<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998.
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ACTUATE SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 7372 94-3193197
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
999 BAKER WAY, SUITE 270
SAN MATEO, CALIFORNIA 94404
(650) 425-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
NICOLAS C. NIERENBERG
CHIEF EXECUTIVE OFFICER
999 BAKER WAY, SUITE 270
SAN MATEO, CALIFORNIA 94404
(650) 425-2300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
ROBERT V. GUNDERSON, JR. DONALD M. KELLER, JR.
JEFFREY P. HIGGINS GLEN R. VAN LIGTEN
WILLIAM E. GROWNEY, JR. SANJAY K. KHARE
JOHN F. DIETZ WENDY M. PIZARRO
GUNDERSON DETTMER STOUGH VENTURE LAW GROUP
VILLENEUVE FRANKLIN & A PROFESSIONAL CORPORATION
HACHIGIAN, LLP 2800 SAND HILL ROAD
155 CONSTITUTION DRIVE MENLO PARK, CA 94025
MENLO PARK, CA 94025 (650) 854-4488
(650) 321-2400
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________
If 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
AGGREGATE
TITLE OF EACH CLASS OF SECURITIES OFFERING AMOUNT OF
TO BE REGISTERED PRICE (1) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, no par value per share........... $34,500,000 $10,177.50
================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
---------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 , 1998
SHARES
ACTUATE SOFTWARE CORPORATION
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
Of the shares of Common Stock offered hereby shares are being sold by
Actuate Software Corporation (the "Company") and shares are being sold by the
Selling Stockholders. See "Principal and Selling Stockholders". The Company
will not receive any proceeds from the sale of shares by the Selling
Stockholders. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $ and $ . For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ACTU".
-----------
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>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1) COMPANY (2) STOCKHOLDERS
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total (3).......... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company and the Selling Stockholders have granted the Underwriters an
option for 30 days to purchase up to an additional shares at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments, if any. If such option is exercised in
full, the total initial public offering price, underwriting discount,
proceeds to Company and proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively. See "Principal and Selling Stockholders"
"Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters as stated
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that the shares will be
ready for delivery through the facilities of DTC in New York, New York, on or
about , 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. DEUTSCHE BANK SECURITIES
-----------
The date of this Prospectus is , 1998.
<PAGE>
ACTUATE PRODUCTS GRAPHIC
Description: Graphic illustration showing the Actuate Reporting System
including all products, with a brief description of each product's capability
surrounding a cloud at the center of the graphic. Actuate products are
represented by desktop and large server machines. Screenshots of Actuate's
products are displayed under the circular product graphic.
Caption: The Actuate Reporting System is designed to allow organizations to
replace traditional paper-based and on-line reports with live report
documents, which feature rich interactive capabilities including hyperlinks,
context-sensitive help, a dynamic self-documenting table of contents, and a
report query feature. Actuate's open environment allows developers to create
reports from virtually any data source and in virtually any format required by
end users.
Screenshot Captions
Developer Workbench
Caption: Actuate's Developer Workbench is a visual object-oriented
development tool providing an open development environment for designing,
compiling, viewing and debugging report designs. Developers assemble reports
by dragging and dropping components from palettes and libraries using either
the structure or layout pane to create client/server and HTML reports.
Live Report Extension
Caption: Actuate's Live Report Extensions allow users to view and print live
report documents through browsers such as Netscape Navigator and Microsoft
Internet Explorer. This single page report summarizes hundreds of pages of
data, contains 7 separate queries, and hyperlinks to detailed reports.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE>
ENTERPRISE REPORTING GRAPHIC
Description: Graphic illustration consisting of boxes representing the
different applications and data sources throughout an organization, lines
representing the distribution of reports, and a globe representing distributed
users. Computer screenshots of Actuate Reporting System reports utilized by
the following companies appear to the right of the graphic: Concert
Communications Company, Glenayre, J&H Marsh & McLennan, PeopleSoft and Siebel.
Logos of the following companies appear at the bottom on the graphic: Vantive,
Brio, Netscape, Clarify, Portal, Ascend, PointCast, and Progress Software.
Screenshot Captions:
Concert
Caption: Assists Concert in meeting its distributors' reporting needs,
including timely access to mission critical reports on service management,
traffic performance and revenue.
Glenayre
Caption: Enables users ranging from Glenayre's executives to customer
service managers to extract required data such as call duration and call
closure rates, as well as run ad-hoc reports with limited assistance from
Glenayre's information systems group.
J&H Marsh & McLennan
Caption: Allows J&H Marsh & McLennan to implement operational reports for
various aspects of its business, including client/prospect management, back
office financials, insurance placement and claims processing.
PeopleSoft
Caption: Provides PeopleSoft's end user customers rapid response during
their report viewing regardless of the length of the report or the amount of
data it summarizes.
Siebel
Caption: Fully customizable to conform with Siebel 98's user interface,
creating a seamless solution to the end user.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the forward-
looking statements. Factors that might cause such a difference include, but are
not limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus.
Unless otherwise indicated, the information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option, (ii) reflects, except in
the Financial Statements, the conversion of all outstanding shares of Preferred
Stock into Common Stock upon completion of the offering, and (iii) assumes the
reincorporation of the Company from California to Delaware before the effective
date of this offering, and the associated changes in the Company's charter
documents.
THE COMPANY
Actuate Software Corporation is a leading provider of enterprise reporting
solutions that enable organizations to systematically extract, publish and
disseminate information across distributed computing environments. The Company
develops and markets software products that are designed to allow companies to
rapidly design, generate and distribute reports throughout the enterprise,
thereby increasing access to and the value of corporate data. Actuate's
products have been adopted in a wide variety of industries, including financial
services, telecommunications, technology, health care and others. Actuate's
customers include companies such as American Express, Chase Manhattan, Concert
Communications, Manpower and Merck. The Company has also established strategic
relationships with a number of enterprise application vendors, including
PeopleSoft, Siebel and Vantive, all of which embed the Company's products as
part of or as their entire standard reporting solution.
To succeed in today's increasingly competitive market, businesses must
accelerate the rate at which they identify and respond to changing business
conditions. An organization's success is, to a large extent, dependent upon its
ability to rapidly collect, organize and distribute information to make
effective business decisions. Reports are the primary means in virtually all
organizations by which critical business information is distributed and used by
employees, customers and suppliers. Other products such as On-line Analytical
Processing ("OLAP") and query tools generally serve as supplements to core
reporting systems and are only utilized by a small number of users for very
distinct and specialized data analysis. Historically, most reports have been
paper-based, designed using legacy computer languages such as COBOL and
delivered to users through physical means such as handcarts, inter-office mail
and the postal service.
Over the past decade, there has been a dramatic migration of critical
corporate information from mainframe computer systems to distributed computing
environments. This transition has been driven largely by the widespread
emergence and adoption of enterprise software applications, data warehouses,
corporate intranets and the Internet. Due to this fundamental shift in the way
corporations store and manage data, IT departments are now faced with the
challenge of providing users with secure access to business information
residing in a broad range of distributed systems. The Company believes
traditional reporting methods have not kept pace with the technological
advancements in application software and relational databases. As a result, it
has been extremely difficult for businesses to report information from these
systems efficiently, uniformly and securely across a single platform to users
within and outside of the organization.
3
<PAGE>
Due to the shortcomings of traditional reporting methods, the Company
believes organizations will increasingly adopt enterprise reporting solutions
which allow for the dissemination of information across distributed computing
environments. IDC estimates the market for such enterprise reporting solutions
will grow to over $900 million by the year 2002.
The Actuate Reporting System is a scalable, dynamic reporting platform which
is designed to allow organizations to replace traditional paper-based and on-
line reports with Live Report Documents. These Live Report Documents feature
rich interactive capabilities, including hyperlinks, context-sensitive help, a
dynamic table of contents, and a report query feature. Architected specifically
to leverage the functionality of the Internet, the Actuate Reporting System is
designed to make reports accessible to an organization's employees, customers
and suppliers via corporate intranets and the Internet. Actuate's ReportCast
technology can be integrated with Internet or intranet web sites, making it
easier for organizations to notify users when corporate information is
available. The Actuate Reporting System also facilitates off-line analysis of
reports.
The Actuate Reporting System's server-centric architecture provides the
building blocks for an enterprise reporting environment of any size. Actuate's
open environment allows developers to create reports from virtually any data
source and in virtually any format required by end-users. The Actuate Report
Encyclopedia acts as a repository for reports and report components. Actuate's
Virtual Report Distribution technology reduces network traffic by minimizing
the movement of large reports and data sets. The Actuate Developer Workbench is
designed to give developers a complete visual environment for designing,
compiling, viewing and debugging sophisticated report designs. The Company
began shipping its Actuate Reporting System in 1996, and the Company's most
recent version of the Actuate Reporting System, Version 3.1, began shipping in
May 1998.
The Company's strategy is to be the leading provider of enterprise reporting
solutions. Key elements of Actuate's strategy include (i) expanding its market
leadership position by establishing strategic relationships with the leading
enterprise application vendors, consulting firms and systems integrators, (ii)
extending its technology leadership through internal research and development
and integration of acquired technologies, (iii) broadening its domestic and
international distribution channels, and (iv) increasing its international
presence through expanded distribution and product localization.
The address of the Company's principal executive offices is 999 Baker Way,
Suite 270, San Mateo, California 94404 and its telephone number is (650) 425-
2300. The Company will reincorporate in Delaware prior to the closing of this
offering. Unless otherwise indicated, all references in this Prospectus to the
"Company" or "Actuate" refer to Actuate Software Corporation, a Delaware
corporation, and its California predecessor. Actuate and the Company's logo are
registered trademarks of the Company and Report Encyclopedia, ReportCast, Live
Report Document, Live Report Extension and Virtual Report Distribution are
trademarks of the Company. All other trademarks, service marks or trade names
referred to in this Prospectus are the property of their respective owners.
4
<PAGE>
THE OFFERING
Common Stock offered by the shares
Company............................
Common Stock offered by Selling shares
Stockholders.......................
Common Stock to be outstanding shares(1)
after the offering.................
Use of Proceeds..................... For general corporate purposes, including
working capital and capital expenditures.
See "Use of Proceeds".
Proposed Nasdaq National Market "ACTU"
Symbol..............................
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees..................... $ -- $ 343 $ 7,542 $ 1,095 $ 3,190
Services......................... 22 308 1,976 284 873
------- ------- ------- ------- -------
Total revenues................. 22 651 9,518 1,379 4,063
------- ------- ------- ------- -------
Costs of revenues:
License fees..................... -- 171 647 103 280
Services......................... 53 305 1,263 195 730
------- ------- ------- ------- -------
Total cost of revenues......... 53 476 1,910 298 1,010
------- ------- ------- ------- -------
Gross profit (loss)............... (31) 175 7,608 1,081 3,053
Operating expenses:
Sales and marketing.............. 847 2,965 7,366 1,043 2,715
Research and development......... 1,883 2,731 6,213 926 1,674
General and administrative....... 240 603 1,317 140 556
------- ------- ------- ------- -------
Total operating expenses....... 2,970 6,299 14,896 2,109 4,945
------- ------- ------- ------- -------
Loss from operations.............. (3,001) (6,124) (7,288) (1,028) (1,892)
Equity in losses of affiliate and
write down of loans to affiliate. -- (25) (142) -- --
Interest and other income
(expense), net................... 166 90 82 (2) 22
------- ------- ------- ------- -------
Net loss.......................... $(2,835) $(6,059) $(7,348) $(1,030) $(1,870)
======= ======= ======= ======= =======
Pro forma basic and diluted net
loss per share(1)................ $ (0.82) $ (0.19)
======= =======
Shares used in computing pro forma
basic and diluted net loss per
share(1)......................... 8,940 9,786
======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED(2)
------ --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $2,386
Working capital (deficit).............................. (5,333)
Total assets........................................... 6,785
Long-term obligations.................................. 102 102
Stockholders' equity (deficit)......................... (4,134)
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 31, 1998. Excludes
(i) 905,450 shares of Common Stock issuable upon the exercise of
outstanding stock options under the Company's 1994 Stock Option Plan as of
March 31, 1998 at a weighted average exercise price of approximately $1.26
per share, (ii) 1,300,000 shares of Common Stock reserved for issuance
under the Company's 1998 Equity Incentive Plan, (iii) 250,000 shares of
Common Stock reserved for issuance under the Company's 1998 Employee Stock
Purchase Plan and (iv) 200,000 shares of Common Stock reserved for issuance
under the Company's 1998 Non-Employee Directors Option Plan. See
"Management--Stock Plans" and Notes 8 and 10 of Notes to Financial
Statements.
(2) Adjusted to reflect the sale of shares of Common Stock by the Company at
the initial public offering price of $ per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization".
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in this
section and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; LACK OF PROFITABILITY
The Company incurred net losses of $6.1 million and $7.3 million in fiscal
1996 and 1997, respectively, and $1.9 million for the three months ended March
31, 1998. As of March 31, 1998, the Company had an accumulated deficit of
approximately $18.9 million and a working capital deficit of approximately
$5.3 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 three months ended March 31, 1998, there can
be no assurance that the Company's revenues will increase in future periods.
In addition, the Company intends to increase its operating expenses
significantly in future periods; therefore, the Company's operating results in
the future will be adversely affected if revenues do not increase. Future
operating results will depend on many factors, including, among others, demand
for and acceptance of the Company's products and services, including ongoing
acceptance of maintenance and other services purchased by existing customers,
continued successful relationships and the establishment of new relationships
with enterprise application vendors, the level of product and price
competition from existing and new competitors, the ability of the Company to
control costs and to develop, market and deploy new products, the ability of
the Company to expand its direct sales force and indirect distribution
channels both domestically and internationally, the Company's success in
attracting and retaining key personnel, the growth of the market for
enterprise reporting and the ability of the Company to successfully integrate
technologies and businesses it may acquire in the future. The Company was
founded in November 1993 and began shipping its Actuate Reporting System in
January 1996. Accordingly, the Company has a limited operating history on
which to base an evaluation of its business and prospects. 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. 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's limited operating history and the susceptibility of the
Company's operating results to significant fluctuations makes any prediction
of future operating results unreliable. In addition, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
The Company's operating results have in the past, and may in the future, vary
significantly due to factors such as demand for the Company's products, the
size and timing of significant orders and their fulfillment, sales cycles of
the Company's indirect channel partners, product life cycles, changes in
pricing policies by the Company or its competitors, changes in the Company's
level of operating expenses and its ability to control costs, budgeting cycles
of its customers, software defects and other product quality problems, hiring
needs and personnel changes, the pace of international expansion, changes in
the Company's sales incentive plans, continued successful relationships and
the establishment of new relationships with enterprise application vendors,
the impact of consolidation by competitors and indirect channel partners, and
general domestic and international economic and political conditions. In
6
<PAGE>
addition, the Company may, in the future, experience fluctuations in its gross
and operating margins due to changes in the mix of domestic and international
revenues, and changes in the mix of direct sales and indirect sales, as well
as changes in the mix among the indirect channels through which the Company's
products are offered.
A significant portion of the Company's total revenues in any given quarter
are derived from existing customers. The Company's future profitability is
substantially dependent upon the Company's ability to increase revenues from
license fees and services from existing customers, to increase the quotas of
its sales employees, to have such employees achieve or exceed such quotas and
to increase the average size of its orders. To the extent that such increases
do not occur in a timely manner, the Company's business, operating results and
financial condition would be materially adversely affected. Because its
software products are typically shipped shortly after orders are received,
revenues in any quarter are substantially dependent on orders booked and
shipped throughout that quarter. Accordingly, revenues for any future quarter
are difficult to predict. Revenues from license fees are also difficult to
forecast because the market for enterprise reporting is rapidly evolving, and
because the sales cycle for the Company's products varies substantially from
customer to customer and by distribution channel and may increase in the
future. The Company's expense levels and plans for expansion, including its
plans to significantly increase its sales and marketing and research and
development efforts, are based in significant part on the Company's
expectations of future revenues and are relatively fixed in the short-term.
The Company may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Consequently, if total revenue levels
are below expectations, the Company's business, operating results and
financial condition are likely to be adversely and disproportionately
affected.
Based upon all of the factors described above, the Company has limited
ability to forecast future revenues and expenses, and it is likely that in
some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In the event that
operating results are below expectations, or in the event that adverse
conditions prevail or are perceived to prevail generally or with respect to
the Company's business, the price of the Company's Common Stock would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
EXPANDING DISTRIBUTION CHANNELS AND RELIANCE ON THIRD PARTIES
To date, the Company has sold its products principally through its direct
sales force, as well as through indirect sales channels, such as enterprise
application vendors, resellers and distributors. Of the Company's revenues
from license fees in 1997 and the three months ended March 31, 1998,
approximately 38% and 39%, respectively, resulted from sales through indirect
channel partners. The Company's ability to achieve significant revenue growth
in the future will depend in large part on its success in expanding its direct
sales force and in further establishing and maintaining relationships with
enterprise application vendors, resellers and distributors. In particular, a
significant element of the Company's strategy is to embed its technology in
products offered by enterprise application vendors for resale to such vendors'
customers and end users. The Company intends to seek additional distribution
arrangements with other enterprise application vendors to embed the Company's
technology in their products and expects that these arrangements will continue
to account for a significant portion of the Company's revenues in future
periods. The Company's future success will depend on the ability of its
indirect channel partners to sell and support the Company's products. To the
extent that the sales and implementation cycles of the Company's indirect
channel partners are lengthy or variable in nature, that the Company's
enterprise application vendors experience difficulties embedding the Company's
technology into their products or that the Company fails to train the sales
and customer support personnel of such indirect channel partners in a timely
fashion, the Company's business, operating results and financial condition
could be materially adversely affected.
