127.65) shall be due, and a like sum due on the
first day of each month thereafter, through and including August 1, 2003; or
until the entire aggregate sum of TWO MILLION NINE HUNDRED SEVENTY THREE
THOUSAND SIX HUNDRED FORTY AND 80/100 DOLLARS ($2,973,640.80) has been paid.
40. EARLY ENTRY: Subject to the provisions of Paragraph 41 ("Tenant Interior
Improvements"), Tenant and its agents and contractors shall be permitted to
enter the Premises prior to the Commencement Date for the purpose of installing
at Tenant's sole cost and expense, Tenant's trade fixtures and equipment,
telephone equipment, security systems and cabling for computers. Such entry
shall be subject to all of the terms and conditions of this Lease, except that
Tenant shall not be required to pay any Rent on account thereof. Any entry or
installation work by Tenant and its agents in the Premises pursuant to this
Paragraph 40 shall (i) be undertaken at Tenant's sole risk, (ii) not interfere
---------
with or delay Landlord's work in the Premises (if any), and (iii) not be deemed
occupancy or possession of the Premises for purposes of the Lease. Tenant shall
indemnify, defend, and hold Landlord harmless from any and all loss, damage,
liability, expense (including reasonable attorney's fees), claim or demand of
whatsoever character, direct or consequential, including, but without limiting
thereby the generality of the foregoing, injury to or death of persons and
damage to or loss of property arising out of the exercise by Tenant of any early
entry right granted hereunder. In the event Tenant's work in said Premises
delays the completion of the interior improvements to be provided by Landlord,
if any, or in the event Tenant has not completed construction of it's interior
improvements by the scheduled Commencement Date, it is agreed between the
parties that this Lease will commence on the scheduled Commencement Date of
September 1, 1996 regardless of the construction status of said interior
improvements completed or to be completed by Tenant or Landlord.
41. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and
expense, construct certain interior improvements (the "Tenant Improvements") in
the Premises, as shown on Exhibit B to be attached to the Lease and Landlord
---------
agrees to deliver the Premises leased hereunder to Tenant, at Landlord's
expense, in the configuration shown in Red on Exhibit B to be attached hereto.
---------
Notwithstanding anything to the contrary above, it is specifically understood
and agreed that Landlord shall be required to furnish only a
<PAGE>
standard air conditioning/heating system, normal electrical outlets, standard
fire sprinkler systems, standard bathroom, standard lobby, 2' x 4' suspended
acoustical tile drop ceiling throughout the entire space leased, carpeting
and/or vinyl-coated floor tile, and standard office partitions and doors, as
shown on Exhibit B to be attached hereto; provided however, that any special
---------
HVAC and/or plumbing and/or electrical requirements over and above that normally
supplied by Landlord shall be 100 percent the responsibility of and be paid for
100 percent by Tenant.
Notwithstanding anything to the contrary, it is agreed that in the event Tenant
makes changes, additions, or modifications to the plans and specifications to be
constructed by Landlord as set forth herein, or improvements are installed for
Tenant in excess of those to be provided Tenant by Landlord as set forth on
Exhibit B, any increased cost(s) resulting from said changes, additions, and/or
- ---------
modifications and/or improvements in excess of those to be provided Tenant shall
be contracted for with Landlord and paid for one hundred percent (100%) by
Tenant.
The interior shall be constructed substantially in conformance with Exhibit B of
---------
the Lease, it being agreed, however, that if the interior improvements
constructed by Landlord relating thereto, do not conform exactly to the plans
and specifications as set forth in the Lease, and the general appearance,
structural integrity, and Tenant's uses and occupancy of the Premises and
interior improvements relating thereto are not materially or unreasonably
affected by such deviation, it is agreed that the commencement date of the
Lease, and Tenant's obligation to pay rental, shall not be affected, and Tenant
hereby agrees, in such event, to accept the Premises and interior improvements
as constructed by Landlord.
Tenant shall have thirty (30) days after the Commencement Date to provide
Landlord with a "punch list" pertaining to Landlord's work with respect to
Tenant's interior improvements. As soon as reasonably possible thereafter,
Landlord, or one of Landlord's representatives (if so approved by Landlord), and
Tenant shall conduct a joint walk-through of the Premises (if Landlord so
requires), and inspect such Tenant Improvements, using their best efforts to
agree on the incomplete or defective construction related to the Tenant
Improvements installed by Landlord. After such inspection has been completed,
Landlord shall prepare, and both parties shall sign, a list of all "punch list"
items which the parties reasonably agree are to be corrected by Landlord (but
which shall exclude any damage or defects caused by Tenant, its employees,
agents or parties Tenant has contracted with to work on the Premises). Landlord
shall have thirty (30) days thereafter (or longer if necessary, provided
Landlord is diligently pursuing the completion of the same) to complete, at
Landlord's expense, the repairs on the "punch list" without the Commencement
Date of the Lease and Tenant's obligation to pay Rental thereunder being
affected. This Paragraph shall be of no force and effect if Tenant shall fail to
give any such notice to Landlord within thirty (30) days after the Commencement
Date of this Lease.
42. "AS-IS" BASIS: Subject only to Paragraphs 41, 52 and 55 and to Landlord
making the improvements shown on Exhibit B to be attached hereto, it is hereby
---------
agreed that the Premises leased hereunder is leased strictly on an "as-is" basis
and in its present condition, and in the configuration as shown on Exhibit B to
---------
be attached hereto, and by reference made a part hereof. Except as noted
herein, it is specifically agreed between the parties that after Landlord makes
the interior improvements as shown on Exhibit B, Landlord shall not be required
---------
to make, nor be responsible for any cost, in connection with any repair,
restoration, and/or
<PAGE>
improvement to the Premises in order for this Lease to commence, or thereafter,
throughout the Term of this Lease. Landlord makes no warranty or representation
of any kind or nature whatsoever as to the condition or repair of the Premises,
nor as to the use or occupancy which may be made thereof.
43. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
44. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be governed
by and construed in accordance with the laws of the State of California. If any
provisions of this Lease shall be invalid, unenforceable, or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
45. RULES AND REGULATIONS AND COMMON AREA: Subject to the terms and conditions
of this Lease and such Rules and Regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees, invitees and customers shall, in
common with other occupants of the Parcel/Building in which the premises are
located, and their respective employees, invitees and customers, and others
entitled to the use thereof, have the non-exclusive right to use the access
roads, parking areas, and facilities provided and designated by Landlord for the
general use and convenience of the occupants of the Parcel/Building in which the
Premises are located, which areas and facilities are referred to herein as
"Common Area". This right shall terminate upon the termination of this Lease.
Landlord reserves the right from time to time to make changes in the shape,
size, location, amount and extent of Common Area. Landlord further reserves the
right to promulgate such reasonable rules and regulations relating to the use of
the Common Area, and any part or parts thereof, as Landlord may deem appropriate
for the best interests of the occupants of the Parcel/Building. Such Rules and
Regulations may be amended by Landlord from time to time, with or without
advance notice, and all amendments shall be effective upon delivery of a copy to
Tenant. Landlord shall not be responsible to Tenant for the non-performance by
any other tenant or occupant of the Parcel/Building of any of said Rules and
Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner in which
the Common Area shall be maintained and the expenditures for such maintenance
shall be at the discretion of Landlord.
46. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF
THE PARCEL AND BUILDING IN WHICH THE PREMISES ARE LOCATED: As Additional Rent
and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord
Tenant's proportionate share (calculated on a square footage or other equitable
basis as calculated by landlord) of all expenses of operation, management,
maintenance and repair of the Common Areas of the Parcel/Building including, but
not limited to, license, permit, and inspection fees; security; utility charges
associated with exterior landscaping and lighting (including water and sewer
charges); all charges incurred in the maintenance of landscaped areas, lakes,
parking lots, sidewalks, driveways, maintenance, repair and replacement of all
fixtures and electrical, mechanical and plumbing systems; structural elements
and exterior surfaces of the buildings; salaries and employee benefits of
personnel and payroll taxes applicable thereto; supplies, materials,
<PAGE>
equipment and tools; the cost of capital expenditures which have the effect of
reducing operating expenses, provided, however, that in the event Landlord makes
such capital improvements, Landlord shall amortize its investment in said
improvements (together with interest at the rate of fifteen (15%) percent per
annum on the unamortized balance) as an operating expense in accordance with
standard accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt repayments;
interest on charges, expenses directly or indirectly incurred by Landlord for
the benefit of any other tenant; cost for the installation of partitioning or
any other tenant improvements; cost of attracting tenants; depreciation;
interest; or executive salaries, but shall include a monthly two percent (2%)
management fee based on the Basic Rent due for each month (or partial month if
applicable) during the Lease Term.
As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant
shall pay its proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of the cost of operation (including
common utilities), management, maintenance, and repair of the building
(including structural and common areas such as lobbies, restrooms, janitor's
closets, hallways, elevators, mechanical and telephone rooms, stairwells,
entrances, spaces above the ceilings and janitorization of said common areas) in
which the Premises are located. The maintenance items herein referred to
include, but are not limited to, all windows, window frames, plate glass,
glazing, truck doors, main plumbing systems of the building (such as water drain
lines, sinks, toilets, faucets, drains, showers and water fountains), main
electrical systems (such as panels and conduits), heating and air-conditioning
systems (such as compressors, fans, air handlers, ducts, boilers, heaters),
store fronts, roofs, downspouts, building common area interiors (such as wall
coverings, window coverings, floor coverings and partitioning), ceilings,
building exterior doors, skylights (if any), automatic fire extinguishing
systems, and elevators (if any); license, permit and inspection fees; security,
salaries and employee benefits of personnel and payroll taxes applicable
thereto; supplies, materials, equipment and tools; the cost of capital
expenditures which have the effect of reducing operating expenses, provided,
however, that in the event Landlord makes such capital improvements, Landlord
may amortize its investment in said improvements (together with interest at the
rate of fifteen (15%) percent per annum on the unamortized balance) as an
operating expense in accordance with standard accounting practices, provided,
that such amortization is not at a rate greater than the anticipated savings in
the operating expenses. Tenant hereby waives all rights hereunder, and benefits
of, subsection 1 of Section 1932 and Sections 1941 and 1942 of the California
Civil Code and under any similar law, statute or ordinance now or hereafter in
effect.
47. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED: As Additional
Rent and in accordance with Paragraph 4D of this Lease Tenant shall pay its
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the cost of all utility charges such as water, gas,
electricity, (telephone, telex and other electronic communications service, if
applicable) sewer service, waste pick-up and any other utilities, materials or
services furnished directly to the building in which the Premises are located,
including, without limitation, any temporary or permanent utility surcharge or
other exactions whether or not hereinafter imposed.