7
<PAGE>
Although the Company is currently investing, and plans to continue to
invest, significant resources to expand its direct sales force and to develop
relationships with distributors and enterprise application vendors, the
Company has at times experienced and continues to experience difficulty in
recruiting qualified sales personnel and in establishing necessary third-party
relationships. There can be no assurance that the Company will be able to
successfully expand its direct sales force or other distribution channels,
secure license agreements with additional enterprise application vendors on
commercially reasonable terms or at all, or otherwise further develop its
relationships with distributors and enterprise application vendors, or that
any such expansion or additional license agreements would result in an
increase in revenues. Any inability by the Company to maintain existing or
establish new relationships with indirect channel partners or, if such efforts
are successful, a failure of the Company's revenues to increase
correspondingly with expenses incurred in pursuing such relationships, would
materially and adversely affect the Company's business, operating results and
financial condition. See "Business--Sales, Marketing and Services".
DEPENDENCE ON GROWTH OF MARKET FOR ENTERPRISE REPORTING; RISKS ASSOCIATED WITH
THE SOFTWARE INDUSTRY
The market for enterprise reporting software products is still emerging and
there can be no assurance that it will continue to grow or that, even if the
market does grow, businesses will adopt the Company's products. To date, all
of the Company's revenues have been derived from licenses for its enterprise
reporting software and related products and services, and the Company expects
this to continue for the foreseeable future. The Company has spent, and
intends to continue spending, considerable resources educating potential
customers and indirect channel partners about enterprise reporting and the
Company's products. However, there can be no assurance that such expenditures
will enable the Company's products to achieve any significant degree of market
acceptance, and if the market for enterprise reporting products fails to grow
or grows more slowly than the Company currently anticipates, the Company's
business, operating results and financial condition would be materially
adversely affected.
In addition, the software industry has historically experienced significant
periodic downturns, often in connection with, or in anticipation of, declines
in general economic conditions during which management information systems
budgets often decrease. Such a change in economic conditions could result in a
slow down of the purchase of enterprise reporting products. As a result, the
Company's business, operating results and financial condition may in the
future reflect substantial fluctuations from period to period as a consequence
of buying patterns and general economic conditions in the software industry.
COMPETITION
The market in which the Company competes is intensely competitive and
characterized by rapidly changing technology and evolving standards.
Competition for the Company's products comes in four principal forms: (i)
direct competition from current or future vendors of reporting solutions such
as Seagate Software (a division of Seagate Technology) and SQRIBE
Technologies, Inc.; (ii) indirect competition from vendors of OLAP and query
tools such as Arbor Software Corp., Business Objects S.A., Cognos, Inc. and
Microsoft Corp. ("Microsoft") that integrate reporting functionality with such
tools; (iii) indirect competition from enterprise application vendors such as
SAP Atkiengesellschaft ("SAP") and Oracle Corp. ("Oracle"), to the extent they
include reporting functionality in their applications, and (iv) competition
from the information systems departments of current or potential customers
that may develop reporting solutions internally which may be cheaper and more
customized. Many of the Company's current and potential competitors 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
8
<PAGE>
Company. Also, most current and potential competitors, including companies
such as Oracle and Microsoft, have greater name recognition and the ability to
leverage significant installed customer bases. These companies could integrate
competing enterprise reporting software with their products, resulting in a
loss of market share for the Company. The Company expects additional
competition as other established and emerging companies enter the enterprise
reporting 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 would materially 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 their ability to address the needs of the Company's
prospective customers. The Company's current or future enterprise application
vendors and other indirect channel partners have in the past, or may in the
future, 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 revenues from license fees
from new or existing customers, and service revenues from existing customers
on terms favorable to the Company. Further, competitive pressures may require
the Company to reduce the price of its software. In either case, the Company's
business, financial condition, and operating results would be materially
adversely affected. 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 would have a material adverse effect upon the Company's business,
operating results and financial condition.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OF CERTAIN INTERNATIONAL
DISTRIBUTORS
The Company is a party to agreements with its Japanese distributor and the
parent company of its French, German and United Kingdom distributors (the
"International Distributors"), under which the Company is likely to (and under
certain circumstances, would bear substantial financial penalties if it did
not) acquire such International Distributors at some point in the future. In
connection with any such acquisition, the Company would be required to pay a
purchase price (equal to at least such distributor's last twelve months'
revenues as of the date of such acquisition) in registered shares of the
Company's Common Stock or in cash, which may have the effect of diluting
existing stockholders, adversely affecting the price of the Company's Common
Stock or reducing the available cash for working capital and other purposes.
At present, the Company is unable to predict the accounting treatment of any
such acquisitions, in part because it is unclear what accounting regulations,
conventions or interpretations may prevail in the future. If any such
acquisition is accounted for by the Company as a "purchase" transaction (as
opposed to a pooling of interests), it could cause the Company to recognize
substantial goodwill and other intangible asset amortization charges in the
quarters and fiscal years immediately following the date on which such an
acquisition is effected, depending upon the purchase price paid by the Company
for such acquisition. As a result, if the acquisition is accounted for as a
"purchase" transaction, it could have a material adverse effect on reported
earnings per share during these periods in which the Company records the
amortization of intangible assets acquired. Finally, any such acquisition
would require substantial management attention, impose costs on the Company
associated with integrating the acquired entities, require the Company to
coordinate sales and marketing efforts with the acquired companies and subject
the Company to additional, and potentially substantial, regulation as an owner
of foreign subsidiaries, any of which could have a material adverse effect on
the business, operating results and financial condition of the Company. See
"Certain Transactions".
RAPID TECHNOLOGICAL CHANGE AND DEPENDENCE ON PRODUCT DEVELOPMENT
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changing customer
9
<PAGE>
demands and evolving industry standards, any of which can render existing
products obsolete and unmarketable. The Company believes that its future
success will depend in large part on its ability to support current and future
releases of popular operating systems, databases and enterprise software
applications, to maintain and improve its current product line, to timely
develop new products that achieve market acceptance, to maintain technological
competitiveness and to meet an expanding range of customer requirements. 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. As a result of the complexities inherent in
enterprise reporting, major new products and product enhancements can require
long development and testing periods. In addition, customers may delay their
purchasing decisions in anticipation of the general availability of new or
enhanced versions of the Company's products. As a result, significant delays
in the general availability of such new releases or significant problems in
the installation or implementation of such new releases could have a material
adverse effect on the Company's business, operating results and financial
condition. Any failure by the Company to successfully develop, on a timely and
cost effective basis, product enhancements or new products that respond to
technological change, evolving industry standards or customer requirements or
of such new products and product enhancements to achieve market acceptance
would have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business--Research and Development".
LENGTHY AND VARIABLE SALES CYCLES
The purchase of the Company's products by its end user customers for
deployment within a customer's organization typically involves a significant
commitment of capital and other resources, and is therefore subject to delays
that are beyond the Company's control, such as the customers' internal
procedures to approve large capital expenditures, budgetary constraints and
the testing and acceptance of new technologies that affect key operations.
While the sales cycle for an initial order of the Company's products is
typically 3 to 6 months and the sales cycle associated with a follow-on large
scale deployment of the Company's products typically extends for another 6 to
9 months or longer, there can be no assurance that the Company will not
experience longer sales cycles in the future. Additionally, sales cycles for
sales of the Company's software products to enterprise application vendors
tend to be longer, ranging from 6 to 24 months or more (not including the
sales and implementation cycles of such vendors' own products, which are
typically significantly longer than the Company's sales and implementation
cycles) and involve convincing the vendor's entire organization that the
Company's products are the appropriate reporting solution for the application.
Certain of the Company's customers have in the past, or may in the future,
experience difficulty completing the initial implementation of the Company's
products. Any difficulties or delays in the initial implementation at the
Company's customer sites or those of its indirect channel partners, could
cause such customers to reject the Company's software or lead to the delay or
non-receipt of future orders for the large-scale deployment of the Company's
products, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. See "--Fluctuations in
Quarterly Operating Results", "--Expanding Distribution Channels and Reliance
on Third Parties" and "Business--Sales, Marketing and Services".
MANAGEMENT OF GROWTH; DEPENDENCE ON AND NEED FOR ADDITIONAL QUALIFIED
PERSONNEL
The Company has recently experienced a significant expansion in the number
of its employees, the scope of its operating and financial systems and the
geographic area of its operations. From January 1997 through March 1998, the
Company increased its headcount from 38 to 114 full-time employees.
Furthermore, significant increases in the number of employees are anticipated
in 1998 and future periods. In particular, the Company currently plans to
expand the number of employees in sales and marketing, customer support and
research and development. This growth has resulted, and will
10
<PAGE>
continue to result, in new and increased responsibilities for management
personnel and may place a strain upon the Company's management, operating and
financial systems and resources. The Company expects that the proposed
expansion of its international operations will lead to increased financial and
administrative demands associated with managing an increasing number of
relationships with foreign partners and customers and expanded treasury
functions to manage foreign currency risks. The Company's future operating
results will also depend on its ability to further develop indirect channels
and expand its support organization to accommodate growth in the Company's
installed base. The failure of the Company to manage its expansion effectively
could have a material adverse effect on the Company's business, operating
results and financial condition. See "--Failure to Expand and Risks Associated
with International Sales and Operations", "Business--Employees" and
"Management".
The Company's success depends to a significant degree upon the efforts of
certain key management, marketing, customer support and research and
development personnel. The Company believes that its future success will
depend in large part upon its continuing ability to attract and retain highly
skilled managerial, sales, marketing, customer support and research and
development personnel. Like other software companies, the Company faces
intense competition for such personnel, and the Company has experienced and
will continue to experience difficulty in recruiting qualified personnel,
particularly in the San Francisco Bay Area, where the employment market for
qualified sales, marketing and engineering personnel is extremely competitive.
There can be no assurance that the Company will be successful in attracting,
assimilating or retaining qualified personnel in the future. The loss of the
services of one or more of the Company's key personnel, particularly the
Company's executive officers, or the failure to attract and retain additional
qualified personnel, could have a material and adverse effect on the Company's
business, operating results and financial condition. See "Business--Employees"
and "Management".
FAILURE TO EXPAND AND RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
During 1996, 1997 and the three months ended March 31, 1998, the Company
derived 6%, 2% and 3% of its total revenues, respectively, from sales outside
the United States. The Company's ability to achieve revenue growth in the
future will depend in large part on its success in increasing revenues from
international sales. Although the Company intends to continue to invest
significant resources to expand its sales and support operations outside the
United States and to enter additional international markets, there can be no
assurance that such efforts will be successful. In order to successfully
expand international sales, the Company must establish additional foreign
operations, expand its international channel management and support
organizations, hire additional personnel, recruit additional international
distributors and increase the productivity of existing international
distributors. To the extent that the Company is unable to do so in a timely
and cost-effective manner, the Company's business, operating results and
financial condition could be materially adversely affected.
The Company's international operations are generally subject to a number of
risks, including costs of localizing products for foreign countries, trade
laws and business practices favoring local competition, dependence on local
vendors, compliance with multiple, conflicting and changing government laws
and regulations, longer sales and payment cycles, import and export
restrictions and tariffs, difficulties in staffing and managing foreign
operations, greater difficulty or delay in accounts receivable collection,
foreign currency exchange rate fluctuations, multiple and conflicting tax laws
and regulations and political and economic instability, including recent
economic conditions in Asia. Because substantially all of the Company's
international revenues and costs, with the exception of sales in Japan, have
been denominated to date in U.S. dollars, increases in the value of the United
States dollar could increase the price of the Company's products so that they
become relatively more expensive to customers in the local currency of a
particular country, and result in a reduction in sales and profitability in
that country. The Company believes that an increasing portion of the Company's
revenues and costs will be denominated in foreign currencies. To the extent
such denomination in
11
<PAGE>
foreign currencies does occur, gains and losses on the conversion to U.S.
dollars of accounts receivable, accounts payable and other monetary assets and
liabilities arising from international operations may contribute to
fluctuations in the Company's results of operations. Any of the foregoing
factors could have a material adverse effect on the Company's business,
operating results and financial condition. Although the Company may from time
to time undertake foreign exchange hedging transactions to cover a portion of
its foreign currency transaction exposure, the Company does not currently
attempt to cover any foreign currency exposure, and there can be no assurance
that the Company will be successful in any future foreign exchange hedging
transactions or that such transactions, if any, will not 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".
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries in order
to distinguish 21st century dates from 20th century dates. As a result, in
less than two years, computer systems and/or software used by many companies
will need to be upgraded to comply with "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance issues. Although the Company believes that its
products are Year 2000 compliant, there can be no assurance that Year 2000
errors or defects will not be discovered in the Company's current and future
products. In addition, the Company believes that the purchasing patterns of
customers and potential customers may be impacted by Year 2000 issues.
Further, many companies are expending significant resources to correct or
patch their current software systems. These expenditures of funds may result
in reduced funds available to purchase software products such as those offered
by the Company. The occurrence of any of such events could have a material
adverse effect on the Company's business, results of operations or financial
condition. Additionally, to the extent the Company's products are embedded
with other companies' products that are not Year 2000 compliant, the Company's
reputation in the marketplace and indirect sales of its products by the
Company's indirect channel partners could be adversely affected, both of which
could result in a material adverse effect on the Company's business, operating
results and financial condition. The Company has conducted a preliminary
review of its internal computer systems to identify the systems that could be
affected by the Year 2000 issue and to develop a plan to resolve the issue.
Based on this preliminary review, the Company currently has no reason to
believe that its internal software systems are not Year 2000 compliant.
However, there can be no assurance that Year 2000 errors or defects will not
be discovered in the Company's internal computer systems and, if such errors
or defects are discovered, there can be no assurance that the costs of making
such systems Year 2000 compliant will not have a material adverse effect on
the Company's business, operating results and financial condition.
RISK OF SOFTWARE DEFECTS; PRODUCT LIABILITY
Software products as complex as those offered by the Company often contain
errors or defects, particularly when first introduced, when new versions or
enhancements are released and when configured to individual customer computing
systems. The Company currently has known errors and defects in its products.
There can be no assurance that, despite testing by the Company, additional
defects and errors, including Year 2000 errors, will not be found in current
versions, new versions or enhancements of its products after commencement of
commercial shipments, any of which could result in the loss of revenues or a
delay in market acceptance and thereby have a material adverse effect on the
Company's business, operating results and financial condition. Furthermore,
there can be no assurance that when the Company's products are deployed
enterprise-wide by customers, the Company's products will meet all of the
expectations and demands of its customers. See "Business--Research and
Development".
12
<PAGE>
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential
product liability claims, it is possible that such limitation of liability
provisions may not be effective as a result of existing or future laws or
unfavorable judicial decisions. The Company has not experienced any product
liability claims to date. However, the sale and support of the Company's
products may entail the risks of such claims, which are likely to be
substantial in light of the use of the Company's products in business-critical
applications. A product liability claim brought against the Company could have
a material adverse effect on the Company's business, operating results and
financial condition. See "Business--Products and Technology" and "--Research
and Development".
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company has one issued U.S. patent and one U.S. patent pending and
relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary technology. For example, the Company licenses its software
pursuant to shrinkwrap or signed license agreements, which impose certain
restrictions on licensees' ability to utilize the software. In addition, the
Company seeks to avoid disclosure of its intellectual property, including
requiring those persons with access to the Company's proprietary information
to execute confidentiality agreements with the Company and restricting access
to the Company's source code. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection.
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 many countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. Any failure by the Company to
meaningfully protect its intellectual property could have a material adverse
effect on the Company's business, operating results and financial condition.
To date, the Company has not been notified that its products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by the Company with respect to current or
future products. The Company expects enterprise reporting 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 or at all. A successful claim of
product infringement against the Company and the failure or inability of the
Company to license the infringed or similar technology could have a material
adverse effect upon the Company's business, operating results and financial
condition.
RISK OF CHANGES IN ACCOUNTING STANDARDS
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition" was
issued in October 1997 by the American Institute of Certified Public
Accountants and amended by Statement of Position 98-4 ("SOP 98-4"). The
Company adopted SOP 97-2 effective January 1, 1998. Based upon its reading and
interpretation of SOP 97-2 and SOP 98-4, the Company believes its current
revenue recognition policies and practices are materially consistent with SOP
97-2 and SOP 98-4. However,
13
<PAGE>
full implementation guidelines for this standard have not yet been issued.
Once available, such implementation guidance could lead to unanticipated
changes in the Company's current revenue accounting practices, and such
changes could materially adversely affect the Company's future revenue and
earnings. Such implementation guidance may necessitate significant changes in
the Company's business practices in order for the Company to continue to
recognize license fee revenue upon delivery of its software products. Such
changes may 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".
NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
will be determined by negotiation among the Company and the representatives of
the Underwriters, and may not be indicative of the price that will prevail in
the open market. The market price of the 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, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, developments with respect to copyrights or proprietary rights,
conditions and trends in the software and other technology industries,
adoption of new accounting standards affecting the software industry, changes
in financial estimates by securities analysts, changes in the economic
conditions in the United States and abroad, general market conditions and
other factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the securities of technology companies. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
such 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. See "Underwriting".