<PAGE>
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or observance of any
of the terms, covenants or conditions of this Lease to be performed or observed
by it, Landlord shall furnish to the Premises between the hours of 8:00 am and
6:00 pm, Mondays through Fridays (holidays excepted) and subject to the rules
and regulations of the Common Area hereinbefore referred to, reasonable
quantities of water, gas and electricity suitable for the intended use of the
Premises and heat and air-conditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises for such purposes. Tenant agrees
that at all times it will cooperate fully with Landlord and abide by all
regulations and requirements that Landlord may prescribe for the proper
functioning and protection of the building heating, ventilating and air-
conditioning systems. Whenever heat generating machines, equipment, or any other
devices (including exhaust fans) are used in the Premises by Tenant which affect
the temperature or otherwise maintained by the air-conditioning system, Landlord
shall have the right to install supplementary air-conditioning units in the
Premises and the cost thereof, including the cost of installation and the cost
of operation and maintenance thereof, shall be paid by Tenant to Landlord upon
demand by Landlord. Tenant will not, without the written consent of Landlord,
use any apparatus or device in the Premises (including, without limitation),
electronic data processing machines or machines using current in excess of 110
Volts which will in any way increase the amount of electricity, gas, water or
air-conditioning usually furnished or supplied to premises being used as general
office space, or connect with electric current (except through existing
electrical outlets in the Premises), or with gas or water pipes any apparatus or
device for the purposes of using electric current, gas, or water. If Tenant
shall require water, gas, or electric current in excess of that usually
furnished or supplied to premises being used as general office space, Tenant
shall first obtain the written consent of Landlord, which consent shall not be
unreasonably withheld and Landlord may cause an electric current, gas or water
meter to be installed in the Premises in order to measure the amount of electric
current, gas or water consumed for any such excess use. The cost of any such
meter and of the installation, maintenance and repair thereof, all charges for
such excess water, gas and electric current consumed (as shown by such meters
and at the rates then charged by the furnishing public utility); and any
additional expense incurred by Landlord in keeping account of electric current,
gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay
Landlord therefor promptly upon demand by Landlord.
48. PARKING: Tenant shall have the right to the nonexclusive use of forty two
(42) parking spaces in the common parking area of the building. Tenant agrees
that Tenant, Tenant's employees, agents, representatives, and/or invitees shall
not use parking spaces in excess of said 42 parking spaces allocated to Tenant
hereunder. Landlord shall have the right, at Landlord's sole discretion, to
specifically designate the location of Tenant's parking spaces within the common
parking area of the building in the event of a dispute among the tenants
occupying the building referred to herein, in which event Tenant agrees that
Tenant, Tenant's employees, agents, representatives and/or invitees shall not
use any parking spaces other than those parking spaces specifically designated
by Landlord for Tenant's use. Said parking spaces, if specifically designated by
Landlord to Tenant, may be relocated by Landlord at any time, and from time to
time. Landlord
<PAGE>
reserves the right, at Landlord's sole discretion, to rescind any specific
designation of parking spaces, thereby returning Tenant's parking spaces to the
common parking area. Landlord shall give Tenant written notice of any change in
Tenant's parking spaces. Tenant shall not, at any time, park, or permit to be
parked, any trucks or vehicles adjacent to the loading area so as to interfere
in any way with the use of such areas, nor shall Tenant, at any time, park or
permit the parking of Tenant's trucks and other vehicles or the trucks and
vehicles of Tenant's suppliers or others, in any portion of the common areas not
designated by Landlord for such use by Tenant. Tenant shall not park nor permit
to be parked, any inoperative vehicles or equipment on any portion of the common
parking area or other common areas of the building. Tenant agrees to assume
responsibility for compliance by its employees with the parking provision
contained herein. If Tenant or its employees park in other than designated
parking areas, then Landlord may charge Tenant, as an additional charge, and
Tenant agrees to pay Ten Dollars ($10.00) per day for each day or partial day
each such vehicle is parking in any area other than that designated. Tenant
hereby authorizes Landlord, at Tenant's sole expense, to tow away from the
building any vehicle belonging to Tenant or Tenant's employees parked in
violation of these provisions, or to attach violation stickers or notices to
such vehicles. Tenant shall use the parking area for vehicle parking only and
shall not use the parking areas for storage.
49. ASSESSMENT CREDITS: The demised property herein may be subject to a
special assessment levied by the City of Palo Alto as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the
time of any such credit of surpluses, an amount equal to all such surpluses so
credited. For example: if (i) the property is subject to an annual assessment of
$1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's
assessment which reduces the assessment amount shown on the property tax bill
from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord,
pay to Landlord said $200.00 credit as Additional Rent.
50. ASSIGNMENT AND SUBLETTING (CONTINUED):
A. In addition to and notwithstanding anything to the contrary in
Paragraph 16 of this Lease, Landlord hereby agrees to consent to Tenant's
assigning or subletting said Lease to: (i) any parent or subsidiary corporation,
affiliate, or corporation with which Tenant merges or consolidates, provided
that the net worth of said parent or subsidiary corporation, affiliate, or said
corporation has a net worth equal to or greater than the net worth of Tenant at
the time of such assignment, merger, or consolidation; or (ii) any third party
or entity to whom Tenant sells all or substantially all of its assets; provided,
that the net worth of the resulting or acquiring corporation has a net worth
after the merger, consolidation or acquisition equal to or greater than the net
worth of Tenant at the time of such merger, consolidation or acquisition. No
such assignment or subletting will release the Tenant from its liability and
responsibility under this Lease to the extent Tenant continues in existence
following such transaction. Notwithstanding the above, Tenant shall be required
to (a) give Landlord
<PAGE>
written notice prior to such assignment or subletting to any party as described
in (i) and (ii) above, and (b) execute Landlord's consent document prepared by
Landlord reflecting the assignment or subletting.
B. Excess Rent. In addition to and notwithstanding anything to the
-----------
contrary in Paragraph 16, Tenant, prior to sharing such excess rent with
Landlord, shall first be entitled to recover from such excess rent the amount of
any reasonable leasing commissions paid by Tenant to third parties not
affiliated with Tenant.
C. Any and all sublease agreement(s) between Tenant and any and all
subtenant(s) (which agreements must be consented to by Landlord, pursuant to the
requirements of this Lease) shall contain the following language:
"If Landlord and Tenant jointly and voluntarily elect, for any reason
whatsoever, to terminate the Master Lease prior to the scheduled Master
Lease termination date, then this Sublease (if then still in effect) shall
terminate concurrently with the termination of the Master Lease. Subtenant
expressly acknowledges and agrees that (1) the voluntary termination of the
Master Lease by Landlord and Tenant and the resulting termination of this
Sublease shall not give Subtenant any right or power to make any legal or
equitable claim against Landlord, including without limitation any claim for
interference with contract or interference with prospective economic advantage,
and (2) Subtenant hereby waives any and all rights it may have under law or at
equity against Landlord to challenge such an early termination of the Sublease,
and unconditionally releases and relieves Landlord, and its officers, directors,
employees and agents, from any and all claims, demands, and/or causes of action
whatsoever (collectively, "Claims"), whether such matters are known or unknown,
latent or apparent, suspected or unsuspected, foreseeable or unforeseeable,
which Subtenant may have arising out of or in connection with any such early
termination of this Sublease. Subtenant knowingly and intentionally waives any
and all protection which is or may be given by Section 1542 of the California
Civil Code which provides as follows: "A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected his settlement with debtor.
The term of this Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of and
agreement to this early termination provision, (b) Subtenant's acknowledgment
that, in determining the net benefits to be derived by Subtenant under the terms
of this Sublease, Subtenant has anticipated the potential for early termination,
and (c) Subtenant's agreement to the general waiver and release of Claims above.
51. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect
to the existence or use of "Hazardous Materials" (as defined herein) on, in,
under or about the Premises (as shown in Red on Exhibit A) and real property
---------
located beneath said Premises and the Parcel (as outlined in Green on Exhibit
-------
A):
- -
As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste which is or becomes subject to or regulated by any
local governmental authority, the State of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation any
material or
<PAGE>
hazardous substance which is (i) listed under Article 9 or defined as
"hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of the
California Administrative Code, Division 4, Chapter 30, (ii) listed or defined
as a "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or defined
as a "hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601), (iv) petroleum or any derivative of petroleum, or (v) asbestos.
Subject to the terms of this Paragraph 51, Tenant shall have no obligation to
"clean up", reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the term of
the Lease) or other parties on the Premises, as described below, (during the
Term of this Lease) did not store, dispose, or transport in, use, or cause to be
on the Premises or which Tenant, its agents, employees, contractors, vendors,
invitees, visitors or its future subtenants and/or assignees (if any) (during
the Term of this Lease), did not store, dispose, or transport in, use or cause
to be on the Parcel in violation of applicable law as stated below.
Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, invitees, visitors or its future
subtenants and/or assignees (if any), or other parties on the Premises, does
store, dispose, or transport in, use or cause to be on the Premises, and which
Tenant, its agents, employees, contractors, vendors, invitees, visitors or its
future subtenants and/or assignees (if any) does store, dispose, or transport
in, use or cause to be on the common areas of the Parcel (Tenant shall not be
responsible for such Hazardous Materials contamination stored, disposed,
transported in, used, or caused to be on the common areas of the Parcel by other
parties on the common areas of the Parcel), and (ii) any claims, including third
party claims, resulting from such Hazardous Materials contamination. Tenant
shall indemnify Landlord and hold Landlord harmless from any liabilities,
demands, costs, expenses and damages, including, without limitation, attorney
fees incurred as a result of any claims resulting from such Hazardous Materials
contamination.
Tenant also agrees not to use or dispose of any Hazardous Materials on the
Parcel or on the Premises without first obtaining Landlord's written consent.
Tenant agrees to complete compliance with governmental regulations regarding the
use or removal or remediation of Hazardous Materials used, stored, disposed of,
transported or caused to be on the Parcel or Premises as stated above, and prior
to the termination of said Lease Tenant agrees to follow the proper closure
procedures and will obtain a clearance from the local fire department and/or the
appropriate governing agency. If Tenant uses Hazardous Materials, Tenant also
agrees to install, at Tenant's expense, such Hazardous Materials monitoring
devices as Landlord deems reasonably necessary. It is agreed that the Tenant's
responsibilities related to Hazardous Materials will survive the
termination date of the Lease and that Landlord may obtain specific performance
of Tenant's responsibilities under this Paragraph 51.
52. COMPLIANCE CONTINUED: Any non-conformance of the building and/or
improvements installed and paid for by Landlord as set forth on Exhibit B,
---------
required to be corrected by the governing agency, shall be corrected at the cost
and expense of Landlord if such non-conformance exists as of the
<PAGE>
Commencement Date of the Lease. Any non-conformance of the Premises occurring
after the Commencement Date of this Lease Agreement shall be the responsibility
of Tenant to correct at Tenant's cost and expense.
53. ADDITIONAL RENT CONTINUED: The following items shall be excluded from
"Additional Rent":
A. Leasing commissions, attorney's fees, costs, disbursements, and other
expenses incurred in connection with negotiations with other tenants, or
disputes between Landlord and other tenants, or in connection with marketing,
leasing, renovating, or improving space for other current or prospective tenants
or other current or prospective occupants of the Complex; notwithstanding
anything to the contrary in Paragraph 4D, any costs and expenses Landlord is
entitled to be reimbursed for as stated under Paragraph 19 (Bankruptcy and
Default") are not included in the "excluded Additional Rent items" reflected in
this Paragraph 53.
B. The cost of any service sold to any other tenant or other occupant for
which Landlord is entitled to be reimbursed as an additional charge or rental
over and above the basic rent and additional rent payable under the lease
agreement with said other tenant (including, without limitation, after-hours
HVAC costs or over-standard electrical consumption costs incurred by other
tenants).
C. Any costs for which Landlord is entitled to be reimbursed by others.
D. Any costs, fines, or penalties incurred due to violations by Landlord
of any governmental rule or authority.
E. Wages, salaries, or other compensation paid to executive employees
above the grade of Property Manager.
F. The cost of correcting any building code or other violations which are
violations prior to the Lease Commencement Date and which violations were not
caused by or contributed to by Tenant.
G. Repairs or other work occasioned by fire, windstorm, or other insured
peril, to the extent that Landlord shall receive proceeds of such insurance or
would have received such proceeds had Landlord maintained the insurance coverage
required under this Lease (excluding any insurance deduction(s) which Tenant is
responsible for paying).
H. Except as otherwise noted in this Lease, any mortgage debt, or ground
rents or any other amounts payable under any ground lease for the Property or
any expense which Landlord is responsible for paying under said Lease or which
results from Landlord's willful misconduct or Landlord's negligence of which
negligence Landlord has received notice of and has reasonable time to correct.
<PAGE>
I. Any amounts paid to any person, firm, or corporation related or
otherwise affiliated with Landlord or any general partner, officer, or director
of Landlord or any general partners, to the extent same exceeds arms-length
competitive prices paid in the Palo Alto, California metropolitan area for the
services or goods provided.
54. ASSIGNMENT OF WARRANTIES: During the Term of the Lease, Landlord hereby
assigns to Tenant all of Landlord's Contractor's warranties and shall cooperate
with Tenant in enforcing any of such warranties except that Landlord shall not
be required to pay any legal fees or incur any expenses in this regard.
55. MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding anything
to the contrary in Paragraph 7, Landlord shall repair damage to the structural
shell, foundation, and roof structure (but not the interior improvements, roof
membrane, or glazing) of the building leased hereunder at Landlord's cost and
shall bill Tenant its prorata share of such expense; provided Tenant has not
caused such damage, in which event Tenant shall be responsible for 100 percent
of any such costs for repair or damage so caused by the Tenant. Notwithstanding
the foregoing, a crack in the foundation, or exterior walls that does not
endanger the structural integrity of the building, or which is not life-
threatening, shall not be considered material, nor shall Landlord be responsible
for repair of same.
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into by and between BRIO
TECHNOLOGY, INC. (the "Company") and Robert W. Currie ("Currie") as of July 15,
1996 ("Effective Date").
1. POSITION AND DUTIES: Currie is employed by the Company as
--------------------
its Executive Vice President of World Wide Field Operations reporting to the
Company's President at its headquarters in Palo Alto, California. As Executive
Vice President of World Wide Field Operations Currie agrees to devote his energy
and skill to his duties at the Company. These duties shall include, but not be
limited to, any duties consistent with his position which may be assigned to
Currie from time to time by the Company's President.
2. TERM OF EMPLOYMENT: Currie's employment with the Company
------------------
pursuant to this Agreement will be on an at-will basis, and may be terminated by
Currie, or the Company at any time, with or without cause and with or without
notice. Upon the termination of Currie's employment with the Company, for any
reason, neither Currie nor the Company shall have any further obligation or
liability to the other, except as set forth in this Agreement and in the
employee Confidential Information and Inventions Agreement attached hereto as
Exhibit A and made a part hereof.
3. COMPENSATION: Currie shall be compensated by the Company
-------------
for his services as follows:
a. SALARY: Currie shall be paid a semi-monthly salary of
------
$6,250.00 ($150,000.00 on an annualized basis), subject to applicable
withholding, in accordance with the Company's payroll procedures
regularly established, and as they may be amended, by the Company.
Currie's salary will be reviewed annually and possibly adjusted as
determined appropriate at the sole discretion of the Company. In
addition, Currie shall be paid a commission and a draw in accordance
with a compensation plan outlined in the Company's offer letter to
Currie.
b. BENEFITS: Currie shall have the right, on the same
--------
basis as other employees of the Company, to participate in and to
receive benefits under all of the Company's employee benefit plans,
including medical, dental and disability group insurance plans, as set
forth in the Employee Handbook and as governed by
<PAGE>
the terms of the applicable benefit plans, as they may be amended from
time to time. In addition, Currie shall be entitled to the benefits
afforded to other members of management under the Company's vacation,
holiday and business expense reimbursement policies as set forth in
the Employee Handbook and as they may be amended from time to time.
c. STOCK OPTIONS: Currie will be granted an option to
-------------
purchase 450,000 shares of the Company's common stock at an exercise
price of thirty cents ($.30) per share. The option shall be subject to
four (4) year vesting and the terms and conditions of the Company's
1992 Stock Option Plan and related stock option agreement.
In addition, by September 30, 1996 the Company will present
Currie with an opportunity to earn options to buy an extra 75,000
shares based on beating certain aggressive but reasonable performance
goals that have yet to be determined.
d. EXPENSE REIMBURSEMENTS: Upon receipt of proper
----------------------
documentation establishing the amount of such expenses, the Company
shall reimburse Currie for any reasonable business expenses incurred
in accordance with applicable Company policies, and as they may be
amended from time to time. Currie agrees to comply with any and all
policies established by the Company regarding business expenses
seeking reimbursement for such expenses.
4. BENEFITS UPON VOLUNTARY TERMINATION: In the event that
-----------------------------------
Currie voluntarily resigns from his employment with the Company, or in
the event that Currie's employment terminates as the result of his
death or disability, Currie shall be entitled to no compensation or
benefits from the Company other than those earned under paragraph 3
above through the date of his termination.
5. TERMINATION FOLLOWING A CHANGE IN CONTROL: In the event
-----------------------------------------
of a Change in Control (defined below), and Currie's employment with
the Company (or its successors or assigns) is terminated without cause
six (6) months prior to the date of the Change in Control, or twelve
(12) months after the date of the Change in Control, then Currie shall
be entitled to six (6) months salary continuation from the date of his
departure from the Company (or its successors or assigns) at the
higher of (i) Currie's then current salary rate, or (ii) a rate no
less than an annualized salary of $150,000, less applicable
withholding. The vesting
<PAGE>
provisions in Currie's options shall be accelerated, and readjusted if
necessary, so that they are in fact or are deemed to be fully
exercisable just prior to the date of the Change in Control. In the
event that there are any conflicts between the provisions in the
Company's Stock Option Plan and this Agreement, the terms of this
Agreement supersede the Plan.
Except as expressly provided for herein, all compensation, benefit
coverage, and other prerequisites of employment shall cease as of such
termination date. In the event of any Change in Control, any
successor or assign to the Company shall jointly and severally assume
the obligations under this Agreement.
For purposes of this Agreement, a "Change in Control" shall
mean an event in which (A) the shareholders of the Company approve a
merger or consolidation of the Company, other than a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted in voting
securities of the surviving entity) at lease fifty percent (50%) of
the total voting power of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (B) the
shareholders of the Company approve a plan of complete liquidation of
the Company or (C) the shareholders of the Company approve an
agreement for the sale of disposition by the Company of all or
substantially all of the Company's assets.
6. RETURN OF COMPANY PROPERTY: Currie hereby acknowledges
--------------------------
and agrees that all personal property, including, without limitation,
all books, manuals, records, reports, notes, contracts, lists,
blueprints, and other documents, or other materials, or copies
thereof, and equipment furnished to or prepared by Currie in the
course of or incident to his employment, belong to the Company and,
absent the express written consent of the Chief Executive Officer,
shall be promptly returned to the Company upon termination of Currie's
employment.
7. EXCLUSIVE REMEDY: Subject to paragraphs 4 and 5 above,
----------------
Currie shall be entitled to no further compensation for any damage or
injury arising out of the termination of this employment by the
Company.
8. CONFIDENTIAL INFORMATION AND INVENTIONS AGREEMENT:
-------------------------------------------------
Currie agrees to abide by the terms and conditions of the Company's
Employee
<PAGE>
Confidential Information and Inventions Agreement executed by Currie
and attached hereto as Exhibit A.
9. ENTIRE AGREEMENT: This Agreement, along with Exhibit A
----------------
hereto, constitutes the entire employment agreement between Currie and
the Company regarding the terms and conditions of his employment. The
parties intend that this Agreement supersede all prior negotiations,
representations or agreements between Currie and the Company, whether
written or oral, concerning Currie's employment by the Company and
that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding involving this
Agreement.
10. ATTORNEYS' FEES: The prevailing party shall be
---------------
entitled to recover from the losing party its attorneys' fees and
costs incurred in any action brought to enforce any right arising out
of this Agreement.
11. INTERPRETATION: Currie and the Company agree that this
--------------
Agreement shall be interpreted in accordance with and governed by the
laws of the State of California.
12. SUCCESSORS AND ASSIGNS: This Agreement shall inure to
-----------------------
the benefit or and be binding upon the Company and its successors and
assigns. In view of the personal nature of the services to be
performed under this Agreement by CURRIE, he shall not have the right
to assign or transfer any of his rights, obligations or benefits under
this Agreement, except as otherwise note herein.
13. CURRIE'S ACKNOWLEDGMENT: Currie acknowledges that he
------------------------
is not relying, and has not relied, on any promise, representation or
statement made by or on behalf of the Company, whether written or
oral, which is not set forth in this Agreement. Currie further
acknowledges that he has consulted with or has had the opportunity to
consult with independent counsel of his own choice concerning this
Agreement and has been advised to do so by the Company and he has read
and understands the Agreement, is fully aware of its legal effect, and
has entered into it freely based on his own judgment.
14. VALIDITY: If any one or more of the provisions (or any
--------
part thereof) of this Agreement shall be held invalid, illegal or
unenforceable in any
<PAGE>
respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or
impaired thereby.
15. MODIFICATION: This Agreement may only be modified or
------------
amended by a supplemental written agreement signed by Currie and the
Chief Executive Office of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year written below.
BRIO TECHNOLOGY, INC.
By: /s/ Robert W. Currie By: /s/ Yorgen H. Edholm
--------------------- ---------------------
ROBERT W. CURRIE YORGEN H. EDHOLM
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Date: July 15, 1996 Date: July 15, 1996
------------- -------------
<PAGE>
ATTACHMENT A
STOCK OPTIONS:
- --------------
Currie will receive options to buy 450,000 shares of Brio common stock at $.30
per share in accordance with the Brio employee stock option plan. By October
31, 1996 Brio will present Currie with an opportunity to earn options to buy an
extra 75,000 shares based on beating certain aggressive but reasonable
performance goals that have yet to be determined.