CONTROL OF COMPANY BY EXISTING STOCKHOLDERS
Upon the consummation of this offering (based on 10,486,017 shares
outstanding as of March 31, 1998), the executive officers and directors of the
Company and their affiliates in the aggregate will beneficially own
approximately % of the outstanding Common Stock ( % if the Underwriters'
over-allotment option is exercised in full). As a result, these stockholders
will be able to exercise control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. See "Principal and
Selling Stockholders".
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Certificate of Incorporation, as amended and restated (the
"Certificate of Incorporation"), and Bylaws, as amended and restated
("Bylaws"), contain certain provisions that may have the effect of
discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals that a stockholder might consider favorable,
including provisions authorizing the issuance of "blank check" preferred stock
and eliminating the ability of stockholders to act by written consent. In
addition, certain provisions of Delaware law and the Company's 1998 Equity
Incentive Plan may also have the effect of discouraging, delaying or
preventing a change in control of the Company or unsolicited acquisition
proposals. The anti-takeover effect of these provisions may also have an
adverse effect on the public trading price of the Company's Common Stock. See
"Management", "Description of Capital Stock--Preferred Stock" and "--Anti-
Takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and
Delaware Law".
14
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after the offering
could adversely affect the market price of the Common Stock and could impair
the Company's ability to raise capital through the sale of equity securities.
Upon completion of the offering, the Company will have outstanding shares
of Common Stock ( shares if the Underwriters' over-allotment option is
exercised in full), assuming no exercise of options after March 31, 1998. Of
these shares, the shares offered hereby ( shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), unless purchased by "affiliates"
of the Company as that term is defined in Rule 144 under the Securities Act
("Rule 144") described below. The remaining 10,376,017 shares of Common Stock
outstanding upon completion of the offering will be "restricted securities" as
that term is defined in Rule 144 (assuming no exercise of the Underwriters'
over-allotment option).
Restricted securities may be sold in the public market only if registered or
if they qualify for an exemption from the registration under Rule 144, 144(k)
or 701 promulgated under the Securities Act. As a result of the contractual
restrictions described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
10,376,017 shares will be eligible for sale upon expiration of lock-up
agreements between certain stockholders of the Company and the representatives
of the Underwriters and contractual obligations between certain stockholders
and the Company, 8,616,337 of which shares shall initially be subject to the
volume and manner of sale restrictions under Rule 144. In addition to the
foregoing, as of March 31, 1998, there were outstanding under the 1998 Equity
Incentive Plan and its predecessor plan, options to purchase an aggregate of
905,450 shares of Common Stock. The shares underlying such options will be
eligible for sale upon expiration of the lock-up provisions contained in the
Plan and its predecessor plan (the "Plan Stand-off Agreements") beginning 180
days after the date of this Prospectus, subject in certain cases to such
shares underlying outstanding options becoming eligible for sale more than 180
days after the date of this Prospectus as such options vest. The Company has
agreed not to release shares from the lock-up provisions of the Plan Stand-Off
Agreements without the prior written consent of Goldman, Sachs & Co. In
addition, the Company intends to register, following this offering,
approximately 2,655,450 shares of Common Stock subject to outstanding options
or reserved for issuance under the Company's stock and option plans. Further,
certain stockholders holding approximately 6,489,732 shares of Common Stock
are entitled to demand registration of their shares of Common Stock. By
exercising their demand registration rights, such stockholders could cause a
large number of securities to be registered and sold in the public market,
which could have an adverse effect on the market price of the Common Stock.
See "Description of Capital Stock" and "Shares Eligible for Future Sale".
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the book
value per share of the outstanding Common Stock. As a result, investors
purchasing Common Stock in this offering will incur immediate and substantial
dilution. To the extent outstanding options to purchase Common Stock are
exercised, there will be further dilution. See "Dilution" and "Shares Eligible
for Future Sale".
UNCERTAINTY AS TO USE OF PROCEEDS
The primary purposes of this offering are to increase the Company's equity
capital, to create a public market for the Company's Common Stock and to
facilitate future access to public markets. As of the date of this Prospectus,
the Company has no specific plans for the use of the net proceeds from this
offering other than for general corporate purposes, including working capital
and capital expenditures. Accordingly, the Company's management will retain
broad discretion as to the allocation of a substantial portion of the net
proceeds from this offering. Pending any such uses, the Company plans to
invest the net proceeds in investment-grade, interest-bearing securities. See
"--Risks Associated with Potential Acquisitions of Certain International
Distributors", "Use of Proceeds" and "Certain Transactions".
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby, at an assumed initial public offering price of $ ,
are estimated to be $ million ($ million if the Underwriters' over-
allotment option is exercised in full), after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company. The
primary purposes of this offering are to increase the Company's equity
capital, to create a public market for the Company's Common Stock and to
facilitate future access to public markets. As of the date of this Prospectus,
the Company has no specific plans to use the net proceeds from this offering
other than as set forth below.
The Company expects to use the net proceeds of the offering for general
corporate purposes, including working capital and capital expenditures.
Furthermore, from time to time the Company expects to evaluate the acquisition
of products, technologies and businesses, including the potential acquisition
of certain international distributors, that complement the Company's business,
for which a portion of the net proceeds may be used. Currently, however, the
Company does not have any understandings, commitments or agreements to use any
of the net proceeds of this offering with respect to any such acquisitions.
Pending use of the net proceeds for the above purposes, the Company plans to
invest the net proceeds in short-term, interest-bearing, investment-grade
obligations. See "Risk Factors--Risks Associated with Potential Acquisitions
of Certain International Distributors", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Certain Transactions".
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not expect to do so in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will
be retained by the Company to develop and expand its business. In addition,
the terms of the Company's line of credit prohibits the payment of cash
dividends without the lender's consent. See Note 10 of Notes to Financial
Statements.
16
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company as of
March 31, 1998, (i) on an actual basis, (ii) on a pro forma basis to reflect
the conversion of all outstanding shares of Preferred Stock into Common Stock
upon the closing of this offering and (iii) on a pro forma basis as adjusted
to reflect the sale of the shares of Common Stock offered hereby (at an
assumed initial offering price of $ per share) and the application of the net
proceeds therefrom. See "Use of Proceeds". This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations, current portion..... $ 113 $ 113 $ 113
======== ======== ========
Capital lease obligations, less current
portion....................................... $ 102 $ 102 $ 102
Stockholders' equity (deficit):
Convertible preferred stock: $0.001 par
value, 10,939,464 shares authorized,
6,489,732 shares outstanding, actual;
5,000,000 shares authorized, no shares
outstanding, pro forma and as adjusted...... 6 -- --
Common stock: $0.001 par value, 20,000,000
shares authorized, 3,996,285 shares
outstanding, actual; 35,000,000 shares
authorized, 10,486,017 shares outstanding,
pro forma; 35,000,000 shares authorized,
shares outstanding as adjusted(1)........... 4 10
Additional paid-in capital................... 15,054 15,054
Note receivable from officer................. (40) (40) (40)
Deferred stock compensation.................... (209) (209) (209)
Accumulated deficit............................ (18,949) (18,949) (18,949)
-------- -------- --------
Total stockholders' equity (deficit)........... (4,134) (4,134)
-------- -------- --------
Total capitalization....................... $ (4,032) $ (4,032)
======== ======== ========
</TABLE>
- --------
(1) Excludes (i) 905,450 shares of Common Stock issuable upon the exercise of
outstanding stock options under the Company's 1994 Stock Option Plan as of
March 31, 1998 at a weighted average exercise price of approximately $1.26
per share, (ii) 1,300,000 shares of Common Stock reserved for issuance
under the Company's 1998 Equity Incentive Plan, (iii) 250,000 shares of
Common Stock reserved for issuance under the Company's 1998 Employee Stock
Purchase Plan and (iv) 200,000 shares of Common Stock reserved for
issuance under the Company's 1998 Non-Employee Directors Option Plan. See
"Management--Stock Plans" and Notes 8 and 10 of Notes to Financial
Statements.
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
March 31, 1998, giving effect to the conversion of all outstanding shares of
Preferred Stock into 6,489,732 shares of Common Stock upon the closing of this
offering, was a deficit of $4.1 million, or approximately $(0.39) per share.
"Pro forma net tangible book value" per share represents the amount of total
tangible assets of the Company less total liabilities, divided by the
10,486,017 shares of Common Stock outstanding. Dilution per share represents
the difference between the amount per share paid by purchasers of shares of
Common Stock in the offering made hereby and the pro forma net tangible book
value per share of Common Stock immediately after completion of the offering.
After giving effect to the sale of shares of Common Stock in this
offering at an assumed initial public offering price of $ per share and
the application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of March 31, 1998 would have been $
or $ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to purchasers of Common Stock in the offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $
---
Pro forma net tangible book value (deficit) per share as of March
31, 1998........................................................ $(0.39)
------
Increase per share attributable to new investors(1)..............
------
Pro forma net tangible book value per share after this offering(2).
---
Dilution per share to new investors................................ $
---
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors (before deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company) at an assumed initial offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED(3) TOTAL CONSIDERATION AVERAGE
------------------------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 10,486,017 % $14,700,000 % $1.40
New stockholders...........
------------ ------- ----------- -----
Totals................... 100.0% 100.0%
------------ ------- ----------- -----
</TABLE>
- --------
(1) Does not give effect to the exercise of the Underwriters' over-allotment
option.
(2) After deducting estimated underwriting discounts and commissions and
estimated offering expenses of approximately payable by the Company.
(3) Excludes (i) 905,450 shares of Common Stock issuable upon the exercise of
outstanding stock options under the Company's 1994 Stock Option Plan as of
March 31, 1998, at a weighted average exercise price of approximately
$1.26 per share, (ii) 1,300,000 shares of Common Stock reserved for
issuance under the Company's 1998 Equity Incentive Plan, (iii) 250,000
shares of Common Stock reserved for issuance under the Company's 1998
Employee Stock Purchase Plan and (iv) 200,000 shares of Common Stock
reserved for issuance under the Company's 1998 Non-Employee Directors
Option Plan. To the extent outstanding options are exercised, there will
be further dilution to new investors. See "Management--Stock Plans" and
Notes 8 and 10 of Notes to Consolidated Financial Statements.
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and with the Financial Statements and Notes thereto which are
included elsewhere in this Prospectus. The statement of operations data for
the fiscal years ended December 31, 1995, 1996 and 1997 and the balance sheet
data at December 31, 1996 and 1997 are derived from the audited Financial
Statements included elsewhere in this Prospectus. The balance sheet data as of
December 31, 1995 is derived from audited financial statements that are not
included in this Prospectus. The statement of operations data for the three
months ended March 31, 1997 and 1998 and the balance sheet data as of March
31, 1998, are derived from unaudited financial statements included elsewhere
in this Prospectus, and in the opinion of the Company, include all
adjustments, consisting solely of normal recurring accruals, which are
necessary to present fairly the data for such period and as of such date. The
statement of operations data for the period from inception (November 1993) to
December 31, 1994 and the balance sheet data at December 31, 1994 are derived
from unaudited financial statements not included in this prospectus.
Historical results are not necessarily indicative of results in the future,
and the results for interim periods are not necessarily indicative of results
to be expected for the entire year.
<TABLE>
<CAPTION>
INCEPTION THREE MONTHS
THROUGH YEARS ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
------------ ------------------------- ----------------
1994 1995 1996 1997 1997 1998
------------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees........... $ -- $ -- $ 343 $ 7,542 $ 1,095 $ 3,190
Services............... -- 22 308 1,976 284 873
------ ------- ------- ------- ------- -------
Total revenues....... -- 22 651 9,518 1,379 4,063
------ ------- ------- ------- ------- -------
Cost of revenues:
License fees........... -- -- 171 647 103 280
Services............... -- 53 305 1,263 195 730
------ ------- ------- ------- ------- -------
Total cost of
revenues............ -- 53 476 1,910 298 1,010
------ ------- ------- ------- ------- -------
Gross profit (loss)..... -- (31) 175 7,608 1,081 3,053
Operating expenses:
Sales and marketing.... 118 847 2,965 7,366 1,043 2,715
Research and
development........... 635 1,883 2,731 6,213 926 1,674
General and
administrative........ 102 240 603 1,317 140 556
------ ------- ------- ------- ------- -------
Total operating
expenses............ 855 2,970 6,299 14,896 2,109 4,945
------ ------- ------- ------- ------- -------
Loss from operations.... (855) (3,001) (6,124) (7,288) (1,028) (1,892)
Equity in losses of
affiliate and write
down of loans to
affiliate.............. -- -- (25) (142) -- --
Interest and other
income (expense), net.. 18 166 90 82 (2) 22
------ ------- ------- ------- ------- -------
Net loss................ $ (837) $(2,835) $(6,059) $(7,348) $(1,030) $(1,870)
====== ======= ======= ======= ======= =======
Basic and diluted net
loss per share(1)...... $(0.32) $ (1.09) $(2.21) $ (2.52) $ (0.38) $ (0.57)
====== ======= ======= ======= ======= =======
Weighted average shares
outstanding used in per
share calculation(1)... 2,580 2,591 2,741 2,920 2,723 3,296
====== ======= ======= ======= ======= =======
Pro forma basic and
diluted net loss per
share(1)(2)............ $ (0.82) $ (0.19)
======= =======
Shares used in computing
pro forma basic and
diluted net loss per
share(2)............... 8,940 9,786
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ MARCH 31,
1994 1995 1996 1997 1998
------ ------ ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 59 $1,252 $ 1,040 $ 2,901 $ 2,386
Working capital (deficit)............ 3,628 637 (1,564) (3,424) (5,333)
Total assets......................... 3,690 1,710 3,664 7,481 6,785
Long-term obligations, less current
portion............................. -- 144 213 124 102
Stockholders' equity (deficit)....... 3,683 870 (1,191) (2,308) (4,134)
</TABLE>
- -------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing net loss per
share.
(2) Pro forma basic and diluted net loss per share reflects the conversion of
all outstanding Preferred Stock into Common Stock upon completion of this
offering.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following description of the Company's financial condition and results
of operations should be read in conjunction with the information included
elsewhere in this Prospectus. This description contains certain forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ significantly from the results discussed in the forward-
looking statements as a result of certain of the factors set forth under "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
Actuate Software Corporation is a leading provider of enterprise reporting
solutions that enable organizations to systematically extract, publish and
disseminate information across distributed computing environments. The Company
began shipping its Actuate Reporting System in 1996, and the Company's most
recent version of the Actuate Reporting System, Version 3.1, began shipping in
May 1998. The Company had net losses of $6.1 million and $7.3 million in 1996
and 1997, respectively, and a net loss of $1.9 million for the three months
ended March 31, 1998, and had an accumulated deficit of approximately $18.9
million as of March 31, 1998.
The Company sells software products through two primary means: (i) directly
to end user customers through its direct sales force and (ii) through indirect
channel partners such as enterprise application vendors, resellers and
distributors. Enterprise application vendors generally integrate the Company's
products with their applications and either embed them into their products or
resell them with their products. The Company's other indirect channel partners
resell the Company's software products to end user customers. The Company's
revenues are derived primarily from license fees for software products and, to
a lesser extent, fees for services relating to such products, including
software maintenance and support, training and consulting.
License fee revenues from sales of software products directly to end user
customers are recognized as revenue after execution of a license agreement or
receipt of a definitive purchase order and shipment of the product, provided
no significant vendor obligations remain and collection of the resulting
receivables is deemed probable. The Company's products do not require
significant customization. The majority of license fee revenues from direct
sales to end user customers is from sales of specific individual products to
such customers and is recognized upon shipment of the applicable product.
Advance payments from end user customers, in arrangements in which the end
user customer has the right to future unspecified products, are deferred and
recognized as revenue ratably over the estimated term of the period, typically
one year, during which the end user is entitled to receive the products.
License arrangements with indirect channel partners such as enterprise
application vendors, resellers and distributors generally take the form of
either (i) fixed price arrangements in which the contracting entity has the
right to the unlimited usage and resale of the licensed software for a
specified term and pursuant to which license fee revenue is deferred and
recognized on a straight-line basis over the term of the license agreement or
(ii) arrangements pursuant to which a royalty is paid to the Company, which
the Company recognizes as revenue based on the enterprise application vendor's
sell-through of the Company's product.
Service revenues are primarily comprised of revenue from maintenance
agreements, training and consulting fees. Revenue from maintenance agreements
is deferred and recognized on a straight-line basis as service revenue over
the term of the related agreement, which is typically one year. Service
revenues from training and consulting services are recognized upon completion
of the work to be performed.
20
<PAGE>
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition" was
issued in October 1997 by the American Institute of Certified Public
Accountants and amended by Statement of Position 98-4 ("SOP 98-4"). The
Company adopted SOP 97-2 effective January 1, 1998. Based upon its reading and
interpretation of SOP 97-2 and SOP 98-4, the Company believes its current
revenue recognition policies and practices are materially consistent with SOP
97-2 and SOP 98-4. However, full implementation guidelines for this standard
have not yet been issued. Once available, such implementation guidance could
lead to unanticipated changes in the Company's current revenue accounting
practices, and such changes could materially adversely affect the Company's
future revenue and earnings. Such implementation guidance may necessitate
significant changes in the Company's business practices in order for the
Company to continue to recognize license fee revenue upon delivery of its
software products. Such changes may have a material adverse effect on the
Company's business, operating results and financial condition.