CASH COMPENSATION. SALARY + COMMISSIONS:
- -----------------------------------------
Brio Technology will pay Currie an annual base salary of $150,000, paid semi-
----
monthly in accordance with the company's normal payroll procedures. Currie will
- -------
also receive the following commission plan: Starting commission rate is .4% on
Brio's worldwide net bookings. Once Brio's for FY 1997 net bookings exceed $15
million, the rate increases to .8% on all incremental sales. When Brio's net
bookings for FY 1997 exceed $20 million, the rate increase to 1% on all
incremental sales. Finally, once Brio's FY 1997 net bookings reach $25 million,
Currie's commission rate will be 2% on all incremental net bookings. The table
below outlines what Currie will receive under this plan at 5 levels of total
Brio net bookings during fiscal 1997, ending March 1997. The term "net
bookings" shall mean gross billings less returns or net billings. Commission
payment shall be due and paid on a monthly basis on or before the 15th day of
each month based on the prior month's net bookings. Any adjustments, including
overpayments or underpayments, shall be made at the end of the fiscal year.
<TABLE>
<CAPTION>
Net Bookings Commission Rate Total Commissions Total Compensation
- ---------------------------- ---------------- ----------------- ----------------------
<S> <C> <C> <C>
Under $15 million .4% up to 60,000 $210,000 @ $15 million
$15 million to $20 million .8% up to 100,000 $250,000 @ $20 million
$20 million to $25 million 1% up to 150,000 $300,000 @ $25 million
Over $25 million 2% up to 250,000 $400,000 @ $30 million
</TABLE>
GUARANTEED MINIMUM CASH FLOW:
- -----------------------------
To guarantee Currie an annualized minimum compensation of $225,000 and to ensure
that he receives adequate cash flow during the early parts of a back loaded
year, we offer Currie a $6,250 recoverable draw against commissions every month.
If commissions are larger than this number, the accumulated recoverable draw is
paid off first before any commissions are paid out. The purpose of the draw is
to ensure that Currie never fall below an average monthly commission of $6,250.
When Currie's total actual earned commissions payments exceed a monthly average
of $6,250, draw amounts in following months
<PAGE>
are reduced by the amount of the excess. Any cumulative draw left at the end of
this fiscal year will be forgiven.
<PAGE>
<TABLE>
<CAPTION>
Example:
Aug Sep Oct Nov Dec
--- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Earned commissions: 4000 5000 10000 8000 3000
Commissions paid to you: 6250 6250 6500 8000 4250
Recoverable draw: 2250 1250 -3500 0 1250
Accumulated draw: 2250 3500 0 0 1250
</TABLE>
In this example, the December draw would be reduced $2,000 to $4,250 because
Currie was 'ahead of schedule' by $2,000 ($8,250 - $6,250) at the end of
November.
OTHER BENEFITS:
- ---------------
Finally, Brio is committed to do whatever is reasonable to minimize the impact
of Currie's long commute and enable him to work effectively from home. At this
time, Brio is not sure what his schedule will look like, so specific measures
are hard to determine. For the time being, Brio proposes to offer Currie a
monthly car allowance of $1,000 for the remainder of fiscal 1997. If Brio
adopts a commute policy that does not use Currie's car, the car allowance would
then be discontinued. Brio will provide Currie with a fax machine, mobile phone
and a portable computer.
Finally Brio offers Currie the following fringe benefits:
* Three weeks paid vacation per year and 10 paid sick days per year.
* Currie is eligible to participate in the Brio Section 125 Cafeteria Plan and
the 401(k) Retirement Plan after completing a 90-day benefits waiting period.
* Health coverage for Currie and, if desired, his family, which he is
eligible for as of the day he begins employment. Currie is also eligible
for dental coverage.
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into by and between BRIO
TECHNOLOGY, INC. (the "Company") and Karen Willem ("Willem") as of July 21, 1997
("Effective Date").
1. POSITION AND DUTIES: Willem is employed by the Company as
--------------------
its Executive Vice President of Finance and Operations reporting to the
Company's President at its headquarters in Palo Alto, California. As Executive
Vice President of Finance and Operations Willem agrees to devote her energy and
skill to her duties at the Company. These duties shall include, but not be
limited to, any duties consistent with her position which may be assigned to
Willem from time to time by the Company's President.
2. TERM OF EMPLOYMENT: Willem's employment with the Company
------------------
pursuant to this Agreement will be on an at-will basis, and may be terminated by
Willem, or the Company at any time with or without cause on notice to the other.
If a party desires to terminate this Agreement for convenience purposes, it
shall give the other party thirty (30) day's written notice. Upon the
termination of Willem's employment with the Company, for any reason, neither
Willem nor the Company shall have any further obligation or liability to the
other, except as set forth in this Agreement and in the employee Confidential
Information and Inventions Agreement attached hereto as Exhibit A and made a
part hereof, and the Mutual Agreement to Arbitrate Claims which is also attached
hereto as Exhibit B and made a part hereof.
3. COMPENSATION: Willem shall be compensated by the Company
-------------
for her services as follows:
a. SALARY: Willem shall be paid a semi-monthly salary of
------
$6,250.00 ($150,000.00 on an annualized basis), subject to applicable
withholding, in accordance with the Company's payroll procedures
regularly established, and as they may be amended, by the Company.
Willem's salary will be reviewed annually and possibly adjusted as
determined appropriate at the sole discretion of the Company. In
addition, Willem shall be eligible for bonuses of $10,000 per quarter.
These bonuses will paid based upon the achievement of mutually agreed
upon objectives to be determined by Willem and the Company's
President.
<PAGE>
b. BENEFITS: Willem shall have the right, on the same
--------
basis as other employees of the Company, to participate in and to
receive benefits under all of the Company's employee benefit plans,
including medical, dental and disability group insurance plans, as set
forth in the Employee Handbook and as governed by the terms of the
applicable benefit plans, as they may be amended from time to time. In
addition, Willem shall be entitled to the benefits afforded to other
members of management under the Company's vacation, holiday and
business expense reimbursement policies as set forth in the Employee
Handbook and as they may be amended from time to time.
c. STOCK OPTIONS: Willem will be granted an option to
-------------
purchase 150,000 shares of the Company's common stock subject to
requisite Board Approval. The option shall be subject to four (4) year
vesting and the terms and conditions of the Company's 1992 Stock
Option Plan and related stock option agreement.
d. TERMINATION FOLLOWING AN ACQUISITION: In the event the
------------------------------------
Company is acquired and Willem's employment with the Company (or its
successors or assigns) is terminated without cause six (6) months
prior to the date of the acquisition, or twelve (12) months after the
date of the acquisition, then the vesting provisions in Willem's
options shall be accelerated by one year. In the event that there are
any conflicts between the provisions in the Company's Stock Option
Plan and this Agreement, the terms of this Agreement supersede the
Plan.
Except as expressly provided for herein, all compensation, benefit
coverage, and other prerequisites of employment shall cease as of such
termination date. In the event of any acquisition, any successor or
assign to the Company shall jointly and severally assume the
obligations under this Agreement.
e. EXPENSE REIMBURSEMENTS: Upon receipt of proper
----------------------
documentation establishing the amount of such expenses, the Company
shall promptly reimburse Willem for any reasonable business expenses
incurred in accordance with applicable Company policies, and as they
may be amended from time to time. Willem agrees to comply with any and
all policies established by the Company regarding business expenses
seeking reimbursement for such expenses.
4. BENEFITS UPON VOLUNTARY TERMINATION: In the event that
-----------------------------------
Willem voluntarily resigns from her employment with the Company, or in the event
that Willem's
<PAGE>
employment terminates as the result of her death or disability, Willem shall be
entitled to no compensation or benefits from the Company other than those earned
under paragraph 3 above through the date of her termination.
5. RETURN OF COMPANY PROPERTY: Willem hereby acknowledges and
--------------------------
agrees that all company property, including, without limitation, all books,
manuals, records, reports, notes, contracts, lists, blueprints, and other
documents, or other materials, or copies thereof, and equipment furnished to or
prepared by Willem in the course of or incident to her employment, belong to the
Company and, absent the express written consent of the Company's President,
shall be promptly returned to the Company upon termination of Willem's
employment.
6. EXCLUSIVE REMEDY: Subject to paragraphs 4 and 5 above,
----------------
Willem shall be entitled to no further compensation for any damage or injury
arising out of the termination of this employment by the Company.
7. CONFIDENTIAL INFORMATION AND INVENTIONS AGREEMENT: Willem
-------------------------------------------------
agrees to abide by the terms and conditions of the Company's Employee
Confidential Information and Inventions Agreement executed by Willem and
attached hereto as Exhibit A.
8. MUTUAL AGREEMENT TO ARBITRATE CLAIMS: Willem agrees to
------------------------------------
abide by the terms and conditions of the Company's Mutual Agreement to Arbitrate
Claims executed by Willem and attached hereto as Exhibit B.
9. ENTIRE AGREEMENT: This Agreement, along with Exhibit A and
----------------
B hereto, constitutes the entire employment agreement between Willem and the
Company regarding the terms and conditions of her employment. The parties
intend that this Agreement supersede all prior negotiations, representations or
agreements between Willem and the Company, whether written or oral, concerning
Willem's employment by the Company and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative, or other legal proceeding
involving this Agreement.
10. ATTORNEYS' FEES: The prevailing party shall be entitled to
---------------
recover from the losing party its attorneys' fees and costs incurred in any
action brought to enforce any right arising out of this Agreement.
<PAGE>
11. INTERPRETATION: Willem and the Company agree that this
--------------
Agreement shall be interpreted in accordance with and governed by the laws of
the State of California.
12. SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
-----------------------
benefit or and be binding upon the Company and its successors and under assigns.
In view of the personal nature of the services to be performed this Agreement by
Willem, she shall not have the right to assign or transfer any of her rights,
obligations or benefits under this Agreement, except as otherwise note herein.
13. WILLEM'S ACKNOWLEDGMENT: Willem acknowledges that she is
------------------------
not relying, and has not relied, on any promise, representation or statement
made by or on behalf of the Company, whether written or oral, which is not set
forth in this Agreement. Willem further acknowledges that she has consulted
with or has had the opportunity to consult with independent counsel of her own
choice concerning this Agreement and has been advised to do so by the Company
and she has read and understands the Agreement, is fully aware of its legal
effect, and has entered into it freely based on her own judgment.
14. VALIDITY: If any one or more of the provisions (or any part
--------
thereof) of this Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
15. MODIFICATION: This Agreement may only be modified or
------------
amended by a supplemental written agreement signed by Willem and the Chief
Executive Office of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date and year written below.
BRIO TECHNOLOGY, INC.
By: /s/ Karen Willem By: /s/ Yorgen H. Edholm
----------------- ----------------------
KAREN WILLEM YORGEN H. EDHOLM
PRESIDENT AND
<PAGE>
CHIEF EXECUTIVE OFFICER
Date: _________________________ Date: _____________________________
<PAGE>
EXHIBIT 10.8
BRIO TECHNOLOGY, INC.
1992 STOCK OPTION PLAN
1. Purpose. The Brio Technology, Inc. 1992 Stock Option Plan (the "Plan")
-------
is established to attract, retain and reward persons providing services to Brio
Technology, Inc. and any successor corporation thereto (collectively referred to
as the "Company"), and to motivate such persons to contribute to the growth and
profits of the Company in the future.
2. Administration. The Plan shall be administered by the Board of
--------------
Directors of the Company (the "Board"). All questions of interpretation of the
Plan or of any options granted under the Plan (an "Option") shall be determined
by the Board, and such determinations shall be final and binding upon all
persons having an interest in the Plan and/or any Option. Options may be either
incentive stock options as defined in section 422A of the Internal Revenue Code
of 1986, as amended (the "Code") ("Incentive Stock Options"), or nonqualified
stock options.
3. Eligibility. Options may be granted only to employees (including
-----------
officers) and directors of the Company or to consultants or advisors to the
Company. For purposes of the preceding sentence, "employees" shall include
prospective employees to whom Options are granted in connection with written
offers of employment with the Company and who become employees of the Company
within thirty (30) days of the date of such written offers and "consultants" and
"advisors" shall include prospective consultants and advisors to whom Options
are granted in connection with written consulting or advising offers with the
Company and who become consultants or advisors to the Company within thirty (30)
days of the date of such written offers. The Board shall, in its sole
discretion, determine which persons shall be granted Options (an "Optionee"). A
director of the Company may only be granted a nonqualified stock option unless
the director is also an employee of the Company. A consultant or advisor to the
Company may only be granted a nonqualified stock option. Eligible persons may
be granted more than one (1) Option.
4. Shares Subject to Option. Options shall be for the purchase of shares
------------------------
of the authorized but unissued common stock of the Company (the "Stock"),
subject to adjustment as provided in paragraph 8 below. The maximum number of
shares of Stock which may be issued under the Plan shall be Four Million One
Hundred Fifty-Nine Thousand Five Hundred Ninety (4,159,590) shares. In the
event that any outstanding Option for any reason expires or is terminated or
cancelled and/or shares of Stock subject to repurchase are repurchased by the
Company, the shares allocable to the unexercised portion of such Option, or such
reacquired shares, may again be subjected to an Option.
<PAGE>
5. Time for Granting Options. All Options shall be granted, if at all,
-------------------------
within ten (10) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan is duly approved by the shareholders of the Company.
6. Terms and Conditions of Options. Subject to the provisions of the
-------------------------------
Plan, the Board shall determine for each Option (which need not be identical)
the number of shares of Stock for which the Option shall be granted, the option
price of the Option, the timing and terms of exercisability and vesting of the
Option, whether the Option is to be treated as an Incentive Stock Option or as a
nonqualified stock option and all other terms and conditions of the Option not
inconsistent with the Plan. Options granted pursuant to the Plan shall be
evidenced by written agreements specifying the number of shares of Stock covered
thereby, in such form as the Board shall from time to time establish, and shall
comply with and be subject to the following terms and conditions:
(a) Option Price. The option price for each Option shall be
------------
established in the sole discretion of the Board; provided, however, that (i) the
option price per share for an Option shall be not less than the fair market
value, as determined by the Board, of a share of Stock on the date of the
granting of the Option and (ii) no Option granted to an Optionee who at the time
the Option is granted owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company within the
meaning of section 422A(b)(6) of the Code and/or ten percent (10%) of the total
combined value of all classes of stock of the Company (a "Ten Percent Owner
Optionee") shall have an option price per share less than one hundred ten
percent (110%) of the fair market value of a share of Stock on the date of the
granting of the Option. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a nonqualified stock option) may be granted with an
option price lower than the minimum exercise price set forth above if such
Option is granted pursuant to an assumption or substitution for another option
in a manner qualifying with the provisions of section 425(a) of the Code.
(b) Exercise Period of Options. The Board shall have the power to set
--------------------------
the time or times within which each Option shall be exercisable or the event or
events upon the occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however, that (i) no Option
shall be exercisable after the expiration of ten (10) years after the date such
Option is granted and (ii) no Option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years after the date such
Option is granted.
<PAGE>
(c) Payment of Option Price. Payment of the option price for the
-----------------------
number of shares of Stock being purchased pursuant to any Option shall be made
(i) in cash, by check, or cash equivalent or (ii) by the Optionee's promissory
note.
(d) Transfer of Control. A "Transfer of Control" shall be deemed to
-------------------
have occurred in the event any of the following occurs with respect to the
Company:
(i) the direct or indirect sale or exchange by the shareholders of
the Company of all or substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company after such sale or exchange;
(ii) a merger in which the Company is not the surviving corporation;
(iii) a merger in which the Company is the surviving corporation where
the shareholders of the Company before such merger do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company after such merger;
(iv) the sale, exchange, or transfer of all or substantially all of
the Company's assets (other than a sale, exchange, or transfer to one (1) or
more subsidiary corporations of the Company) (a subsidiary corporation shall be
as defined in section 425(f) of the Code); or
(v) a liquidation or dissolution of the Company.
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall either assume the Company's rights and obligations under
outstanding stock option agreements or substitute options for the Acquiring
Corporation's stock for such outstanding Options. Any Options which are neither
assumed or substituted for by the Acquiring Corporation nor exercised as of the
date of the Transfer of Control shall terminate effective as of the date of the
Transfer of Control.
(e) Provision of Information. Each Optionee shall be given access to
------------------------
information concerning the Company equivalent to that information generally made
available to the Company's common shareholders.
(f) Options Non-Transferable. During the lifetime of the Optionee,
------------------------
the Option shall be exercisable only by the Optionee. No Option shall be
assignable or transferable by the Optionee, except by will or by the laws of
descent and distribution.
(g) Rights as a Shareholder or Employee. An Optionee shall have no
-----------------------------------
rights as a shareholder with respect to any shares of Stock covered by an Option
until the date of the issuance of a certificate or certificates for the shares
for which the Option has been exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date
<PAGE>
is prior to the date such certificate or certificates are issued, except as
provided in paragraph 8 below. Nothing in an Option shall confer upon an
Optionee any right to continue in the employ of the Company or affect in any way
the right or power of the Company or the Optionee to terminate the Optionee's
employment for any reason, with or without cause.
7. Standard Forms of Stock Option Agreement. The Board may, from time to
----------------------------------------
time, adopt or amend a standard form or forms of stock option agreement. Any
standard form of stock option agreement for an Option shall properly reflect
such Option's status as an Incentive Stock Option or a nonqualified stock
option, as the case may be. The Board may, from time to time, vary the terms of
the standard form or forms of stock option agreement, either in connection with
the grant of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
such revised standard form or forms of stock option agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are immediately
exercisable subject to the Company's right to repurchase any shares of Stock
acquired by an Optionee on exercise of an Option in the event such Optionee's
employment with the Company is terminated for any reason, with or without cause.
Unless otherwise provided by the Board at the time an Option is granted, or
unless otherwise provided in the standard form or forms of stock option
agreement as revised from time to time, the terms of the standard form of stock
option agreement shall be as follows:
(a) Payment of Option Price
-----------------------
(i) An Option may not be exercised by promissory note unless the
aggregate option price shall be at least Five Thousand Dollars ($5,000).
(ii) Any permitted promissory note shall have such terms and
conditions as shall be determined by the Board at the time an Option is granted.
(iii) Payment by promissory note shall not be permitted if an
exercise using a promissory note would be a violation of any law.
(b) Withholding. At the time an Option is exercised, in whole or in
-----------
part, or at any time thereafter as requested by the Company, an Optionee shall
make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares acquired on exercise of the Option, (iii) the operation of any law or
regulation providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired on exercise of the Option.
<PAGE>
(c) Certificate Registration. The certificate or certificates for the
------------------------
shares of Stock as to which an Option shall be exercised shall be registered in
the name of the Optionee, or, if applicable, the heirs of the Optionee.
(d) Restrictions on Grant of the Option and Issuance of Shares. The
----------------------------------------------------------
grant of an Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal or
state law with respect to such securities. An Option may not be exercised if the
issuance of shares upon such exercise would constitute a violation of any
applicable federal or state securities law or other law or regulation. In
addition, no Option may be exercised unless (i) a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (ii) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. As a condition to the exercise of the Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.
(e) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of an Option.
(f) Termination of the Option. An Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (i) the Option Term Date as defined
in an Optionee's stock option agreement, (ii) the failure of an Optionee to
become an employee of the Company, or to become a consultant or advisor to the
Company, within thirty (30) days of the date of a written offer of employment or
such consulting or advising engagement, as the case may be, (iii) the last date
for exercising an Option following termination of employment as described in
paragraph 7(g) below, or (iv) upon a Transfer of Control of the Company as
described in paragraph 6(d) above.
(g) Termination of Employment.
-------------------------
(i) Termination of the Option. If an Optionee ceases to be an
-------------------------
employee of the Company for any reason (except death or disability within the
meaning of section 422A(c) of the Code), the Option, to the extent unexercised
and exercisable by the Optionee on the employment termination date, may be
exercised by the Optionee within three (3) months after the employment
termination date, but in any event no later than the Option Term Date. If an
Optionee's
<PAGE>
employment with the Company is terminated because of the death or disability of
the Optionee within the meaning of section 422A(c) of the Code, the Option, to
the extent unexercised and exercisable by the Optionee on the employment
termination date, may be exercised by the Optionee (or the Optionee's legal
representative) at any time prior to the expiration of twelve (12) months from
the employment termination date, but in any event no later than the Option Term
Date. Except as the Company and an Optionee otherwise agree, exercise of an
Option following termination of the Optionee's employment with the Company may
not be made by delivery of a promissory note.
(ii) Extension if Exercise Prevented by Law. Notwithstanding the
--------------------------------------
foregoing, if the exercise of an Option within the applicable time periods set
forth above is prevented because the issuance of shares of Stock upon such
exercise would constitute a violation of any applicable federal or state
securities law or other law or regulation, the Option shall remain exercisable
until three (3)months after the date the Optionee is notified by the Company
that the Option is exercisable, but in any event no later than the Option Term
Date.
(iii) Application to Directors, Consultants and Advisors. In the
--------------------------------------------------
event an Optionee is a director, consultant, or advisor but not an employee of
the Company at the time an Option is granted, termination of the Optionee's
status as a director, consultant, or advisor of the Company shall be deemed to
be termination of the Optionee's "employment" for purposes of interpreting this
paragraph 7(g).
(h) Right of First Refusal.
----------------------
(i) Right of First Refusal. In the event an Optionee proposes to
----------------------
sell, pledge, or otherwise transfer any shares of Stock (the "Transfer Shares")
to any person or entity, including, without limitation, any shareholder of the
Company, the Company shall have the right to repurchase the Transfer Shares
under the terms and subject to the conditions set forth in this paragraph 7(h)
(the "Right of First Refusal").
(ii) Notice of Proposed Transfer. Prior to any proposed transfer of
---------------------------
the Transfer Shares, an Optionee shall give; a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the fair market value of the
Transfer Shares as determined by the Company in good faith. In the event an
Optionee proposes to transfer any shares of Stock to more than one (1) Proposed
Transferee, the Optionee shall provide a separate Transfer Notice for the
proposed transfer to each Proposed Transferee. The Transfer Notice shall be
signed by both the Optionee and the Proposed Transferee and must constitute a
binding commitment of the
<PAGE>
Optionee and the Proposed Transferee for the transfer of the Transfer Shares to
the Proposed Transferee subject only to the Right of First Refusal.