The Company to date has sold its products internationally primarily through
distributors located in the United Kingdom, France, Germany, Japan, the
Philippines, Singapore, South Africa and the Netherlands. During 1996, 1997
and the three months ended March 31, 1998, the Company derived 6%, 2% and 3%
of its total revenues, respectively, from sales outside the United States. The
Company's ability to achieve revenue growth in the future will depend in large
part on its success in increasing revenues from international sales. Although
the Company intends to continue to invest significant resources to expand its
sales and support operations outside the United States and to enter additional
international markets, there can be no assurance that such efforts will be
successful. In order to successfully expand international sales, the Company
must establish additional foreign operations, expand its international channel
management and support organizations, hire additional personnel, recruit
additional international distributors and increase the productivity of
existing international distributors. To the extent that the Company is unable
to do so in a timely and cost-effective manner, the Company's business,
operating results and financial condition could be materially adversely
affected. The Company is a party to agreements with its Japanese distributor
and the parent company of its French, German and United Kingdom distributors,
under which the Company is likely to (and under certain circumstances, would
bear substantial financial penalties if it did not) acquire such International
Distributors at some point in the future. In connection with any such
acquisition, the Company would be required to pay a purchase price (equal to
at least such distributor's last twelve months' revenues as of the date of
such acquisition) in registered shares of the Company's Common Stock or in
cash, which may have the effect of diluting existing stockholders, adversely
affecting the price of the Company's Common Stock or reducing the available
cash for working capital and other purposes. At present, the Company is unable
to predict the accounting treatment of any such acquisitions, in part because
it is unclear what accounting regulations, conventions or interpretations may
prevail in the future. If any such acquisition is accounted for by the Company
as a "purchase" transaction (as opposed to a pooling of interests), it could
cause the Company to recognize substantial goodwill and other intangible asset
amortization charges in the quarters and fiscal years immediately following
the date on which such an acquisition is effected, depending upon the purchase
price paid by the Company for such acquisition. As a result, if the
acquisition is accounted for as a "purchase" transaction, it could have a
material adverse effect on reported earnings per share during these periods in
which the Company records the amortization of intangible assets acquired.
Finally, any such acquisition would require substantial management attention,
impose costs on the Company associated with integrating the acquired entities,
require the Company to coordinate sales and marketing efforts with the
acquired companies and subject the Company to additional, and potentially
substantial, regulation as an owner of foreign subsidiaries, any of which
could have a material adverse effect on the business, operating results and
financial condition of the Company. See "Certain Transactions".
The Company's limited operating history makes the prediction of future
operating results difficult and unreliable. In addition, given its limited
operating history and recent rapid growth, historical growth rates in the
Company's revenues should not be considered indicative of future revenue
growth rates or operating results. There can be no assurance that any of the
Company's business strategies will be
21
<PAGE>
successful or that the Company will be able to achieve profitability on a
quarterly or annual basis. See "Risk Factors--Limited Operating History; Lack
of Profitability" and "--Fluctuations in Quarterly Operating Results".
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated (The statement of
operations data as a percentage of total revenue is not included for the
period ended December 31, 1995 because revenues in 1995 were negligible and
therefore the Company believes such data is not meaningful):
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------- ------------------
1996 1997 1997 1998
------ ------ ------- -------
<S> <C> <C> <C> <C>
Revenues:
License fees............................ 53 % 79 % 79 % 79 %
Services................................ 47 21 21 21
------ ----- ------- -------
Total revenues........................ 100 100 100 100
------ ----- ------- -------
Cost of revenues:
License fees............................ 26 7 8 7
Services................................ 47 13 14 18
------ ----- ------- -------
Total cost of revenues................ 73 20 22 25
------ ----- ------- -------
Gross profit.............................. 27 80 78 75
------ ----- ------- -------
Operating expenses:
Sales and marketing..................... 455 78 76 67
Research and development................ 420 65 67 41
General and administrative.............. 93 14 10 14
------ ----- ------- -------
Total operating expenses.............. 968 157 153 122
------ ----- ------- -------
Loss from operations...................... (941) (77) (75) (47)
Equity in losses of affilate and write
down of loans to affiliate............... (4) (1) -- --
Interest and other income (expense), net.. 14 1 -- 1
------ ----- ------- -------
Net loss.................................. (931)% (77)% (75)% (46)%
====== ===== ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
REVENUES
Total revenues increased 195% from $1.4 million for the three months ended
March 31, 1997 to $4.1 million for the three months ended March 31, 1998.
LICENSE FEES. Revenues from license fees increased 191% from $1.1 million
for the three months ended March 31, 1997 to $3.2 million for the three months
ended March 31, 1998. 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 release of Version 3.0 of the Actuate Reporting System in the
fourth quarter of 1997 and to a lesser extent increases in average selling
prices for the Company's products. Revenues from license fees from the
Company's indirect channel partners, including enterprise application vendors,
resellers and distributors, accounted for 36% and 39% of total revenues from
license fees for the three months ended March 31, 1997 and 1998, respectively.
SERVICES. Services revenues increased 207% from $284,000 for the three
months ended March 31, 1997 to $873,000 for the three months ended March 31,
1998. The increase was primarily due to increases in maintenance and support
contracts associated with higher license fee revenues
22
<PAGE>
and, to a lesser extent, increases in training and consulting revenues related
to increases in the Company's installed customer base.
COST OF REVENUES
LICENSE FEES. Cost of revenues from license fees consists primarily of
personnel and related costs, and product packaging, documentation and
production costs. Cost of revenues from license fees increased from $103,000,
or 9.4% of revenues from license fees, for the three months ended March 31,
1997 to $280,000, or 8.8% of revenues from license fees, for the three months
ended March 31, 1998. The increase in absolute dollars was primarily due to
the increase in the number of licenses sold. The decrease in cost of revenues
as a percentage of revenues from license fees was due to improved leverage in
personnel and production costs.
SERVICES. Cost of services revenues consists primarily of personnel and
related costs, facilities costs incurred in providing software maintenance and
support, training and consulting services, as well as third-party costs
incurred in providing training and consulting services. Cost of services
revenues increased from $195,000, or 69% of services revenues, for the three
months ended March 31, 1997 to $730,000, or 84% of services revenues, for the
three months ended March 31, 1998. The increase in absolute dollars and as a
percentage of services revenues was primarily due to the increase in the
number of personnel resulting from the Company's expansion of its support
services as well as an increase in third party training and consulting
services.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
promotional expenses, travel and entertainment and facility expenses. Sales
and marketing expenses increased from $1.0 million, or 76% of total revenues,
for the three months ended March 31, 1997 to $2.7 million, or 67% of total
revenues, for the three months ended March 31, 1998. The increase in absolute
dollars was primarily due to the hiring of additional sales and marketing
personnel, higher sales commissions associated with increased revenues and
increased marketing program expenses. The decrease as a percentage of total
revenues was primarily due to increased productivity of the Company's sales
force. The Company expects that sales and marketing expenses will continue to
increase in absolute dollars in future periods as the Company continues to
hire additional sales and marketing personnel, establish additional U.S. sales
offices, expand international distribution channels and increase promotional
activities.
RESEARCH AND DEVELOPMENT. Research and development expenses are expensed as
incurred and consist primarily of personnel and related costs associated with
the development of new products, the enhancement of existing products, quality
assurance and testing. Research and development expenses increased from
$926,000, or 67% of total revenues, for the three months ended March 31, 1997
to $1.7 million, or 41% of total revenues, for the three months ended March
31, 1998. The increase in absolute dollars was primarily due to increased
personnel and related costs associated with the development of new products,
third party consulting fees, the enhancement of existing products, quality
assurance and testing, depreciation of capital expenditures and facilities
costs. The decrease as a percentage of total revenues was due primarily to
increased product sales. The Company believes that a significant level of
investment for research and development is essential to maintain product and
technical leadership and anticipates that it will continue to devote
substantial resources to research and development and that these expenses will
increase in absolute dollars in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel and related costs for finance, human resources,
information systems and general management, as well as legal and accounting
expenses. General and administrative expenses increased from $140,000, or 10%
of total revenues, for the three months ended March 31, 1997 to $556,000, or
14% of total revenues, for the three months ended March 31, 1998. The
increases in
23
<PAGE>
absolute dollars and as a percentage of total revenues were primarily due to
increased personnel and related costs and professional fees necessary to
manage and support the Company's growth and facilities expansion. The Company
believes that its general and administrative expenses will increase in
absolute dollars in future periods as the Company expands its staffing to
support continued growth and expanded operations and assumes the reporting
responsibilities of a public company.
DEFERRED COMPENSATION. The Company recorded deferred compensation of
approximately $197,000 and $127,000 during 1997 and the three months ended
March 31, 1998, respectively, and the Company recorded amortization expense of
approximately $90,000 and $25,000, respectively, during these periods. These
amounts represent the difference between the exercise price of certain stock
option grants and the deemed fair value of the Company's Common Stock at the
time of such grants. All such deferred compensation expense has been included
in general and administrative expenses. Additional grants in April 1998 have
resulted in additional deferred compensation of $229,000. The remaining
amounts will be amortized over the corresponding vesting period, generally
five years, of each respective option.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net, is comprised primarily of interest
income earned by the Company on its cash and short-term investments. Interest
and other income (expense), net increased from a net expense of $2,000 for the
three months ended March 31, 1997 to net income of $22,000 for the three
months ended March 31, 1998. The increase was primarily due to the investment
of the proceeds from the Company's sale of preferred stock in April 1997 and
the interest on such proceeds.
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
REVENUES
The Company's total revenues increased from $22,000 in 1995 to $651,000 in
1996 and to $9.5 million in 1997.
LICENSE FEES. Revenues from license fees increased from $343,000 in 1996 to
$7.5 million in 1997, primarily due to increased sales to new customers and
increased follow-on sales to existing customers and, to a lesser extent,
increases in average selling prices for the Company's products. Revenues from
license fees from the Company's indirect channel partners, including
enterprise application vendors, resellers and distributors, accounted for 50%
and 38% of total revenues from license fees for 1996 and 1997, respectively.
SERVICES. Services revenues increased from $22,000 in 1995 to $308,000 in
1996 and to $2.0 million in 1997, primarily due to increases in maintenance
and support and, to a lesser extent, increases in training and consulting
revenues related to increases in the Company's installed customer base.
COST OF REVENUES
LICENSE FEES. Cost of revenues from license fees increased from $171,000, or
50% of revenues from license fees, in 1996 to $647,000, or 9% of revenues from
license fees, in 1997. The increase in absolute dollars was primarily due to
the increase in the number of licenses sold. The decrease in cost of revenues
as a percentage of revenues from license fees was due to improved leverage in
personnel and production costs.
SERVICES. Cost of services revenues increased from $53,000 in 1995 to
$305,000, or 99% of services revenues, in 1996 and to $1.3 million, or 64% of
services revenues, in 1997. The year to year increase in absolute dollars was
primarily due to increases in the number of personnel resulting from
24
<PAGE>
the Company's expansion of its support services as well as increases in third
party training and consulting services. The decrease in cost of services
revenues in 1997 as a percentage of services revenues was primarily due to a
significant increase in services revenues.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased by 250% from
$847,000 in 1995 to $3.0 million in 1996 and by 148% to $7.4 million in 1997
primarily due to the hiring of additional sales and marketing personnel,
higher sales commissions associated with increased revenues, and increased
marketing activities.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by 45%
from $1.9 million in 1995 to $2.7 million in 1996 and by 127% to $6.2 million
in 1997 primarily due to increased personnel and related costs associated with
the development of new products, the enhancement of existing products, quality
assurance and testing, depreciation of capital expenditures and facilities
costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
151% from $240,000 in 1995 to $603,000 in 1996 and by 118% to $1.3 million in
1997 primarily due to increases in 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
Interest and other income (expense), net, decreased from $166,000 in 1995 to
$90,000 in 1996 and to $82,000 in 1997 primarily due to decreases in cash
balances to support continuing operations.
EQUITY IN LOSSES OF AFFILIATE AND WRITE DOWN OF LOANS TO AFFILIATE
Equity in losses of affiliate and write down of loans to affiliate totalled
$25,000 and $142,000 during 1996 and 1997, respectively. In 1996, the Company
made an equity investment of approximately $95,000 in a Japanese company
("Actuate Japan"), which represents approximately 8.3% of the outstanding
voting stock of Actuate Japan. This investment is accounted for on the equity
basis due to the Company's ability to exercise significant influence over
Actuate Japan. During 1996 and 1997 the Company loaned a total of $260,000 to
Actuate Japan. The equity investment and remaining outstanding loans were
fully written down as of December 31, 1997 due to impairment indicators. See
Notes 1 and 2 of Notes to Financial Statements.
PROVISION FOR INCOME TAXES
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $14.8 million. The Company also had federal
research and development tax credit carryforwards of approximately $300,000 as
of December 31, 1997. The net operating loss and credit carryforwards will
expire beginning in 2008 through 2012, if not utilized.
Utilization of the net operating loss carryforwards and research and
development tax credit carryforwards may be subject to a substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986 and similar state provisions. The annual limitation may result in
the expiration of net operating losses and credits before utilization. See
Note 9 of Notes to Financial Statements.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations
data for the five quarters ended March 31, 1998, as well as such data
expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited financial statements
that, in the opinion of management, include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of such
information when read in conjunction with the Financial Statements and Notes
thereto.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees................ $ 1,095 $ 1,734 $ 2,203 $ 2,510 $ 3,190
Services.................... 284 332 548 812 873
------- ------- ------- ------- -------
Total revenues.............. 1,379 2,066 2,751 3,322 4,063
------- ------- ------- ------- -------
Cost of revenues:
License fees................ 103 104 113 327 280
Services.................... 195 186 338 544 730
------- ------- ------- ------- -------
Total cost of revenues...... 298 290 451 871 1,010
------- ------- ------- ------- -------
Gross profit................. 1,081 1,776 2,300 2,451 3,053
Operating expenses:
Sales and marketing......... 1,043 1,871 1,988 2,464 2,715
Research and development.... 926 1,578 2,102 1,607 1,674
General and administrative.. 140 273 411 493 556
------- ------- ------- ------- -------
Total operating expenses.... 2,109 3,722 4,501 4,564 4,945
------- ------- ------- ------- -------
Loss from operations......... (1,028) (1,946) (2,201) (2,113) (1,892)
Equity losses in affiliate
and write down of loans to
affiliate................... -- -- -- (142) --
Interest and other income
(expense), net.............. (2) 32 57 (5) 22
------- ------- ------- ------- -------
Net loss..................... $(1,030) $(1,914) $(2,144) $(2,260) $(1,870)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
License fees.................... 79 % 84 % 80 % 76 % 79 %
Services........................ 21 16 20 24 21
--- --- --- --- ---
Total revenues.................. 100 100 100 100 100
--- --- --- --- ---
Costs of revenues:
License fees.................... 7 5 4 10 7
Services........................ 15 9 12 16 18
--- --- --- --- ---
Total cost of revenues.......... 22 14 16 26 25
--- --- --- --- ---
Gross profit..................... 78 86 84 74 75
Operating expenses:
Sales and marketing............. 76 91 72 74 67
Research and development........ 67 76 77 48 41
General and administrative...... 10 13 15 16 14
--- --- --- --- ---
Total operating expenses........ 153 180 164 138 122
--- --- --- --- ---
Loss from operations............. (75) (94) (80) (64) (47)
Equity losses in affiliate and
write down of loans to affilate. -- -- -- (4) --
Interest and other income
(expense), net.................. -- 1 2 -- 1
--- --- --- --- ---
Net loss......................... (75)% (93)% (78)% (68)% (46)%
=== === === === ===
</TABLE>
26
<PAGE>
The Company's revenues have increased each consecutive quarter during the
five quarters ended March 31, 1998. Revenues from license fees increased
quarter to quarter primarily due to increased sales of new and existing
products to new customers and increased follow-on sales to existing customers.
Service revenues have generally increased quarter to quarter along with
increases in the Company's installed customer base. Cost of revenues from
license fees increased quarter to quarter with the increase in revenues from
license fees through the quarter ended September 30, 1997 and increased
substantially in absolute dollars and as a percentage of total revenues in the
quarter ended December 31, 1997, primarily due to the costs associated with
upgrading the Company's installed customer base with the release of Version
3.0 of the Actuate Reporting System. Cost of service revenues generally
increased in absolute dollars and as a percentage of total revenues quarter to
quarter primarily due to increases in customer support requirements.
Sales and marketing expenses generally increased in absolute dollars quarter
to quarter primarily due to the hiring of additional sales and marketing
personnel, higher sales commissions associated with increased revenues and
increased marketing expenses. Sales and marketing expenses increased
significantly in absolute dollars and as a percentage of total revenues in the
quarter ended June 30, 1997 and in absolute dollars in the quarter ended
December 31, 1997 primarily due to increases in commissions earned in
connection with the closing of a number of large product orders in such
periods. Research and development expenses have increased in absolute dollars
quarter to quarter primarily due to increased personnel and related costs
associated with the development of new products, the enhancement of existing
products, quality assurance and testing. Research and development expenses
increased significantly in absolute dollars in the quarter ended September 30,
1997 primarily due to increased third party consulting expenses related to the
release of Version 3.0 of the Actuate Reporting System in the quarter ended
December 31, 1997. General and administrative expenses increased in absolute
dollars quarter to quarter primarily due to increased personnel and related
costs and professional fees necessary to manage and support the Company's
growth and facilities expansion.