(iii) Bona Fide Transfer. In the event that the Company shall
------------------
determine that the information provided by an Optionee in the Transfer Notice is
insufficient to establish the bona fide nature of a proposed voluntary transfer,
the Company shall give the Optionee written notice of the Optionee's failure to
comply with the procedure described in this paragraph 7(h) and the Optionee
shall have no right to transfer the Transfer Shares without first complying with
the procedure described in this paragraph 7(h). An Optionee shall not be
permitted to transfer the Transfer Shares if the proposed transfer is not bona
fide.
(iv) Exercise of the Right of First Refusal. In the event the
--------------------------------------
proposed transfer is deemed to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares at the purchase
price and on the terms set forth in the Transfer Notice by delivery to the
Optionee of a notice of exercise of the Right of First Refusal within thirty
(30) days after the date the Transfer Notice is delivered to the Company. The
Company's exercise or failure to exercise the Right of First Refusal with
respect to any proposed transfer described in a Transfer Notice shall not affect
the Company's ability to exercise the Right of First Refusal with respect to any
proposed transfer described in any other Transfer Notice, whether or not such
other Transfer Notice is issued by an Optionee or issued by a person other than
the Optionee with respect to a proposed transfer to the same Proposed
Transferee. If the Company exercises the Right of First Refusal, the Company
and the Optionee shall thereupon consummate the sale of the Transfer Shares to
the Company on the terms set forth in the Transfer Notice; provided, however,
that in the event the Transfer Notice provides for the payment for the Transfer
Shares other than in cash, the Company shall have the option of paying for the
Transfer Shares by the discounted cash equivalent of the consideration described
in the Transfer Notice as reasonably determined by the Company. For purposes of
the foregoing, cancellation of any indebtedness of an Optionee to the Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest cancelled.
(v) Failure to Exercise Right of First Refusal. If the Company fails
------------------------------------------
to exercise the Right of First Refusal in full within the period specified in
paragraph 7(h)(iv) above, an Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than one hundred twenty
(120) days following delivery to the Company of the Transfer Notice. The Company
shall have the right to demand further assurances from an Optionee and the
Proposed Transferee (in a form satisfactory to the Company) that the transfer of
the Transfer Shares was actually carried out on the terms and conditions
described in the Transfer Notice. No Transfer Shares shall be transferred on the
books of the Company until the Company has received such assurances, if so
demanded, and has approved the proposed transfer as bona fide. Any proposed
transfer on terms and conditions different from those described in the Transfer
Notice, as well as any subsequent
<PAGE>
proposed transfer by an Optionee, shall again be subject to the Right of First
Refusal and shall. require compliance by an Optionee with the procedure
described in this paragraph 7(h).
(vi) Transferees of the Transfer Shares. All transferees of the
----------------------------------
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interests subject to the provisions of this paragraph 7(h)
providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale, pledge, or other transfer of any shares of Stock acquired
upon exercise of an Option shall be void unless the provisions of this paragraph
7(h) are met.
(vii) Assignment of the Right of First Refusal. The Company shall
----------------------------------------
have the right to assign the Right of First Refusal at any time, whether or not
any Optionee has attempted a transfer, to one (1)or more persons as may be
selected by the Company.
(viii) Early Termination of the Right of First Refusal. The other
-----------------------------------------------
provisions of this paragraph 7(h) notwithstanding, the Right of First Refusal
shall terminate, and be of no further force and effect, upon (A) the occurrence
of a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Plan, or (B) the existence of a public market
for the class of shares subject to the Right of First Refusal. A "public
market" shall be deemed to exist if (1) such stock is listed on a national
securities. exchange (as that term is used in the Securities Exchange Act of
1934, as amended) or (2) such stock is traded on the over-the-counter market and
prices therefor are published daily on business days in a recognized financial
journal.
(i) Vested Share Repurchase Option.
------------------------------
(i) Vested Shares Defined. The total Number of Option Shares
---------------------
multiplied by the Vested Ratio as set forth in the form of option agreement are
Vested Shares.
(ii) Vested Share Repurchase Option. In the event the Optionee's
------------------------------
employment with the Company is terminated for any reason, with or without cause,
or if the Optionee or the Optionee's legal representative attempts to sell,
exchange, transfer, pledge, or otherwise dispose of any Vested Shares acquired
upon exercise of the Option without complying with the provisions of paragraph
7(h) above, the Company shall have the option to repurchase the Vested Shares
under the terms and subject to the conditions set forth in this paragraph 7(i)
(the "Vested Share Repurchase Option").
(iii) Exercise of Vested Share Repurchase Option. The Company may
------------------------------------------
exercise the Vested Share Repurchase Option by written notice to the Optionee or
the Optionee's legal representative within sixty (60) days after such
termination of employment (or exercise of the Option, if later) or after the
Company has received notice of the attempted disposition. If the Company fails
to give notice within such sixty (60) day period, the Vested Share Repurchase
Option shall terminate unless the Company and the Optionee have extended the
time for the exercise of the Vested Share
<PAGE>
Repurchase Option. The Vested Share Repurchase Option must be exercised, if at
all, for all of the Vested Shares, except as the Company and the Optionee
otherwise agree.
(iv) Payment for Shares. Payment by the Company to the Optionee shall
------------------
be made in cash within thirty (30) days after the date of the mailing of the
written notice of exercise of the Vested Share Repurchase Option. For purposes
of the foregoing, cancellation of any indebtedness of the Optionee to the
Company shall be treated as payment to the Optionee in cash to the extent of the
unpaid principal and any accrued interest cancelled. The purchase price per
share being repurchased by the Company shall be an amount equal to the greater
of (a) the Optionee's original cost per share, as adjusted pursuant to paragraph
9 below, or (b) the fair market value of the shares as determined by the Company
as of the date the Optionee's employment with the Company is terminated. In the
event an Optionee disputes the Company's fair market value determination, the
Company and the Optionee shall select an independent appraiser who is mutually
agreeable to make such fair market value determination. The fees and expenses
associated with such independent appraisal shall be borne equally by the Company
and such Optionee.
(v) Transfers Not Subject to the Vested Share Repurchase Option. The
-----------------------------------------------------------
Vested Share Repurchase Option shall not apply to a transfer to the Optionee's
ancestors, descendants, or spouse or to a trustee solely for the benefit of the
Optionee or the Optionee's ancestors, descendants, or spouse; provided, however,
that such transferee shall agree in writing (in a form satisfactory to the
Company) to take the stock subject to all the terms and conditions of this
paragraph 7(i) providing for a Vested Share Repurchase Option.
(vi) Assignment of Vested Share Repurchase Option. The Company shall
--------------------------------------------
have the right to assign the Vested Share Repurchase Option at any time, whether
or not such option is then exercisable, to one (1) or more persons as may be
selected by the Company.
(vii) Early Termination of Vested Share Repurchase Option. The other
---------------------------------------------------
provisions of this paragraph 7(i) notwithstanding, the Vested Share Repurchase
Option shall terminate, and be of no further force and effect as provided in
paragraph 7(h)(viii) above.
(k) Stock Dividends Subject to Stock Option Agreement. If, from time
-------------------------------------------------
to time, there is any stock dividend, stock split, or other change in the
character or amount of any of the outstanding stock of the; Company the stock of
which is subject to the provisions of this paragraph 7, then in such event any
and all new substituted or additional securities to which an Optionee is
entitled by reason of the Optionee's ownership of the shares of Stock acquired
upon exercise of an Option shall be immediately subject to the Right of First
Refusal and Vested Share Repurchase Option with the same force and effect as the
shares subject to the Right of First Refusal and Vested Share Repurchase Option
immediately before such event.
(l) Legends. The Company may at any time place legends referencing
-------
the Right of First Refusal and Vested Share Repurchase Option set forth in
paragraph 7(h) and 7(i) above, any
<PAGE>
applicable federal or state securities law restrictions and the fact that the
shares of Stock were issued by the Company pursuant to the exercise of an
Incentive Stock Option (as defined in section 422A of the Code) on all
certificates representing shares of Stock subject to the provisions of this
paragraph 7. An Optionee shall, at the request of the Company, promptly present
to the Company any and all certificates representing shares of Stock acquired
pursuant to the exercise of an Option in the possession of the Optionee in order
to effectuate the provisions of this paragraph.
8. Effect of Change in Stock Subject to Plan. Appropriate adjustments
-----------------------------------------
shall be made in the number and class of shares of Stock subject to the Plan and
to any outstanding Options and in the option price of any outstanding Options in
the event of a stock dividend, stock split, reverse stock split, combination,
reclassification, or like change in the capital structure of the Company. In the
event a majority of the shares which are of the same class as the shares that
are subject to the Option are exchanged for, converted into, or otherwise become
shares of another corporation (the "New Shares"), the Company may unilaterally
amend the Option to provide that the Option is exercisable for New Shares. In
the event of arty such amendment, the number of shares and the exercise price
shall be adjusted in a fair and equitable manner.
9. Termination or Amendment of Plan and Options. The Board may terminate
--------------------------------------------
or amend the Plan and/or any Option at any time. In any event, no termination
or amendment may adversely affect any then outstanding Option or any unexercised
portion thereof, without the consent of the Optionee, unless such amendment is
required to enable an Option to qualify as an Incentive Stock Option.
10. Information and Documents to Optionees. The Company shall provide
--------------------------------------
financial statements at least annually to each Optionee during the period such
Optionee has one or more Options outstanding, and in the case of an individual
who acquired Stock pursuant to the Plan, during the period such individual owns
such Stock. The Company shall not be required to provide such information if
the issuance of Options under the Plan is limited to key employees whose duties
in connection with the Company assure their access to equivalent information.
In addition, at the time of issuance of any securities under the Plan, the
Company shall provide to the Optionee a copy of the agreement(s) pursuant to
which securities under the Plan are issued.
<PAGE>
EXHIBIT 10.9
BRIO TECHNOLOGY, INC.
1998 STOCK OPTION PLAN
----------------------
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, at the
discretion of the Board and as reflected in the terms of the written option
agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity other than a Subsidiary (as
---------
defined below) in which the Company owns an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in Section 4(a)
---------------
below.
(d) "Board" shall mean the Board of Directors of the Company.
-----
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
------------
(h) "Company" shall mean Brio Technology, Inc., a Delaware
corporation.
(i) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
<PAGE>
(j) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
--------
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute. For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute a termination of employment.
(k) "Director" shall mean a member of the Board.
--------
(l) "Employee" shall mean any person (including any Named Executive,
--------
Officer or Director) employed by the Company or any Parent, Subsidiary or
Affiliate of the Company. The payment by the Company of a director's fee to a
Director shall not be sufficient to constitute "employment" of such Director by
the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock as quoted on such system on the date of determination (if
for a given day no sales were reported, the closing bid on that day shall be
used), as such price is reported in The Wall Street Journal or such other source
as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the bid and asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
<PAGE>
(o) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(p) "Named Executive" shall mean any individual who, on the last day
---------------
of the Company's fiscal year, is the chief executive officer of the Company (or
is acting in such capacity) or among the four highest compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(q) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(r) "Officer" shall mean 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.
(s) "Option" shall mean a stock option granted pursuant to the Plan.
------
(t) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
(u) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(v) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1998 Stock Option Plan.
----
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
----------
Act as the same may be amended from time to time, or any successor provision.
(y) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(z) "Subsidiary" shall mean a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 2,250,000
<PAGE>
Shares, plus an annual increase on the first day of each of the Company's fiscal
years in 1999, 2000 and 2001 equal to the lesser of 600,000 Shares or three
percent (3%) of the Shares outstanding on the last day of the immediately
preceding fiscal year. The Shares may be authorized, but unissued, or reacquired
Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares that were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. Notwithstanding any other provision of the Plan, shares
issued under the Plan and later repurchased by the Company shall not become
available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
--------------------------
(a) COMPOSITION OF ADMINISTRATOR.
----------------------------
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
------------------------------
16b-3, and by the legal requirements relating to the administration of incentive
stock option plans, if any, of applicable securities laws and the Code
(collectively, the "Applicable Laws"), grants under the Plan may (but need not)
---------------
be made by different administrative bodies with respect to Directors, Officers
who are not directors and Employees who are neither Directors nor Officers.
<PAGE>
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
-----------------------------------------------------
respect to grants of Options to Employees or Consultants who are also Officers
or Directors of the Company, grants under the Plan shall be made by (A) the
Board, if the Board may make grants under the Plan in compliance with Rule 16b-3
and Section 162(m) of the Code as it applies so as to qualify grants of Options
to Named Executives as performance-based compensation, or (B) a Committee
designated by the Board to make grants under the Plan, which Committee shall be
constituted in such a manner as to permit grants under the Plan to comply with
Rule 16b-3, to qualify grants of Options to Named Executives as performance-
based compensation under Section 162(m) of the Code and otherwise so as to
satisfy the Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With respect
--------------------------------------------
to grants of Options to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws.
(iv) GENERAL. If a Committee has been appointed pursuant to
-------
subsection
<PAGE>
(ii) or (iii) of this Section 4(a), such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of any Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies (however caused) and remove all members of
a Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws and, in the case of a Committee appointed under
subsection (ii), to the extent permitted by Rule 16b-3, and to the extent
required under Section 162(m) of the Code to qualify grants of Options to Named
Executives as performance-based compensation.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.
<PAGE>
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. ELIGIBILITY.
-----------
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options may be granted
--------------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided, however, that Employees of an Affiliate shall not be
-------- -------
eligible to receive Incentive Stock Options. An Employee or Consultant who has
been granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options.
(b) TYPE OF OPTION. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any Optionee
--------------------
any right with respect to continuation of employment or consulting relationship
with the Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 20 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 16 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
-------- -------
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Incentive Stock Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the
<PAGE>
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided
---------------------------------
in this Plan, the maximum number of Shares which may be subject to options
granted to any one Employee under this Plan for any fiscal year of the Company
shall be 1,000,000. This Section 8 shall not apply prior to the date upon which
the Company becomes subject to the Exchange Act and following such date, shall
not apply until the (i) earliest of: (A) the first material modification of the
Plan (including any increase to the number of shares reserved for issuance under
the Plan in accordance with Section 3); (B) the issuance of all of the shares of
Common Stock reserved for issuance under the Plan; (C) the expiration of the
Plan; or (D) the first meeting of shareholders 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 any 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.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
---------------------------------------
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be such price as is determined by
the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant; or
<PAGE>
(B) granted to any person other than a Named Executive, the
per Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(iii) Notwithstanding anything to the contrary in subsections
9(a)(i) or 9(a)(ii) above, in the case of an Option granted on or after the
effective date of registration of any class of equity security of the Company
pursuant to Section 12 of the Exchange Act and prior to six months after the
termination of such registration, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(b) PERMISSIBLE CONSIDERATION. The consideration to be paid for the
-------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash, (2) other Shares that (x) in the case of Shares acquired upon exercise
of an Option either have been owned by the Optionee for more than six months on
the date of surrender or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, or (3) such other consideration and method of payment for the
issuance of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan. Unless the Administrator provides otherwise, vesting of Options
granted hereunder shall be tolled during any unpaid leave of absence. An Option
may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or
<PAGE>
receive dividends or any other rights as a stockholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Option. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant,
such Optionee may, but only within thirty (30) days (or such other period of
time, not exceeding three (3) months in the case of an Incentive Stock Option or
six (6) months in the case of a Nonstatutory Stock Option, as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) after the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent that he or she was entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the Optionee does not exercise
such Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 10(b) above, in
----------------------
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) from the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. To the extent that he or she was not entitled to exercise the
Option at the date of termination, or if he does not exercise such Option (which
he was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
-----------------
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an
<PAGE>
Employee or Consultant since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months (or such other period of time, not
exceeding twelve (12) months, as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) following the date of death (but in no event later than the
date of expiration of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance but only to the extent of the
right to exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as an Employee or Consultant three (3) months (or
such other period of time as is determined by the Administrator as provided
above) after the date of death, subject to the limitation set forth in Section
5(b); or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option may be exercised, at any time within six (6) months
following the date of death (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination.
(e) RULE 16B-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
11. WITHHOLDING TAXES. As a condition to the exercise of Options granted
-----------------
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with the exercise, receipt or
vesting of such Option. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
12. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, or (c) if permitted by the Administrator, in its discretion, by
<PAGE>
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
---
Date").
- ----
Any surrender by an Officer or Director of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
13. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution; provided that the Administrator
--------
may in its discretion grant transferable Nonstatutory Stock Options pursuant to
option agreements specifying (i) the manner in which such Nonstatutory Stock
Options are transferable and (ii) that any such transfer shall be subject to the
Applicable Laws. The designation of a beneficiary by an Optionee will not
constitute a transfer. An Option may be
<PAGE>
exercised, during the lifetime of the Optionee, only by the Optionee or a
transferee permitted by this Section 13.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of shares of Common Stock that have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, the maximum number of shares of Common Stock for which Options may be
granted to any employee under Section 8 of the Plan, and the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) CORPORATE TRANSACTIONS. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Option will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to some or all of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable. If the Administrator makes an
Option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify
<PAGE>
the Optionee that the Option shall be exercisable for a period of thirty (30)
days from the date of such notice, and the Option will terminate upon the
expiration of such period.
15. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator;
provided however that in the case of any Incentive Stock Option, the grant date
- -------- -------
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
16. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the stockholders of the Company in the manner described in Section 20 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than an adjustment under Section 14 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would require
stockholder approval to qualify options granted hereunder as performance-based
compensation under Section 162(m) of the Code.
(b) STOCKHOLDER APPROVAL. If any amendment requiring stockholder
--------------------
approval under Section 16(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such stockholder approval shall be solicited as described
in Section 20 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between
<PAGE>
the Optionee and the Board, which agreement must be in writing and signed by the
Optionee and the Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. OPTION AGREEMENT. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
20. STOCKHOLDER APPROVAL.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted. Such stockholder approval shall be obtained in the manner
and to the degree required under applicable federal and state law and the rules
of any stock exchange upon which the Shares are listed.
(b) In the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the stockholders of the Company
<PAGE>
obtained after such registration shall be solicited substantially in accordance
with Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder.
(c) If any required approval by the stockholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 20(b) hereof, then the Company shall, at or prior to the
first annual meeting of stockholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information that would be required (if proxies to be
voted with respect to approval or disapproval of the Plan or amendment were then
being solicited) by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to stockholders.
<PAGE>
Exhibit 10.10
BRIO TECHNOLOGY, INC.
1998 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Brio Technology, Inc., a Delaware
-------
corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
-------------------------------
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
--------
(g) "Employee" shall mean any person, including any officer or
--------
director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
------
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
(j) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
<PAGE>
(k) "Optionee" shall mean an Outside Director who receives an Option.
--------
(l) "Outside Director" shall mean a Director who is not an Employee.
----------------
(m) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1998 Directors' Stock Option Plan.
----
(o) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 300,000 Shares (the "Pool") of Common Stock. The Shares may
----
be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
<PAGE>
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
------------------------------------------------------
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director who first becomes an Outside Director
after the effective date of the Company's initial public offering shall be
automatically granted an Option to purchase 20,000 Shares (the "First Option")
------------
on the date on which such person first becomes an Outside Director, whether
through election by the stockholders of the Company or appointment by the Board
of Directors to fill a vacancy.
(iii) Each Outside Director (including Outside Directors who first
became Outside Directors before the effective date of the Company's initial
public offering) shall be automatically granted an Option to purchase 5,000
Shares (a "Subsequent Option") on the date of each Annual Meeting of the
-----------------
Company's stockholders immediately following which such Outside Director is
serving on the Board, provided that, on such date, he or she shall have served
on the Board for at least six (6) months prior to the date of such Annual
Meeting.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
such date on the automatic grant date. Any further grants shall then be deferred
until such time, if any, as additional Shares become available for grant under
the Plan through action of the stockholders to increase the number of Shares
which may be issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any grant of an Option made before the Company has obtained stockholder
approval of the Plan in
<PAGE>
accordance with Section 17 hereof shall be conditioned upon obtaining such
stockholder approval of the Plan in accordance with Section 17 hereof.
(vi) The terms of each First Option granted hereunder shall be as
follows:
(1) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the First Option, determined in
accordance with Section 8 hereof; and
(3) the First Option shall become exercisable in
installments cumulatively as to 25% of the Shares subject to the First Option on
each of the first, second, third and fourth anniversaries of the date of grant
of the Option.
(vii) The terms of each Subsequent Option granted hereunder shall
be as follows:
(1) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Subsequent Option, determined
in accordance with Section 8 hereof; and
(3) the Subsequent Option shall become exercisable as to one
hundred percent (100%) of the Shares subject to the Subsequent Option on the
earlier of (i) the day before the first anniversary of the date of grant of the
Subsequent Option, or (ii) the day before the date of the Annual Meeting taking
place following the date of grant of the Subsequent Option.
(c) POWERS OF THE BOARD. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to
<PAGE>
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted hereunder; and (vi) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) SUSPENSION OR TERMINATION OF OPTION. If the President or his or
-----------------------------------
her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
<PAGE>
7. TERM OF OPTIONS. The term of each Option shall be ten (10) years from
---------------
the date of grant thereof.
8. EXERCISE PRICE AND CONSIDERATION.
--------------------------------
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be determined by
-----------------
the Board; provided, however, that where there is a public market for the Common
-------- -------
Stock, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
------------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System) or, in the event the Common Stock is traded on the Nasdaq
National Market or listed on a stock exchange, the fair market value per Share
shall be the closing price on such system or exchange on the date of grant of
the Option (or, in the event that the Common Stock is not traded on such date,
on the immediately preceding trading date), as reported in The Wall Street
---------------
Journal. With respect to any Options granted hereunder concurrently with the
- -------
initial effectiveness of the Plan, the fair market value shall be the Price to
Public as set forth in the final prospectus relating to such initial public
offering.
(c) FORM OF CONSIDERATION. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS A DIRECTOR. If an Outside Director
-----------------------------------
ceases to serve as a Director, he or she may, but only within ninety (90) days
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its term set forth in Section 7 has expired. To the extent
that such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Board) from the date of such termination, exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent that
he or she was not entitled to exercise the Option at the
<PAGE>
date of termination, or if he or she does not exercise such Option (which he or
she was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
-----------------
(i) During the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as Director for six (6) months (or such lesser period of time as is
determined by the Board) after the date of death. Notwithstanding the foregoing,
in no event may the Option be exercised after its term set forth in Section 7
has expired.