The Company's limited operating history and the susceptibility of the
Company's operating results to significant fluctuations makes any prediction
of future operating results unreliable. In addition, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
The Company's operating results have in the past, and may in the future, vary
significantly due to factors such as demand for the Company's products, the
size and timing of significant orders and their fulfillment, sales cycles of
the Company's indirect channel partners, product life cycles, changes in
pricing policies by the Company or its competitors, changes in the Company's
level of operating expenses and its ability to control costs, budgeting cycles
of its customers, software defects and other product quality problems, hiring
needs and personnel changes, the pace of international expansion, changes in
the Company's sales incentive plans, continued successful relationships and
the establishment of new relationships with enterprise application vendors,
the impact of consolidation by competitors and indirect channel partners, and
general domestic and international economic and political conditions. In
addition, the Company may, in the future, experience fluctuations in its gross
and operating margins due to changes in the mix of domestic and international
revenues, and changes in the mix of direct sales and indirect sales, as well
as changes in the mix among the indirect channels through which the Company's
products are offered.
A significant portion of the Company's total revenues in any given quarter
are derived from existing customers. The Company's future profitability is
substantially dependent upon the Company's ability to increase revenues from
license fees and services from existing customers, to increase the quotas of
its sales employees, to have such employees achieve or exceed such quotas and
to increase the average size of its orders. To the extent that such increases
do not occur in a timely manner, the Company's business, operating results and
financial condition would be materially
27
<PAGE>
adversely affected. Because its software products are typically shipped
shortly after orders are received, revenues in any quarter are substantially
dependent on orders booked and shipped throughout that quarter. Accordingly,
revenues for any future quarter are difficult to predict. Revenues from
license fees are also difficult to forecast because the market for enterprise
reporting is rapidly evolving, and because the sales cycle for the Company's
products varies substantially from customer to customer and by distribution
channel and may increase in the future. The Company's expense levels and plans
for expansion, including its plan to significantly increase its sales and
marketing and research and development efforts, are based in significant part
on the Company's expectations of future revenues and are relatively fixed in
the short-term. The Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Consequently, if
total revenue levels are below expectations, the Company's business, operating
results and financial condition are likely to be adversely and
disproportionately affected.
Based upon all of the factors described above, the Company has limited
ability to forecast future revenues and expenses, and it is likely that in
some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In the event that
operating results are below expectations, or in the event that adverse
conditions prevail or are perceived to prevail generally or with respect to
the Company's business, the price of the Company's Common Stock would be
materially adversely affected.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries in order
to distinguish 21st century dates from 20th century dates. As a result, in
less than two years, computer systems and/or software used by many companies
will need to be upgraded to comply with "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance issues. Although the Company believes that its
products are Year 2000 compliant, there can be no assurance that Year 2000
errors or defects will not be discovered in the Company's current and future
products. In addition, the Company believes that the purchasing patterns of
customers and potential customers may be impacted by Year 2000 issues.
Further, many companies are expending significant resources to correct or
patch their current software systems. These expenditures of funds may result
in reduced funds available to purchase software products such as those offered
by the Company. The occurrence of any of such events could have a material
adverse effect on the Company's business, results of operations or financial
condition. Additionally, to the extent the Company's products are embedded
with other companies' products that are not Year 2000 compliant, the Company's
reputation in the marketplace and indirect sales of its products by the
Company's indirect channel partners could be adversely affected, both of which
could result in a material adverse effect on the Company's business, operating
results and financial condition. The Company has conducted a preliminary
review of its internal computer systems to identify the systems that could be
affected by the Year 2000 issue and to develop a plan to resolve the issue.
Based on this preliminary review, the Company currently has no reason to
believe that its software systems are not Year 2000 compliant. However, there
can be no assurance that Year 2000 errors or defects will not be discovered in
its internal software systems and, if such errors or defects are discovered,
there can be no assurance that the costs of making such systems Year 2000
compliant will not have a material adverse effect on the Company's business,
operating results and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily through
cash from operations and approximately $14.3 million in net proceeds from the
private sales of preferred stock. Net cash
28
<PAGE>
used in operating activities was approximately $3.9 million, $2.8 million and
$580,000 in 1996, 1997 and the three months ended March 31, 1998,
respectively.
As of March 31, 1998, the Company had cash and cash equivalents of $2.4
million. In addition, in May 1998, the Company obtained a bank line of credit
which provides for up to $5.0 million in borrowings. The Company can borrow up
to 80% of eligible accounts receivable against the line of credit. The
interest rate on borrowed amounts is the prime rate plus 2.25%. This line of
credit requires the Company to comply with various financial covenants, is
prohibited from paying dividends and the Company must deposit $3.0 million of
the proceeds of this offering with the lender through May 25, 1999, the
maturity date of the line of credit. The line of credit expires in May 1999.
The Company currently has no borrowings under the line of credit. See Note 10
of Notes to Financial Statements.
Net cash used in investing activities was $379,000 and $1.3 million in 1996
and 1997, respectively, and net cash provided by investing activities was
$80,000 for the three months ended March 31, 1998, consisting primarily of
purchases of property and equipment and proceeds from the maturity of short-
term investments. The Company expects that its capital expenditures will
continue to increase as the Company's employee base grows.
Net cash provided by financing activities was approximately $4.1 million and
$6.0 million in 1996 and 1997, respectively, consisting primarily of net
proceeds from private sales of preferred stock and interest earned on such
proceeds. Net cash used in financing activities was $15,000 for the three
months ended March 31, 1998.
The Company believes that the net proceeds from the offering, any cash
generated from operating activities and its existing cash and cash equivalents
will be adequate to meet its cash needs for at least the next 12 months.
Thereafter, the Company may require additional funds to support its working
capital requirements or for other purposes and may seek to raise such
additional funds through public or private equity financing or from other
sources. There can be no assurance the Company will not require additional
funds prior to the expiration of such twelve month period or that additional
financing will be available when needed by the Company or at all or that, if
available, such financing will be obtainable on terms favorable to the Company
or will not be dilutive.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Financial Statements for recently adopted and
recently issued accounting standards.
29
<PAGE>
BUSINESS
The following description of the Company's business should be read in
conjunction with the information included elsewhere in this Prospectus. This
description contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
the results discussed in the forward-looking statements as a result of certain
of the factors set forth in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Actuate Software Corporation is a leading provider of enterprise reporting
solutions that enable organizations to systematically extract, publish and
disseminate information across distributed computing environments. The Company
develops and markets software products that are designed to allow companies to
rapidly design, generate and distribute corporate reports throughout the
enterprise, thereby increasing access to and the value of corporate data.
The Actuate Reporting System is a scalable, dynamic reporting platform which
is designed to allow organizations to replace traditional paper-based and on-
line reports with Live Report Documents. These live report documents feature
rich interactive capabilities, including hyperlinks, context-sensitive help, a
dynamic table of contents, and a report query feature. Architected
specifically to leverage the functionality of the Internet, the Actuate
Reporting System is designed to make reports accessible to an organization's
employees, customers and suppliers via corporate intranets and the Internet.
Actuate's ReportCast technology can be integrated with Internet or intranet
web sites, making it easier for organizations to notify users when corporate
information is available. The Actuate Reporting System also facilitates off-
line analysis of reports.
The Actuate Reporting System's server-centric architecture provides the
building blocks for an enterprise reporting environment of any size. Actuate's
open environment allows developers to create reports from virtually any data
source and in virtually any format required by end-users. The Actuate Report
Encyclopedia acts as a repository for reports and report components. Actuate's
Virtual Report Distribution technology reduces network traffic by minimizing
the movement of large reports and data sets. The Actuate Developer Workbench
is designed to give developers a complete visual environment for designing,
compiling, viewing and debugging sophisticated report designs. The Company
began shipping its Actuate Reporting System in 1996, and the Company's most
recent version of the Actuate Reporting System, Version 3.1, began shipping in
May 1998.
Actuate's products have been adopted in a wide variety of industries,
including financial services, telecommunications, technology, health care and
others. The Company's customers include companies such as American Express,
Inc., Chase Manhattan Corp., Concert Communications Company, Inc., Manpower
International and Merck & Co, Inc. The Company has also established strategic
relationships with a number of enterprise application vendors, including
PeopleSoft, Inc. ("PeopleSoft), Siebel Systems Corp. ("Siebel"), and The
Vantive Corp. ("Vantive"), all of which embed the Company's products as part
of, or as their entire standard reporting solution.
INDUSTRY BACKGROUND
To succeed in today's increasingly competitive markets, businesses must
accelerate the rate at which they identify and respond to changing business
conditions. An organization's success is, to a large extent, dependent upon
its ability to rapidly collect, organize and distribute information to make
effective business decisions. Reports are the primary means in virtually all
organizations by which critical business information is distributed and used
by employees, customers and suppliers. Examples of such reports include income
statements, budgets, sales forecasts, invoices, inventory listings, payroll
reports, portfolio statements and packing slips. Other products such as OLAP
and query tools generally serve as supplements to core reporting systems and
are only utilized by a small number of users for very distinct and specialized
data analysis.
30
<PAGE>
Historically, most reports have been paper-based, designed using legacy
computer languages such as COBOL and typically delivered to users through
physical means such as hand carts, inter-office mail and the postal service.
However, over the past decade, there has been a dramatic migration of critical
corporate information from mainframe computer systems to distributed computing
environments. This shift has been driven largely by the widespread emergence
and adoption of enterprise software applications, data warehouses, corporate
intranets and the Internet. As a result, organizations have had to reconsider
the way they generate and distribute reports.
One of the most significant computing trends of the 1990's has been the
migration of enterprise applications from legacy mainframe systems to
distributed computing environments. IDC estimates that organizations will have
spent over $28 billion between 1995 and 1998 on the purchase of such
enterprise applications from vendors such as SAP, PeopleSoft, and Baan Company
N.V. ("Baan") in addition to corporate expenditures on the internal
development and implementation of specialized client/server applications.
Also, the rapid adoption of new applications for enterprise resource planning,
sales force automation and supply chain management is giving rise to new and
valuable types of enterprise data, and is enabling new classes of users, such
as sales and customer service representatives, to access such data. While many
of these purchased applications include basic reporting functionality, they
generally do not adequately satisfy an enterprise's reporting needs, causing
the vendors of these applications to develop or license new enterprise
reporting functionality. Additionally, internally developed applications
require organizations to either develop or purchase enterprise reporting
functionality.
Organizations are also increasingly extracting information from mainframe
and other data stores and moving the information into new, high performance
data warehouses and data marts in order to improve information access and
distribution. In order to capitalize on the collection of this information and
enable users to make better business decisions, enterprises require reporting
applications that draw from these new data stores and distribute the
information flexibly and efficiently to a large number of users.
The growth in the use of the Internet and corporate intranets is changing
the way organizations generate and distribute reports. Organizations can now
distribute information electronically to multiple many end users both within
and outside an organization, thereby increasing efficiency and reducing the
need for paper-based reports. In order to accomplish this, many organizations
are creating entirely new reporting applications which enable distribution of
reports using the World Wide Web. In addition, the emergence of the Internet
and corporate intranets has given rise to a new information viewing paradigm
characterized by searchable, browsable, interactive content.
Due to this fundamental shift in the way corporations store and manage data,
IT departments are now faced with the challenge of providing users with secure
access to business information residing in a broad range of distributed and
fragmented systems. The Company believes traditional reporting methods have
not kept pace with the technological advancements in application software and
relational databases. As a result, it has been extremely difficult for
businesses to report information from these systems efficiently, uniformly and
securely across a single platform to users within and outside of the
organization.
To date, large organizations have generally used two types of reporting
solutions to meet their needs in a distributed computing environment:
production reporting and desktop reporting. Production reporting systems are
used to produce high-volume operational reports such as sales bookings,
inventory level analysis, invoices and financial information. These systems
typically produce static paper-based reports that are cumbersome and
inflexible in that they provide information to end
31
<PAGE>
users in a predetermined format. Additionally, these production reporting
systems are generally based on programming languages that are outdated and
difficult for developers to work with. Desktop reporting products are used for
the ad hoc creation of individual reports such as sorted listings, simple
graphs and summaries for small workgroups of end users. These tools enable end
users to analyze data and produce certain customized reports, but are limited
in their ability to access the full breadth of an organization's operational
information, are unsuited to producing high-volume operational reports and
require extensive end user training. Furthermore, production and desktop
reporting tools generally lack administration capabilities such as scheduling
and distribution management, which forces corporate IT departments to use
their limited resources to create solutions for these needs.
Due to the shortcomings of traditional reporting methods, the Company
believes that there is a need for a reporting solution that allows
organizations to use a single reporting infrastructure to systematically
extract, publish and disseminate information from distributed computing
environments. IDC estimates the market for enterprise reporting solutions such
as those offered by the Company will grow to over $900 million by the year
2002.
THE ACTUATE SOLUTION
The Actuate Reporting System is a scalable, dynamic enterprise reporting
solution which is designed to allow organizations to effectively develop,
generate and distribute reports throughout the enterprise in both
client/server and Internet-enabled environments. The Company's products are
designed to be easily and rapidly implemented, to generate and distribute
thousands of reports to thousands of users via networks or the Internet, and
to enable the Company's customers to leverage their existing hardware and
software investments. The Company believes the Actuate Reporting System
provides the following key advantages:
LIVE REPORT DOCUMENTS. The Actuate Reporting System enables organizations to
replace traditional paper-based and on-line reports with Live Report
Documents. Live Report Documents feature rich interactive capabilities
including: (i) hyperlinks, which permit the user to drill-down to detailed
information within the report or link to other reports, (ii) context-sensitive
help, which allows the user to access information about the report itself,
including field definitions and data sources, (iii) a dynamic, self-
documenting table of contents, which automatically reflects changes in the
document and enables one-click access to particular pages within large
reports, and (iv) a report query feature, which allows users to extract data
from the report and transfer it to other applications for further analysis or
formatting. The Actuate Reporting System also facilitates mobile, off-line
analysis of reports.
ADAPTABLE ENVIRONMENT. The Actuate Reporting System is based on an object-
oriented architecture that is designed to give developers a complete visual
environment for structuring, compiling, viewing and debugging sophisticated
report designs. Actuate's open environment allows developers to create reports
from virtually any data source and in virtually any format required by users.
Actuate's component-based architecture enables developers to build reports by
dragging and dropping standard components that can be customized and stored in
libraries for reuse.
SCALABLE ENVIRONMENT. The Actuate Reporting System's server-centric
architecture provides the building blocks for an enterprise architecture of
any size. The Actuate Report Encyclopedia acts as a repository for reports and
report components. Actuate's Virtual Report Distribution technology reduces
the need to transmit large reports and data sets by storing reports on the
servers themselves and sending one or more pages to the client over a network
or the Internet as demanded. This
32
<PAGE>
distribution scheme is designed to minimize the stress on an enterprise's
computer network, while providing a responsive viewing environment. The
Actuate Reporting System is also scalable to meet customer's enterprise
reporting needs as their organizations and user populations grow. The Actuate
Report Server also enables administrators to centrally control and schedule
the distribution of both electronic and printed reports and maintain security
access privileges.
INTERNET ARCHITECTURE. Architected specifically to leverage the
functionality of the Internet, the Actuate Reporting System is designed to
make reports accessible to an enterprise's employees, customers and suppliers
via corporate intranets and the Internet. Actuate's ReportCast technology can
be integrated with Internet or intranet web sites, making it easier for
enterprises to notify users via the World Wide Web when corporate information
becomes available. Using a Web browser, users can subscribe to ReportCast
channels that contain the specific categories of reports which are of interest
to them. Notices about new reports are pushed to the channel and customizable
headlines identify the subject matter of the report.
STRATEGY
The Company's strategy is to be the leading provider of enterprise reporting
solutions. Key elements of the Company's strategy include:
EXPAND MARKET LEADERSHIP POSITION THROUGH STRATEGIC RELATIONSHIPS. The
Company believes that it has established a leading position in the emerging
market for enterprise reporting solutions. To accelerate the adoption of the
Actuate Reporting System as the standard enterprise reporting solution and to
facilitate enterprise-wide acceptance of the Company's products, the Company
has established strategic relationships with enterprise application vendors,
consulting firms, systems integrators and development partners. The Company's
strategic technology and distribution partners include Ascend Communications,
Inc., Brio Technology, Inc., Cambridge Technology Partners, Inc., Netscape
Communications Corp., PeopleSoft, PointCast, Inc., Siebel and Vantive. The
Company believes that brand recognition is significant to its business
success, and virtually all of its application partners and resellers use the
Actuate brand name in conjunction with their applications. The Company intends
to further develop its existing strategic relationships and enter into new
partnerships to expand its market presence and brand recognition.
EXTEND TECHNOLOGY LEADERSHIP. Since inception, the Company has focused its
research and development efforts on developing core technologies that address
the requirements of enterprise reporting, such as the ability to generate and
run thousands of reports containing large amounts of data. The Company's
products integrate a number of advanced technologies, including a patented
method of storing report objects, a multi-tier architecture and Web access and
delivery technology. In addition, the Company has in the past rapidly
incorporated new technology into its product offerings. For example, the
Company anticipates releasing a Java version of the Actuate Viewer in early
1999. The Company believes it is a leader in enterprise reporting technology
and intends to extend this leadership position by continuing to devote
significant resources to research and development efforts, and by acquiring
and integrating complementary technologies.
BROADEN DISTRIBUTION CHANNELS. To date, the Company has sold through its
direct sales force located in the United States and has sold worldwide through
enterprise application vendors, resellers and distributors. The Company
intends to expand its direct sales force and tele-sales capability. In
addition, the Company intends to continue to leverage and grow its existing
network of enterprise application vendors, resellers and distributors and
expand its indirect distribution channel worldwide.
INCREASE INTERNATIONAL PRESENCE. While to date its international sales have
been limited, the Company plans to increase its international presence.
Outside the United States, the Company has established distributor
relationships in the France, Germany, Japan, the Netherlands, the Philippines,
Singapore, South Africa and the United Kingdom, and has localized versions of
its products in French,
33
<PAGE>
German, and Japanese. The Company intends to expand its international sales
capabilities by expanding its distribution channels in Europe, Asia/Pacific
and Latin America and by continuing the localization of its products in
selected markets.
PRODUCTS AND TECHNOLOGY
The Actuate Reporting System is a fully integrated, enterprise reporting
software system that provides an organization with a single reporting
infrastructure across distributed computing environments and the Internet. The
Actuate Reporting System is comprised of a suite of products that are licensed
by customers in a typical configuration consisting of a report server, web
agent, administrator desktop, developer workbench, viewer and live report
extension. In the case of direct sales to end user customers, the Company's
client products are typically priced on a per user basis, the report server is
priced on a per CPU basis and number of users basis and the web agent is
priced on a per server basis. Indirect sales are usually either fixed price,
unlimited usage arrangements or arrangements where royalties are paid to the
Company based on sell through to end-users. The Company's enterprise reporting
solution includes the following server, client and web products which allow
organizations to bring together all their business information into one
resource that can report such information to users across the enterprise.
The following table sets forth the suite of products that comprise the
Actuate Reporting System:
<TABLE>
<CAPTION>
ACTUATE
SERVER
PRODUCTS PRODUCT DESCRIPTION PLATFORMS
- -------- ------------------------------------------------ --------------------
<S> <C> <C>
Actuate Highly scalable server application used for Windows NT 3.51, 4.0
Report generating, distributing and managing Live Solaris 2.4, 2.5
Server Report Documents HP-UX 10.1, 10.2
AIX 4.1, 4.2
<CAPTION>
ACTUATE
CLIENT
PRODUCTS
- --------
<S> <C> <C>
Actuate Visual object-oriented development tool utilized Windows NT 3.51, 4.0
Developer by developers to provide an open development Windows 95
Workbench environment for designing, compiling, viewing
and debugging report designs
Actuate End Client application which gives business users Windows 3.X
User the ability to schedule, request, generate, view Windows NT 3.51, 4.0
Desktop and print Live Report Documents Windows 95
Actuate Client application which allows administrators Windows NT 3.51, 4.0
Administrator to manage and control one or more Actuate Report Windows 95
Desktop Servers
Actuate Client interface which allows users to view and Windows 3.X
Viewer print Live Report Documents on LAN attached Windows NT 3.51, 4.0
clients Windows 95
Actuate A toolkit for developers which contains Actuate Windows NT 3.51, 4.0
Software Viewer Active X Control and the Actuate End User Windows 95
Development Desktop Active X controls as well as various
Kit Actuate API's for use with programming
environments such as Visual Basic and C++
applications
<CAPTION>
ACTUATE WEB
PRODUCTS
- -----------
<S> <C> <C>
Actuate Web Server software which enables the Actuate Report Windows NT 4.0
Agent Server to provide secure web access to Live Solaris 2.4, 2.5
Report Documents and integrate with other web HP-UX 10.1, 10.2
sites AIX 4.1, 4.2
Actuate Live Browser extension which allows users to view and Windows NT 4.0
Report print Live Report Documents through Netscape Windows 95
Extension Navigator and Microsoft Internet Explorer
</TABLE>
34
<PAGE>
The Company's products provide native and ODBC connectivity to a number of
data sources, including relational database management systems from Oracle,
IBM, Microsoft, Sybase, Informix and Progress.
CUSTOMERS
The following is a representative list of the Company's end-user customers,
enterprise application vendors and resellers that have paid more than $100,000
in license fees to the Company since January 1996:
FINANCIAL SERVICES OTHER
American International Group Cargill Incorporated
American Express, Inc. Commonwealth of Massachusetts,
BankAmerica Corp. Department of Transitional Assistance
Chase Manhattan Corp. First Energy
Freddie Mac Manpower International
The Goldman Sachs Group, L.P. Merck & Co., Inc.
J&H Marsh & McLennan, Limited Sterling Commerce, Inc.
NationsBanc Montgomery Securities LLC
Northern Trust Company ENTERPRISE APPLICATION
VENDORS/RESELLERS
TELECOMMUNICATIONS Agile Software, Inc.
Concert Communications Company, Inc. Ariba Technologies, Inc.
Glenayre Electronics, Inc. Clarify, Inc.
LCI International, Inc. Deltanet, Inc.
US West, Inc. INEA Corporation
Netscape Communications Corp.
PeopleSoft, Inc.
Portal Information Network, Inc.
Progress Software Corp.
Siebel Systems Corp.
The Vantive Corp.
35
<PAGE>
CASE STUDIES
The following case studies illustrate how the Actuate Reporting System has
been utilized by certain of the Company's end user customer and enterprise
application vendors.
CONCERT
Concert Communications Company, Inc., ("Concert"), the combined company
resulting from the merger of British Telecom and MCI, provides advanced
communication services worldwide. As a result of the joint venture, Concert
was required to integrate data from more than 30 distinct data sources
existing between the two companies and their distributors. In addition,
Concert needed to offer over 40 international distributors and its nearly
3,900 customers located in over 50 countries efficient and timely access to
information concerning Concert's products and services. Concert chose the
Actuate Reporting System because of its scalable architecture for report
creation and distribution, and its ability to integrate data from multiple
sources into active, intelligent reports. The flexibility of the Actuate
Reporting System has enabled it to be seamlessly integrated into Concert's
existing architecture while providing the scalability required to meet the
extremely demanding reporting requirements of this global telecommunications
company and its distributors. Concert relies on the Actuate Reporting System
to generate hundreds of reports a day from a large and complex data warehouse
and distribute this information globally to distributors and customers in over
40 countries. In addition, Actuate's products assist Concert in meeting its
distributors' reporting needs, including timely access to mission critical
reports on service management, traffic performance and revenue. With minimal
training required on the part of Concert distributors, Actuate's web-based
reports can easily be fully utilized by all participating distributors around
the world.
GLENAYRE
Glenayre Electronics, Inc. ("Glenayre"), a leading worldwide supplier of
personal telecommunications equipment and software, required a fast and
efficient solution for managing customer information. Before it purchased the
Actuate Reporting System, Glenayre generated nearly 5,000 reports a year, with
two employees spending several days each month manually formatting the data
for inclusion in reports. Glenayre chose the Actuate Reporting System because
of its highly scalable enterprise reporting capabilities, formatting
flexibility and adaptable report capabilities. The Actuate Reporting System
enables users ranging from Glenayre's executives to customer service managers
to extract required data such as call duration and call closure rates, as well
as run ad-hoc reports with limited assistance from Glenayre's IS group. The
Actuate Reporting System's flexibility has significantly reduced the number of
reports that are maintained by Glenayre's IS group. In addition, reports are
now automatically generated and Glenayre employees and customers receive more
information specifically targeted to their individual needs.
J&H MARSH & MCLENNAN
J&H Marsh & McLennan, Limited ("J&H Marsh & McLennan"), a leading provider
of risk and insurance services, selected the Actuate Reporting System to
implement operational reports for various aspects of its business, including
client/prospect management, back office financials, insurance placement and
claims processing. Users can view either pre-scheduled or on-demand reports
through both client/server and web-based clients. The functionality of the
Actuate Reporting System has been extended to meet J&H Marsh & McLennan's
specific requirements, including a customized report scheduler and a Java
applet which provides an enhanced user interface for users who request reports
over the Web.
36
<PAGE>
PEOPLESOFT
PeopleSoft, a leading provider of enterprise software supporting human
resources, financial and manufacturing applications, required an enterprise
reporting application to enable its customers to efficiently and securely
distribute reports via the Internet. PeopleSoft chose the Actuate Reporting
System for, among a number of other reasons, its Virtual Report Distribution
architecture, which gives users viewing reports a rapid response regardless of
the length of the report or how much data it summarizes. PeopleSoft also chose
the Actuate Reporting System for its extensible development environment that
enables reports to be built from libraries of reusable objects. PeopleSoft
Performance Measurement is the first PeopleSoft application to take advantage
of Actuate's reporting capabilities.
SIEBEL
Siebel, a leading supplier of enterprise-class sales, marketing, and
customer service information systems, sought an enterprise reporting
application that would provide its customers with an interactive, easy-to-use,
and highly scalable enterprise reporting solution. Siebel chose the Actuate
Reporting System because it can be fully customized to conform with Siebel
98's user interface. The Actuate Reporting System functions essentially as an
extension of Siebel 98, thus creating a seamless solution to the end user.
Since Actuate is tightly integrated with Siebel, all security and application
logic built into Siebel is automatically leveraged and utilized by Actuate. In
addition, corporate modification of the Siebel data model is automatically
propagated to the Actuate Reporting System, enabling Siebel customers to
readily create reports that reflect their individual business environments.
Over 80 pre-built Actuate business reports are included with Siebel 98,
offering customers immediate access to sales, marketing and customer
information.
SALES, MARKETING AND SERVICES
SALES
The Company sells software products through two primary means: (i) directly
to end user customers through its direct sales force and (ii) through indirect
channel partners such as enterprise application vendors, resellers and
distributors.
The direct sales process involves the generation of sales leads through
direct mail, seminars and telemarketing. The Company's field sales force
typically conducts demonstrations and presentations of the Company's products
to developers and management at customer sites as part of the direct sales
effort.
The Company has a separate sales force which addresses the enterprise
application vendor market including such vendors as PeopleSoft, Siebel and
Vantive. These vendors integrate the Company's products with their
applications and either embed them into their standard products or resell them
to their customers. The enterprise application vendor's end user customer is
licensed to use the Company's products solely in conjunction with the vendor's
application with which the Actuate Reporting System is integrated. The Company
offers an upgrade license to end user customers, which permits them to create
reports outside the scope of the particular vendor application. In all of its
current relationships, the Company's products are identified by brand name to
the end customer. Enterprise application vendors provide the first level of
post-sales support to customers. The Company has also utilized a limited
number of resellers which re-market the Company's products to their customer
base. Resellers are offered discounts on the Company's products and sell a
full use license of the product. The Company's resellers do not provide post-
sales support. The Company's ability to achieve revenue growth in the future
will depend in large part on its success in expanding its direct sales force
and in further establishing and maintaining relationships with enterprise
application vendors, resellers and distributors. See "Risk Factors--Expanding
Distribution Channels and Reliance on Third Parties".
37
<PAGE>
Sales cycles for direct sales of the Company's software products to end-user
customers have historically been between three and six months. Large-scale
deployment of the Company's products generally extends for six to nine months
following the successful completion of an initial implementation. Sales cycles
for sales of the Company's products to enterprise application vendors range
from 6 to 24 months or more (not including the sales and implementation cycles
of such vendors' own products, which cycles may be significantly longer than
the Company's sales and implementation cycles). There can be no assurance the
Company or its indirect channel partners will not experience longer sales
cycles in the future. See "Risk Factors--Lengthy and Variable Sales Cycles".
MARKETING
The Company is focused on building market awareness and acceptance of the
Company and its products as well as on developing strategic marketing and
distribution relationships. The Company has a comprehensive 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 partners. The Company's
corporate marketing strategy includes extensive public relations activities,
trade shows and user group meetings, as well as programs to work closely with
analysts and other influential third parties. The Company's direct marketing
activities include participation in selected trade shows and conferences and
targeted ongoing direct mail efforts to existing and prospective customers.
The Company also offers seminars to educate prospective customers about the
Company's enterprise reporting solution. The Company has effectively used Web-
based marketing to generate new leads for the Company's direct sales force.
Finally, the Company has invested in building a partner and channel marketing
function to conduct cooperative marketing programs with the Company's
technology partners.
SERVICES
The Company actively recruits and trains third party consulting firms to
provide training and implementation services for the Company's products. Some
of these consulting firms include Cambridge Technology Partners, Inc.,
Enterprise Reporting Group, Compuware Corporation, NetBase Computing,
Benchmark Technical Services and Open Software Technology. The Company's
internal expert services group provides high value "technology transfer"
consulting services to customers developing and deploying an enterprise
reporting solution with the Company's products. These services include
methodology, training, application integration and performance evaluation. Due
to the critical nature of enterprise reporting, the Company believes that its
expert services group and relationships with its consulting partners play a
key role in facilitating initial license sales and enabling customers to
successfully develop and deploy the Actuate Reporting System.
INTERNATIONAL DISTRIBUTORS
The Company also sells its products world-wide through distributors located
in France, Germany, Japan, the Netherlands, the Philippines, Singapore, South
Africa and the United Kingdom. The Company's distributors perform some or all
of the following functions: sales and marketing, systems integration, software
development, and ongoing consulting training and customer support. In exchange
for providing such services, the Company offers its distributors discounts on
products. The Company has an agreement with the parent company of its
international distributors located in France, Germany and the United Kingdom
that could result in the Company acquiring such distributors. Under the terms
of the agreement, the Company has the right of first refusal with respect to
the proposed sale of the capital stock of such distributors. In the event the
Company does not exercise its right of first refusal the distributors would
obtain, in addition to other rights, an exclusive, royalty free license to
sell the Company's products in their respective territories. Also under the
terms of the agreement, the Company has the right to increase the royalty it
receives for Actuate product sales from these European distributors to 100%.
In such event, the distributors' parent company would have the right to
38
<PAGE>
sell its capital stock to the Company. Under either scenario, the price the
Company would be required to pay for such capital stock is set forth in the
agreement. In addition, the Company also has an agreement with its Japanese
distributor that could result in the Company acquiring such distributor. Under
the terms of this agreement, the Company has the right to acquire from the
stockholders of the Japanese distributor and such stockholders have the right
to have the Company acquire from them, the outstanding capital stock of the
Japanese distributor. The price to be paid by the Company for such stock is
set forth in the agreement. In the event the Company acquires any of the
distributors upon the conditions described above, there can be no assurance
that such acquisition will be successful. If such acquisition is not
successful, the Company's business, operating results and financial condition
could be materially adversely affected. There are certain risks associated
with international sales, including, but not limited to, costs of localizing
products for foreign countries, trade laws and business practices favoring
local competition, dependence on local vendors, compliance with multiple,
conflicting and changing government laws and regulations, longer sales and
payment cycles, import and export restrictions and tariffs, difficulties in
staffing and managing foreign operations, greater difficulty or delay in
accounts receivable collection, foreign currency exchange rate fluctuations,
multiple and conflicting tax laws and regulations and political and economic
instability, including recent economic conditions in Asia. There are also
certain risks associated with the Company's potential acquisition of certain
distributors, including diversion of management attention, integration costs,
the coordination of sales and marketing efforts, regulation by foreign
government and adverse accounting treatment of such acquisitions. See "Risk
Factors--Failure to Expand and Risks Associated with International Sales and
Operations", "--Risks Associated with Potential Acquisitions of Certain
International Distributors" and "Certain Transactions".
CUSTOMER AND TECHNICAL SUPPORT
The Company believes that providing superior customer service is critical to
the successful sale and marketing of its products. Maintenance and support
contracts, which are typically for 12 months, are offered with the initial
license, may be renewed annually and are typically set at a percentage of the
total license fees. Substantially all of the Company's direct sales to
customers have maintenance and support contracts that entitle the customer to
software patches, updates and upgrades at no additional cost and technical
phone support when available . Customers purchasing maintenance are able to
access support, via email and telephone during normal business hours. The
Company supplements its telephone support with Web-based support services,
including access to FAQs, on line web forums and a software patch download
area. To improve access to its explanatory materials, the Company provides on-
line documentation with all of its products. In addition, the Company offers,
primarily through certified training partners, classes and training programs
for its products.
RESEARCH AND DEVELOPMENT
The Company's research and development organization is divided into teams
consisting of development engineers, product managers, quality assurance
engineers and technical writers. The research and development organization
uses a phase-oriented development process which includes monitoring of
quality, schedule and functionality. Product development is based on a
consolidation of the requirements from existing customers, technical support
and product managers. The development group infrastructure provides a full
suite of documentation, quality assurance, delivery and support capabilities
(in addition to its design and implementation functions) for the Company's
products. Research and development expenses were $6.2 million for the 12
months ended December 31, 1997 and $1.7 million for the three months ended
March 31, 1998. The Company intends to continue 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
depend in large part on its ability to support current and future releases of
popular operating systems, databases and enterprise software applications, to
maintain and improve its current product line and to timely develop new
products that achieve market acceptance. Any failure by the Company to do so
would have a
39
<PAGE>
material adverse effect on the Company's business, operating results and
financial condition. See "Risk Factors--Rapid Technological Change and
Dependence on Product Development".
COMPETITION
The market in which the Company competes is intensely competitive and
characterized by rapidly changing technology and evolving standards.