(ii) Three (3) months after the termination of Continuous Status
as a Director, the Option may be exercised, at any time within six (6) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
Notwithstanding the foregoing, in no event may the option be exercised after its
term set forth in Section 7 has expired.
10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split,
<PAGE>
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
-------- -------
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) CORPORATE TRANSACTIONS. In the event of (i) a dissolution or
----------------------
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Outside Director, at the time of
adoption of the plan for liquidation, dissolution, sale, merger, consolidation
or reorganization, either a reasonable time thereafter within which to exercise
the Option, including Shares as to which the Option would not be otherwise
exercisable, prior to the effectiveness of such liquidation, dissolution, sale,
merger, consolidation or reorganization, at the end of which time the Option
shall terminate, or the right to exercise the Option, including Shares as to
which the Option would not be otherwise exercisable (or receive a substitute
option with comparable terms), as to an equivalent number of shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, sale, merger, consolidation or reorganization.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
- -------- ----
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and
<PAGE>
any other Sections of this Plan that affect the formula award terms required to
be specified in this Plan by Rule 16b-3) shall not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
<PAGE>
17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the granting of an Option hereunder.
If such stockholder approval is obtained at a duly held stockholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon. If such stockholder approval is obtained by written consent, it may be
obtained by the written consent of the holders of a majority of the outstanding
shares of the Company. Options may be granted, but not exercised, before such
stockholder approval.
<PAGE>
EXHIBIT 10.11
BRIO TECHNOLOGY, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of Brio Technology, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Brio Technology, Inc., a Delaware
-------
corporation.
(e) "Compensation" shall mean total cash compensation received by an
------------
Employee from the Company or a Designated Subsidiary. By way of illustration,
but not limitation, Compensation includes regular compensation such as salary,
wages, overtime, shift differentials, bonuses, commissions and incentive
compensation, but excludes relocation, expense reimbursements, tuition or other
reimbursements and income realized as a result of participation in any stock
option, stock purchase, or similar plan of the Company or any Designated
Subsidiary.
(f) "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of
-------------
a participant pursuant to the Plan.
-1-
<PAGE>
(h) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(i) "Employee" shall mean any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Purchase Date" shall mean the last day of each Purchase Period of
-------------
the Plan.
(l) "Offering Date" shall mean the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" shall mean a period of twenty-four (24) months
---------------
commencing on May 1 and November 1 of each year, except for the first Offering
Period as set forth in Section 4(a).
(n) "Officer" shall mean 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.
(o) "Plan" shall mean this Employee Stock Purchase Plan.
----
(p) "Purchase Period" shall mean a period of six (6) months within an
---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase 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 subsidiary of the Company, or (ii) if such option would permit
his or her rights to purchase stock
-2-
<PAGE>
under all employee stock purchase plans (described in Section 423 of the Code)
of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-
Five Thousand Dollars ($25,000) of fair market value of such stock (determined
at the time such option is granted) for each calendar year in which such option
is outstanding at any time.
4. Offering Periods and Purchase Periods.
--------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods of twenty-four (24) months duration, with new Offering Periods
commencing on or about May 1 and November 1 of each year (or at such other time
or times as may be determined by the Board of Directors). The first Offering
Period shall commence on the beginning of the effective date of the Registration
Statement on Form S-1 for the initial public offering of the Company's Common
Stock (the "IPO Date") and continue until April 30, 2000. The Plan shall
continue until terminated in accordance with Section 19 hereof. The Board of
Directors of the Company shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
Eligible employees may not participate in more than one Offering Period at a
time.
(b) Purchase Periods. Each Offering Period shall consist of four (4)
----------------
consecutive purchase periods of six (6) months duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on May 1 shall end on the next October 31. A
Purchase Period commencing on November 1 shall end on the next April 30. The
first Purchase Period shall commence on the IPO Date and shall end on October
31, 1998. The Board of Directors of the Company shall have the power to change
the duration and/or frequency of Purchase Periods with respect to future
purchases without shareholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first Purchase Period
to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 20%) to be paid
as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
-3-
<PAGE>
6. Method of Payment of Contributions.
----------------------------------
(a) At the time a participant files his or her subscription agreement,
the participant shall elect to have payroll deductions made on each payday
during the Offering Period in an amount not less than one percent (1%) and not
more than twenty percent (20%) of such participant's Compensation on each such
payday. All payroll deductions made by a participant shall be credited to his
or her account under the Plan. A participant may not make any additional
payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, during the Offering Period may increase or
decrease the rate of his or her Contributions during such Offering Period by
completing and filing with the Company a new subscription agreement; provided,
however, that no participant may effect more than one increase or decrease
during an Offering Period. The change in rate shall be effective as of the
beginning of the next calendar month following the date of filing of the new
subscription agreement, if the agreement is filed at least ten (10) business
days prior to such date and, if not, as of the beginning of the next succeeding
calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year that the
aggregate of all payroll deductions accumulated with respect to such Offering
Period and any other Offering Period ending within the same calendar year equal
$21,250. Payroll deductions shall re-commence at the rate provided in such
participant's subscription Agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the lower of (i) eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date, or (ii) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Purchase Date; provided however, that the maximum number of shares an
Employee may purchase during each calendar year of an Offering Period shall be
determined at the Offering Date by dividing $25,000 by the fair market value of
a share of the Company's Common Stock on the Offering Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 13. The fair market value of a share of the Company's Common Stock
shall be determined as provided in Section 7(b).
-4-
<PAGE>
(b) The option price per share of the shares offered in a given
Offering Period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Purchase Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) National Market or, if such price is not reported, the mean of the bid
and asked prices per share of the Common Stock as reported by Nasdaq or, in the
event the Common Stock is listed on a stock exchange, the fair market value per
share shall be the closing price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported in The Wall Street Journal. For purposes of the
Offering Date under the first Offering Period under the Plan, the fair market
value of a share of the Common Stock of the Company shall be the Price to Public
as set forth in the final prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full shares subject to the option will be purchased at the
applicable option price with the accumulated Contributions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. No
fractional shares shall be purchased. Any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10. Any other monies left over in a participant's account after a
Purchase Date shall be returned to the Participant. During his or her lifetime,
a participant's option to purchase shares hereunder is exercisable only by him
or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his or her option or the deposit of such number of shares with the broker
selected by the Company for administration of Plan stock purchases, as
determined by the Company.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time at least
five (5) business days prior to each Purchase Date by giving written notice to
the Company in the form provided in the Company. All of the
-5-
<PAGE>
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as an
Employee (as defined in Section 2(f) hereof) prior to the Purchase Date of an
Offering Period for any reason, including retirement or death, the Contributions
credited to his or her account will be returned to him or her or, in the case of
his or her death, to the person or persons entitled thereto under Section 14,
and his or her option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the fair market value of the shares on any
--------------------
of the first three Purchase Dates of an Offering Period is less than the fair
market value of the shares on the Offering Date for such Offering Period, then
every participant shall automatically (i) be withdrawn from such Offering Period
at the close of such Purchase Date and after the acquisition of shares for such
Purchase Period, and (ii) be enrolled in the Offering Period commencing on the
first business day subsequent to such Purchase Period.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 500,000 shares, plus an
annual increase on the first day of each of the Company's fiscal years in 1999,
2000 and 2001 equal to the lesser of 300,000 shares or two percent (2%) of the
shares of Common Stock outstanding on the last day of the immediately preceding
fiscal year, subject to adjustment upon changes in capitalization of the Company
as provided in Section 19. If the total number of shares which would otherwise
be subject to options granted pursuant to Section 7(a) on the Offering Date of
an Offering Period exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall
-6-
<PAGE>
determine to be equitable. In such event, the Company shall give written notice
of such reduction of the number of shares subject to the option to each Employee
affected thereby and shall similarly reduce the rate of Contributions, if
necessary.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her 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 prior to the Purchase Date of an Offering Period. If
a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) 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 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. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment,
-7-
<PAGE>
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
Section 10.
17. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees
promptly following the Purchase Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the shareholders
----------
of the Company, the number of shares of Common Stock covered by each option
under the Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under the Plan but have not
yet been placed under option (collectively, the "Reserves"), as well as the
price per share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option.
(b) Corporate Transactions. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, each option under the Plan shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Purchase Date (the "New
Purchase Date"). If the Board shortens the Offering Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least ten (10) days prior
to the New Purchase Date, that the Purchase Date for his or her option has been
changed to the New Purchase Date and that his or her option will be
-8-
<PAGE>
exercised automatically on the New Purchase Date, unless prior to such date he
or she has withdrawn from the Offering Period as provided in Section 10. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time terminate or
amend the Plan. Except as provided in Section 19, no such termination may
affect options previously granted, nor may an amendment make any change in any
option theretofore granted which adversely affects the rights of any
participant. In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act, or under Section 423 of the Code (or any successor rule
or provision or any applicable law or regulation), the Company shall obtain
shareholder approval in such a manner and to such a degree as so required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the
-9-
<PAGE>
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the earlier to occur of its adoption by the Board of Directors or its approval
by the shareholders of the Company. It shall continue in effect for a term of
twenty (20) years unless sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-10-
<PAGE>
BRIO TECHNOLOGY, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the BRIO
TECHNOLOGY, INC. 1998 Employee Stock Purchase Plan (the "Plan") for the Offering
Period ______________, _____ to _______________, _____, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of _____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions to not
less than 1% and to not more than 20% of my Compensation on one occasion only
for each rate change during any Offering Period by completing and filing a new
Subscription Agreement with such increase or decrease taking effect as of the
beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least five (5) business days prior to the
beginning of such month. Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period. In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "BRIO TECHNOLOGY, INC. 1998 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
-11-
<PAGE>
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
_______________________ _____________________________________
(Relationship) (Address)
_____________________________________
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after
--------------------------------------------------------------------
the date of any such disposition, and I will make adequate provision for
- ------------------------------------------------------------------------
federal, state or other tax withholding obligations, if any, which arise upon
- -----------------------------------------------------------------------------
the disposition of the Common Stock. The Company may, but will not be obligated
- -----------------------------------
to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the shares
on the Offering Date. The remainder of the gain or loss, if any, recognized on
such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
-12-
<PAGE>
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE:
SOCIAL SECURITY #:
DATE:
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
(Signature)
(Print name)
-13-
<PAGE>
BRIO TECHNOLOGY, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation in
the BRIO TECHNOLOGY, INC. 1998 Employee Stock Purchase Plan (the "Plan") for the
Offering Period _________. This withdrawal covers all Contributions credited to
my account and is effective on the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________
Signature of Employee
Social Security Number
-14-
<PAGE>
EXHIBIT 21.1
BRIO TECHNOLOGY, INC.
LIST OF SUBSIDIARIES
Brio Technology, Ptg. Ltd.
Brio Technology, Ltd.
Brio Technology France, Sarl
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
February 26, 1998
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0
15,655
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<SALES> 18,560
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