Competition for the Company's products comes in four principal forms: (i)
direct competition from current or future vendors of reporting solutions such
as Seagate Software (a division of Seagate Technology) and SQRIBE
Technologies, Inc.; (ii) indirect competition from vendors of OLAP and query
tools such as Arbor Software Corp., Business Objects S.A., Cognos, Inc. and
Microsoft that integrate reporting functionality with such tools; (iii)
indirect competition from enterprise application vendors such as SAP and
Oracle, to the extent they include reporting functionality in their
applications, and (iv) competition from the information systems departments of
current or potential customers that may develop reporting solutions internally
which may be cheaper and more customized. Many of the Company's current and
potential competitors 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. Also, most current and
potential competitors, including companies such as Oracle and Microsoft, have
greater name recognition and the ability to leverage significant installed
customer bases. These companies could integrate competing enterprise reporting
software with their widely accepted products which would result in a loss of
market share for the Company. The Company expects additional competition as
other established and emerging companies enter into the enterprise reporting
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
would materially 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 their ability to address the needs of the Company's
prospective customers. The Company's current or future enterprise application
vendors and other indirect channel partners have in the past, or may in the
future, 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 revenues from license fees
from new or existing customers, and service revenues from existing customers
on terms favorable to the Company. Further, competitive pressures may require
the Company to reduce the price of its software. In either case, the Company's
business, financial condition, and operating results would be materially
adversely affected. 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 would have a material adverse effect upon the Company's business,
operating results and financial condition.
INTELLECTUAL PROPERTY RIGHTS
The Company has one issued U.S. patent and one U.S. patent pending and
relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary technology. For example, the Company licenses its software
pursuant to shrinkwrap or signed license agreements, which impose certain
restrictions on licensees' ability to utilize the software. In addition, the
Company seeks to avoid disclosure of its intellectual
40
<PAGE>
property, including requiring those persons with access to the Company's
proprietary information to execute confidentiality agreements with the Company
and restricting access to the Company's source code. The Company seeks to
protect its software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection.
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 many countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. Any failure by the Company to
meaningfully protect its intellectual property could have a material adverse
effect on the Company's business, operating results and financial condition.
To date, the Company has not been notified that its products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by the Company with respect to current or
future products. The Company expects enterprise reporting 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 or at all. A successful claim of
product infringement against the Company and the failure or inability of the
Company to license the infringed or similar technology could have a material
adverse effect upon the Company's business, operating results and financial
condition.
EMPLOYEES
As of March 31, 1998, the Company had 114 full-time employees, including 45
in sales and marketing, 44 in research and development, 16 in services and
support, and 9 in general and administrative functions. The Company believes
its employee relations are good. The Company believes that its future success
will depend in large part upon its continuing ability to attract and retain
highly skilled managerial, sales, marketing, customer support and research and
development personnel and, in particular, its executive officers. See "Risk
Factors--Management of Growth; Dependence on and Need for Additional Qualified
Personnel".
FACILITIES
The Company's principal executive offices are located in San Mateo,
California where the Company leases approximately 16,400 square feet under
leases that expire at various times through May 2002. The Company also leases
space (typically less than 2,000 square feet) in other geographic locations
throughout the United States for sales personnel.
41
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of June 1, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Nicolas C. Nierenberg........... 41 President, Chief Executive Officer and
Chairman of the Board of Directors
Peter I. Cittadini.............. 42 Executive Vice President
Daniel A. Gaudreau.............. 50 Vice President, Finance and Chief Financial
Officer
Hamid Bahadori.................. 44 Vice President, Engineering
Albert R. Campa................. 36 Vice President, Marketing
James Breyer(1)................. 36 Director
Arthur Patterson(2)............. 53 Director
Nancy Schoendorf(2)............. 43 Director
Steven Whiteman(1).............. 46 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
NICOLAS C. NIERENBERG is a co-founder of the Company and has been its
President, Chief Executive Officer and Chairman of the Board of Directors
since November 1993. Prior to founding the Company, from April 1993 to
November 1993, Mr. Nierenberg worked as a consultant for Accel Partners, a
venture capital firm, evaluating investment opportunities in the enterprise
software market. Prior to that, in 1980 Mr. Nierenberg co-founded Unify
Corporation, which develops and markets relational database development tools.
Mr. Nierenberg held a number of positions at Unify, including Chairman of the
Board of Directors, Chief Executive Officer, President, Vice President,
Engineering and Chief Technical Officer. Mr. Nierenberg is a director of
Cloudscape, Inc., a privately held Java database management system software
company. Mr. Nierenberg attended the University of California, Los Angeles and
the University of California, San Diego where he studied computer science and
economics.
PETER I. CITTADINI joined the Company in January 1995 as Executive Vice
President. From 1992 to January 1995, Mr. Cittadini held a number of positions
at Interleaf, Inc. an enterprise software publishing company, including Senior
Vice President of Worldwide Operations responsible for worldwide sales,
marketing, customer support and services. From 1985 to 1991, Mr. Cittadini
held a number of positions at Oracle Corporation, including Vice President,
Northeast Division. Mr. Cittadini holds a B.A. in Liberal Arts from Boston
College.
DANIEL A. GAUDREAU joined the Company in February 1997 as Vice President,
Finance and Chief Financial Officer. From January 1994 to February 1997, Mr.
Gaudreau served as Vice President, Finance and Chief Financial Officer of
Plantronics, Inc., a publicly traded telephone headset manufacturing company,
where he was responsible for all financial and administrative operations. From
January 1990 to January 1994, Mr. Gaudreau was Vice President, Finance and
Chief Financial Officer at Ready Systems, a real-time operating systems
software company. Prior to that, Mr. Gaudreau spent two years at Apple
Computer as the Controller of Fremont Manufacturing Operations, prior to which
he spent 18 years at General Electric where he held various financial
management positions. Mr. Gaudreau holds a B.S. in Industrial Management from
Clarkson University.
42
<PAGE>
HAMID BAHADORI joined the Company in May 1998 as Vice President,
Engineering. From January 1996 to May 1998, Mr. Bahadori served as Vice
President, Engineering for Envive Corp., a privately held applications
software company. Prior to that, Mr. Bahadori was a Senior Director of
Software Products Development for Oracle from 1989 to 1996. Mr. Bahadori holds
a B.S. in Applied Math and Electrical Engineering/Computer Science from Purdue
University and an M.S. and Ph.D. in Computer Sciences from the University of
California, Berkeley.
ALBERT R. CAMPA joined the Company in November 1995 as Vice President,
Marketing. From February 1990 to October 1995, Mr. Campa held a number of
positions at Sybase, Inc., a database software company, including Group
Director of Worldwide Field Marketing where he was responsible for lead
generation, vertical marketing, regional marketing and a variety of other
sales and marketing activities. From September 1987 to February 1990, Mr.
Campa held a number of product and marketing management positions at Sun
Microsystems, Inc. From September 1983 to March 1985, Mr. Campa was a design
engineer in IBM's mainframe development group. Mr. Campa holds a B.S. in
Mechanical Engineering from Stanford University and an M.B.A. from Harvard
University.
JAMES BREYER has been a director of the Company since November 1993. Mr.
Breyer has been a general partner of Accel Partners, a venture capital firm,
since 1990, and the Managing Partner since 1997. At Accel, Mr. Breyer has been
responsible for the firm's involvement in over a dozen companies that have
completed public offerings or successful mergers. Prior to joining Accel, Mr.
Breyer worked as a management consultant at McKinsey and Company, and held
product management and marketing positions at Apple Computer and Hewlett
Packard. Mr. Breyer currently serves as a director of RealNetworks, Inc. and
several privately held companies. Mr. Breyer holds a B.S. in Computer Science
and Economics from Stanford University and an M.B.A. from Harvard University,
where he was named a Baker Scholar.
ARTHUR PATTERSON has been a director of the Company since November 1993. Mr.
Patterson founded Accel in 1983 where he continues to serve as a founding
partner. Mr. Patterson currently serves as a director of AIM Funds, PageMart
Wireless, Inc., Unify Corporation, Veritas Software Corporation, Viasoft, Inc.
and several privately held enterprise software and communications companies.
Mr. Patterson holds an A.B. and an M.B.A. from Harvard University.
NANCY SCHOENDORF has been a director of the Company since September 1994.
Since June 1994, Ms. Schoendorf has been a general partner of Mohr, Davidow
Ventures, a venture capital firm. Prior to joining Mohr, Davidow, Ms.
Schoendorf served as Director of Systems Software Development at Sun
Microsystems, Inc. Ms. Schoendorf currently serves as a director of several
privately held companies. Ms. Schoendorf holds a B.S. in Math and Computer
Science from Iowa State University and an M.B.A. from Santa Clara University.
STEVEN WHITEMAN has been a director of the Company since April 1998. Since
April 1993, Mr. Whiteman has served as President of Viasoft, Inc., a publicly
traded software application and services company and has served as Chief
Executive Officer and Director since January 1994 and Chairman of the Board of
Directors since April 1997. Mr. Whiteman currently serves as a director of
Unify Corporation. Mr. Whiteman holds a B.A. in Business Administration from
Taylor University and an M.B.A. from the University of Cincinnati.
AUDIT COMMITTEE
The Audit Committee consists of Mr. Patterson and Ms. Schoendorf. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent accountants, reviews the results and scope of audit
and other services provided by the Company's independent accountants and
reviews and evaluates the Company's audit and control functions.
43
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Breyer and Whiteman. The
Compensation Committee makes recommendations regarding the Company's stock
plans and makes decisions concerning salaries and incentive compensation for
the Company's executive officers.
None of the members of the Compensation Committee is currently or has been,
at any time since the formation of the Company, an officer or employee of the
Company. No member of the Compensation Committee 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 as a member of the Company's Board
or Compensation Committee.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from the Company
for their services as members of the Board of Directors, although members are
reimbursed for certain expenses in connection with attendance at Board of
Directors and Committee meetings. Directors are eligible to participate in the
Company's stock plans, and beginning in 1998, employee directors will also be
able to participate in the Company's 1998 Equity Incentive Plan and non-
employee directors will receive periodic option grants under the Company's
1998 Non-Employee Directors Option Plan. In April 1998, Mr. Whiteman was
granted an option to purchase 30,000 shares of the Company's Common Stock
under the Company's 1994 Stock Option Plan at an exercise price of $5.00 per
share subject to a five year vesting schedule in connection with his
appointment to the Board. See "Management--1998 Equity Incentive Plan" and "--
1998 Non-Employee Directors Option Plan".
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the fiscal year ended December 31, 1997 paid by the Company for services to
the Company by the Company's Chief Executive Officer and the Company's four
other highest paid executive officers whose total salary and bonus for such
fiscal year exceeded $100,000 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
SUMMARY COMPENSATION
ANNUAL COMPENSATION TABLE AWARDS
--------------------- --------------------
NUMBER OF SECURITIES
SALARY($) BONUS($) UNDERLYING OPTIONS
---------- --------- --------------------
<S> <C> <C> <C>
Nicolas C. Nierenberg............. 174,350 40,064 150,000
President and Chief Executive
Officer
Peter I. Cittadini................ 180,000 63,000 40,000
Executive Vice President
Daniel A. Gaudreau(1)............. 142,320 36,045 125,000
Vice President, Finance and Chief
Financial Officer
Edward M. Sesek(2)................ 111,590 29,230 150,000
Vice President, Engineering
Albert R. Campa................... 115,000 26,683 15,000
Vice President, Marketing
</TABLE>
- --------
(1) Mr. Gaudreau's employment started on February 24, 1997 at an annual base
salary of $170,000.
(2) Mr. Sesek's employment started on April 21, 1997 at an annual base salary
of $160,000. Mr. Sesek resigned as Vice President, Engineering effective
May 26, 1998, but continues to be employed by the Company. Hamid Bahadori
was appointed to the position of Vice President, Engineering, effective
May 27, 1998.
44
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1997 to each of the Named Executive Officers. No stock
appreciation rights were granted during such fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(4)
---------------------------------------------------- --------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
GRANTED(1) FISCAL 1997 (2) ($/SHARE) (3) DATE 5% 10%
---------- ---------------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nicolas C. Nierenberg... 150,000 13.1% 0.62 08/26/07 $ 58,487 $ 148,218
Peter I. Cittadini...... 40,000 3.5 0.34 01/15/07 8,553 21,675
Daniel A. Gaudreau...... 125,000 10.9 0.34 03/05/07 26,728 67,734
Edward M. Sesek......... 150,000 13.1 0.34 04/16/07 32,074 81,281
Albert R. Campa......... 7,000 * 0.34 03/05/07 1,497 3,793
8,000 * 2.10 12/03/07 10,565 23,428
</TABLE>
- --------
* Less than one percent
(1) With respect to the options granted to Messrs. Nierenberg, Cittadini,
Sesek, and Campa, 1/5 of the shares vest on the first anniversary of the
vesting commencement date and 1/60 of the shares vest on each monthly
anniversary of the vesting commencement date thereafter. With respect to
Mr. Gaudreau's option, 1/4 of the shares vest on the first anniversary of
the vesting commencement date and 1/48 of the shares vest on each monthly
anniversary of the vesting commencement date thereafter. Each of the
options has a ten year term, subject to earlier termination in the event
of the optionee's cessation of service with the Company. See "Employment
Agreements and Change of Control and Severance Arrangements".
(2) Based on an aggregate of 1,146,350 options granted to employees of the
Company under the Company's 1994 Stock Option Plan during 1997.
(3) The exercise price is equal to the deemed fair market value of the
Company's Common Stock as estimated by the Board of Directors on the date
of grant.
(4) The potential realizable value is calculated based on the term of the
option at the time of grant (ten years). Stock price appreciation and
potential realizable values at 5% and 10% appreciation are calculated in
accordance with Section 402 of Regulation S-K under the Securities Act of
1933, as amended, and do not represent the Company's prediction of its
stock price performance.
45
<PAGE>
OPTION VALUES
The following table sets forth for each of the Named Executive Officers
options exercised during fiscal 1997 and the number and value of securities
underlying unexercised options that are held by the Named Executive Officers
as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1997(2) DECEMBER 31, 1997 $(3)
ACQUIRED REALIZED ------------------------- -------------------------
NAME ON EXERCISE $(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nicolas C. Nierenberg... -- -- 150,000 -- 222,000 --
Peter I. Cittadini...... 60,000 20,600 -- -- -- --
Daniel A. Gaudreau...... 125,000 -- -- -- -- --
Edward M. Sesek......... 75,000 21,000 75,000 -- 132,000 --
Albert R. Campa......... 74,500 12,825 8,000 -- -- --
</TABLE>
- --------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
(2) With respect to the options granted to Messrs. Nierenberg, Cittadini,
Sesek, and Campa, 1/5 of the shares vest on the first anniversary of the
vesting commencement date and 1/60 of the shares vest on each monthly
anniversary of the vesting commencement date thereafter. With respect to
Mr. Gaudreau's option, 1/4 of the shares vest on the first anniversary of
the vesting commencement date and 1/48 of the shares vest on each monthly
anniversary of the vesting commencement date thereafter. Each of the
options has a ten year term, subject to earlier termination in the event
of the optionee's cessation of service with the Company. As of December
31, 1997, the repurchase right had not lapsed as to any option shares for
Messrs. Nierenberg and Sesek.
(3) Based on the fair market value of the Company's Common Stock as of
December 31, 1997 ($2.10 per share), less the exercise price payable for
such shares.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL AND SEVERANCE ARRANGEMENTS
Pursuant to an agreement entered into between the Company and Daniel A.
Gaudreau, the Company's Vice President, Finance and Chief Financial Officer,
upon a merger or acquisition Mr. Gaudreau will automatically vest in 50% of
his remaining unvested options to purchase shares of the Company's Common
Stock. Pursuant to an agreement entered into between the Company and Hamid
Bahadori, the Company's Vice President, Engineering, if Mr. Bahadori's
employment is terminated by the Company within the first 24 months following
May 27, 1998 other than for cause, he will automatically be vested in options
to purchase not less than 60,000 shares of the Company's Common Stock.
STOCK PLANS
1998 EQUITY INCENTIVE PLAN
The Company's 1998 Equity Incentive Plan (the "Plan") was adopted by the
Board on May 27, 1998, subject to stockholder approval. The number of shares
of Common Stock reserved for issuance under the Plan is equal to 1,300,000
shares, which includes the aggregate number of shares remaining available for
grant under the Company's 1994 Stock Option Plan (the "Predecessor Plan"),
plus an additional number of shares equal to the number of shares reserved for
issuance under the Predecessor Plan against options outstanding under the
Predecessor Plan as of the date of this offering. As of March 31, 1998, there
were options to purchase 905,450 shares outstanding under the Predecessor
Plan. The Plan serves as the successor to the Predecessor Plan and no option
grants will be made under the Predecessor Plan after this offering. Except as
otherwise noted, options outstanding under the Predecessor Plan are subject to
substantially the same terms as described
46
<PAGE>
below for option awards under the Plan. As of January 1 of each year,
commencing with the year 1999, the number of shares reserved for issuance
under the Plan will be increased automatically by the lesser of (i) 5% of the
total number of shares of Common Stock then outstanding or (ii) 700,000
shares.
Under the Plan, employees, members of the Board and consultants may be
awarded options to purchase shares of Common Stock, stock appreciation rights
("SARs"), restricted shares or stock units (collectively, the "Awards").
Currently no Awards have been granted under the Plan. Options under the Plan
may be incentive stock options designed to satisfy Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or nonstatutory stock options
not designed to meet such requirements. If restricted shares or shares issued
upon the exercise of options granted under the Plan or the Predecessor Plan
are forfeited, then such shares will again become available for awards under
the Plan. If stock units, options or SARs granted under the Plan or the
Predecessor Plan are forfeited or terminate for any other reason before being
exercised, then the corresponding shares will again become available for
awards under the Plan.
The Plan is administered by the Company's Compensation Committee (the
"Committee"). The Committee has the complete discretion to determine which
eligible individuals are to receive any award, determine the type, number,
vesting requirements and other features and conditions of such award,
interpret the Plan and make all other decisions relating to the operation of
the Plan.
The exercise price for nonstatutory and incentive stock options granted
under the Plan may not be less than 85% or 100%, respectively, of the fair
market value of the Common Stock on the option grant date and may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised
by using a cashless exercise method, a pledge of shares to a broker or
promissory note. The payment for the award of newly issued restricted shares
will be made in cash, by promissory note or the rendering of past or future
services.
The Committee has the authority to modify, extend or assume outstanding
options and SARs or may accept the cancellation of outstanding options or SARs
in return for the grant of new options or SARs for the same or a different
number of shares and at the same or a different exercise price.
Upon a Change in Control, an Award will become fully vested as to all shares
subject to such Award if such Award is not assumed by the surviving
corporation or its parent and the surviving corporation or its parent does not
substitute such Award with another award of substantially the same terms. In
the event of an involuntary termination of a participant within 12 months
following a Change in Control, the vesting of an Award will accelerate in
full. Options granted under the Predecessor Plan become fully vested upon a
Change in Control unless assumed or replaced with a comparable option by the
acquiring entity.
A Change in Control includes (i) a merger or consolidation of the Company
after which the Company's then current stockholders own less than 50% of the
surviving corporation, (ii) sale of all or substantially all of the assets of
the Company, (iii) a proxy contest that results in replacement of more than
one-third of the directors over a 24 month period or (iv) acquisition of 50%
or more of the Company's outstanding stock by a person other than a trustee of
any of the Company's employee benefit plans or a corporation owned by the
stockholders of the Company in substantially the same proportions as their
stock ownership in the Company. In the event of a merger or other
reorganization, outstanding options, SARs, restricted shares and stock units
will be subject to the agreement of merger or reorganization, which may
provide for the assumption of outstanding Awards by the surviving corporation
or its parent, for their continuation by the Company (if the Company is a
surviving corporation), for accelerated vesting and accelerated expiration,
for settlement in cash or for cancellation of the outstanding Awards.
The Board may amend or terminate the Plan at any time. Amendments may be
subject to stockholder approval to the extent required by applicable laws.
47
<PAGE>
1998 EMPLOYEE STOCK PURCHASE PLAN
The Board adopted the Company's 1998 Employee Stock Purchase Plan (the
"Purchase Plan") on May 27, 1998, subject to stockholder approval. A total of
250,000 shares of Common Stock have been reserved for issuance under the
Purchase Plan. As of January 1 of each year, the number of shares reserved for
issuance under the Purchase Plan will be automatically increased by 150,000
shares. The Purchase Plan is intended to qualify under Section 423 of the
Code. Each calendar year, two overlapping offering periods each with a
duration of 24 months will commence on February 1 and August 1 (except that
the first offering period will commence on the effective date of the offering
and end on July 31, 2000). Each offering period contains four six-month
accumulation periods, with purchases occurring at the end of each six-month
accumulation period. However, the initial accumulation period during the first
offering period will begin on the effective date of the offering and end on
January 31, 1999. The Purchase Plan will be administered by the Committee.
Each employee will be eligible to participate if he or she is employed by the
Company for at least 20 hours per week and for more than five months per year.
The Purchase Plan permits each eligible employee to purchase Common Stock
through payroll deductions, which may not exceed 15% of an employee's base
compensation. No more than 1,000 shares may be purchased on any purchase date.
The price of each share of Common Stock purchased under the Purchase Plan will
be 85% of the lower of (i) the fair market value per share of Common Stock on
the date immediately prior to the first date of the applicable offering period
(except that in the case of the first offering period, the price per share
will be the price offered to the public in the offering) or (ii) the date at
the end of the applicable accumulation period. Employees may end their
participation in the Purchase Plan at any time during the accumulation period,
and participation ends automatically upon termination of employment with the
Company.
In the event of a Change in Control, all offering periods and accumulation
periods will terminate and each outstanding purchase right will be exercised.
The Board may amend or terminate the Purchase Plan at any time. However, the
Board may not, without stockholder approval, increase the number of shares of
Common Stock reserved for issuance under the Purchase Plan beyond the
automatic increases described above.
1998 NON-EMPLOYEE DIRECTORS OPTION PLAN
The Company's 1998 Non-Employee Directors Option Plan (the "Directors Option
Plan") was adopted by the Board of Directors on May 27, 1998, subject to
approval by the stockholders. Under the Directors Option Plan, non-employee
members of the Board of Directors will be eligible for automatic option
grants. For issuance under the Directors Option Plan, 200,000 shares of Common
Stock have been authorized. No shares have been issued under the Directors
Option Plan. The Directors Option Plan is self-administering but any
administrative determinations will be made by the Compensation Committee of
the Board. The exercise price for options granted under the Directors Option
Plan may be paid in cash or in outstanding shares of Common Stock. Options may
also be exercised on a cashless basis through the same-day sale of the
purchased shares.
Each individual who first joins the Board as a non-employee director after
the date of this Offering, whether through election or appointment will
receive at that time, an automatic option grant for 20,000 shares of Common
Stock. With respect to the initial automatic option grant, the option will
become exercisable as to 20% of the shares after one year of Board service and
in the balance of the shares in a series of 48 monthly installments over the
remaining period of optionee's Board service. In addition, at each annual
stockholders meeting, beginning in 1999, each non-employee director who was a
director on the date of this Offering and each nonemployee director who
becomes a director after the date of this Offering will automatically be
granted at that meeting, whether or not he or she is standing for re-election
at that particular meeting, a stock option to purchase 2,500 shares of Common
Stock, which will become fully exercisable on the first anniversary of such
meeting. Each option will
48
<PAGE>
have an exercise price equal to the fair market value of the Common Stock on
the automatic grant date and a maximum term of ten years, subject to earlier
termination following the optionee's cessation of Board service. However,
vesting will automatically accelerate in full upon (i) an acquisition of the
Company by merger, consolidation or asset sale, (ii) a tender offer for more
than 50% of the outstanding voting stock or proxy contest for Board membership
or (iii) the death or disability of the optionee while serving as a Board
member.
The Board may amend or modify the Directors Option Plan at any time. The
Directors Option Plan will terminate on May 27, 2008, unless sooner terminated
by the Board.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law
("Delaware Law"), the Company has adopted provisions in its Certificate of
Incorporation which provide that directors of the Company shall not be
personally liable for monetary damages to the Company or its stockholders for
a breach of fiduciary duty as a director, except for liability as a result of
(i) a breach of the directors' duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) an act related to
the unlawful stock repurchase or payment of a dividend under Section 174 of
the Delaware Law; and (iv) transactions from which the director derived an
improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the fullest extent permitted under the Delaware Law. The
Company, prior to the completion of this offering, will enter into separate
indemnification agreements with its directors which are, in some cases,
broader than the specific indemnification provisions contained in the Delaware
Law. The indemnification agreements require the Company, among other things,
to indemnify such directors against certain liabilities that may arise by
reason of their status or service as 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.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
49
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1995, the Company has issued, in private placement
transactions, shares of its Preferred Stock as follows: In January 1996, the
Company issued 1,176,471 shares of Series C Preferred Stock at a price of
$3.40 per share and in April 1997, the Company issued 939,927 shares of Series
D Preferred Stock at a price of $6.23 per share. The following table
summarizes the shares of Preferred Stock purchased by executive officers,
directors and 5% stockholders of the Company and persons associated with them:
<TABLE>
<CAPTION>
SERIES C SERIES D
INVESTOR PREFERRED STOCK PREFERRED STOCK
- -------- --------------- ---------------
<S> <C> <C>
Entities affiliated with Accel Partners(1)...... 478,054 286,684
Mohr, Davidow Ventures III(2)................... 177,392 105,720
Entities affiliated with Sequoia Capital(3)..... 521,025 40,983
Daniel A. Gaudreau.............................. -- 25,000
</TABLE>
- --------
(1) Includes shares purchased by Accel IV L.P., Accel Investors '93 L.P.,
Accel Keiretsu L.P., Ellmore C. Patterson Partners and Prosper Partners.
Messrs. Breyer and Patterson, directors of the Company, are general
partners of Accel Partners which is the general partner of the Accel IV
L.P., Accel Investors '93 L.P., Accel Keiretsu L.P., Ellmore C. Patterson
Partners and Prosper Partners.
(2) Ms. Schoendorf, a director of the Company, is a general partner of WLPJ
Partners, which is the general partner of Mohr, Davidow Ventures III.
(3) Includes shares purchased by Sequoia Capital IV, Sequoia Technology
Partners IV and Sequoia 1995.
In 1996, the Company made an equity investment of approximately $95,000 in
Actuate Japan. This represented approximately 8.3% of the outstanding voting
stock of Actuate Japan. This investment is accounted for on the equity basis
due to the Company's ability to exercise significant influence over Actuate
Japan. During 1996, the Company advanced a total of $160,000 to Actuate Japan.
An additional $100,000 was advanced in 1997. The equity investment and
remaining outstanding loans were fully written down as of December 31, 1997
due to impairment indicators.
Prior to the effective date of this offering, the Company intends to enter
into indemnification agreements with its directors containing provisions that
may require the Company, among other things, to indemnify such directors
against certain liabilities that may arise by reason of their status or
service as 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
intends to execute such agreements with its future directors. See
"Management--Limitation of Liability and Indemnification Matters".
The Company has entered into letter agreements with certain of its officers
that provide for the acceleration of vesting of shares held by them under
certain circumstances. See "Management--Employment Agreements and Change of
Control and Severance Arrangements".
The Company has entered into an agreement (the "BV Agreement") with Telephus
Vastgoed B.V. (the "BV"), pursuant to which the BV has established
subsidiaries in France, Germany and the United Kingdom (the "BV
Subsidiaries"). The Company has entered into agreements with each of the BV
Subsidiaries under which the BV Subsidiaries have the exclusive right (other
than with respect to value added resellers who have been or will be granted
worldwide distribution rights) to distribute the Company's products and use
the Company's name in Belgium, France, Germany, Switzerland and the United
Kingdom, in exchange for a 50% royalty on sales of the Company's products by
the BV Subsidiaries. Beginning six months after the effective date of the
Offering, the BV may force the Company to purchase its outstanding shares at a
price approximately equal to its last last twelve
50
<PAGE>
months' revenues. The purchase price may be paid, at the Company's option, in
cash, or in registered shares of the Company's Common Stock. The Company has a
right of first refusal on any transfer of ownership interest in the BV and,
beginning on July 1, 1999, the Company has the right to cause the shareholders
of the BV to sell all of the outstanding shares of the BV to the Company based
on the above pricing formula. In the event that the Company fails to purchase
the BV upon the request of the BV shareholders, or fails to exercise its right
of first refusal, the licenses held by the BV Subsidiaries will become
perpetual and royalty free. See "Risk Factors--Risks Associated With Potential
Acquisitions of Certain International Distributors" and "--Failure to Expand
and Risks Associated With International Sales and Operations".
The Company holds a minority equity interest in Actuate Japan. The Company
has also entered into an agreement with Actuate Japan pursuant to which
Actuate Japan has the exclusive right (other than with respect to value added
resellers who are or will be granted worldwide distribution rights) to
distribute the Company's Products and use the Company's name in Japan, in
exchange for a 50% royalty on sales of the Company products by Actuate Japan.
The Company has a right of first refusal on any transfer of the outstanding
shares of Actuate Japan. In addition, beginning nine months after the
effective date of this offering, Actuate Japan has the right to cause the
Company to buy all of its outstanding shares, and the Company has the right to
cause the other shareholders of Actuate Japan to sell their shares to the
Company, in each case pursuant to an pre-determined price formula, in exchange
for (at the election of the Company) cash, securities of the Company or
through a continuing royalty offset over a 30 month period. See "Risk
Factors--Risks Associated With Potential Acquisitions of Certain International
Distributors" and "--Failure to Expand and Risks Associated With International
Sales and Operations".
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of March 31, 1998, and
as adjusted to reflect the sale of shares offered by this Prospectus, by (i)
each stockholder who is known by the Company to own beneficially more than
five percent of the Company's Common Stock, (ii) each of the Company's
directors, (iii) each of the Company's Named Executive Officers, (iv) all
executive officers and directors of the Company as a group and (v) other
Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) THE OFFERING(2)
-------------------- --------------------
NAME AND ADDRESS OF SHARES TO
BENEFICIAL OWNER NUMBER PERCENT(3) BE SOLD NUMBER PERCENT(3)
- ------------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
Accel Partners(4)......... 3,931,405 37.5% -- 3,931,405
428 University Avenue
Palo Alto, CA 94301
Mohr, Davidow Ventures
III(5).................... 1,449,779 13.8 -- 1,449,779
2775 Sand Hill Road, Suite
240
Menlo Park, CA 94025
Entities affiliated with
Sequoia Capital(6)........ 562,008 5.4 -- 562,008
3000 Sand Hill Road, Suite
4-280
Menlo Park, CA 94025
Nicolas C. Nierenberg(7)... 1,650,000 15.5 -- 1,650,000
c/o Actuate Software
Corporation
999 Baker Way, Suite 270
San Mateo, CA 94404
Peter I. Cittadini(8)...... 502,500 4.8 -- 502,500
Daniel A. Gaudreau......... 150,000 1.4 -- 150,000
Edward M. Sesek(9)......... 150,000 1.4 -- 150,000
Albert R. Campa(10)........ 82,500 * -- 82,500
James Breyer(4)............ 3,931,405 37.5 -- 3,931,405
c/o Accel Partners
428 University Avenue
Palo Alto, CA 94301
Arthur Patterson(4)........ 3,931,405 37.5 -- 3,931,405
c/o Accel Partners
428 University Avenue
Palo Alto, CA 94301
Nancy Schoendorf(5)........ 1,449,779 13.8 -- 1,449,779
c/o Mohr, Davidow Ventures
2775 Sand Hill Road, Suite
240
Menlo Park, CA 94025
Steven Whiteman(11)........ 30,000 * -- 30,000
John R. Dafoe.............. 300,000 2.8 30,000 270,000
David B. Edwards........... 300,000 2.8 30,000 270,000
William A. Osberg.......... 300,000 2.8 30,000 270,000
Paul A. Rogers(12)......... 240,000 2.3 20,000 220,000
All directors and executive
officers as a group (9
persons)(13).............. 7,946,184 72.5% -- 7,946,184
</TABLE>
52
<PAGE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment
power with respect to securities. To the Company's knowledge, except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock. The
number of shares of Common Stock beneficially owned includes shares
issuable pursuant to stock options that are exercisable within 60 days of
March 31, 1998.
(2) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriter's over-allotment option is exercised in full, Nicolas C.
Nierenberg and Peter I. Cittadini will sell an aggregate of 150,000 and
50,000 shares of Common Stock, respectively, and beneficially own
1,500,000 and 452,500 shares, or % and %, respectively, of the
Company's outstanding Common Stock, after completion of this offering.
See "Underwriting".
(3) Percentage of beneficial ownership is based on 10,486,017 shares of
Common Stock outstanding as of March 31, 1998 and shares of
Common Stock to be outstanding after the closing of this offering. Shares
issuable pursuant to stock options exercisable within 60 days of March
31, 1998 are deemed outstanding for computing the percentage of the
person holding such options but are not deemed outstanding for computing
the percentage of any other person.
(4) Includes 3,601,168 shares held by Accel IV L.P., 145,462 shares held by
Accel Investors '93 L.P., 74,697 shares held by Accel Keiretsu L.P.,
86,490 shares held by Ellmore C. Patterson Partners and 23,588 shares
held by Prosper Partners. Messrs. Breyer and Patterson, directors of the
Company, are general partners of Accel Partners, the general partner of
each of Accel IV L.P., Accel Investors '93 L.P., Accel Keiretsu L.P.,
Ellmore C. Patterson Partners and Prosper Partners. Each of Messrs.
Breyer and Patterson disclaim beneficial ownership of such shares except
to the extent of his pecuniary interest therein.
(5) Ms. Schoendorf, a director of the Company, is a general partner of WLPJ
Partners, the general partner of Mohr, Davidow Ventures III. Ms.
Schoendorf disclaims beneficial ownership of such shares except to the
extent of her pecuniary interest therein.
(6) Includes 511,428 shares held by Sequoia Capital IV, 28,100 shares held by
Sequoia Technology Partners IV and 22,480 shares held by Sequoia 1995.
(7) Includes 150,000 shares of Common Stock issuable pursuant to stock
options which may be exercised within 60 days of March 31, 1998.
(8) Includes 40,000 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days of March 31, 1998.
(9) Includes 75,000 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days of March 31, 1998.
(10) Includes 8,000 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days of March 31, 1998.
(11) Includes 30,000 shares of Common Stock issuable pursuant to a stock
option granted to Mr. Whiteman, a director of the Company, on April 14,
1998, which may be exercised within 60 days of March 31, 1998.
(12) Includes 20,000 shares of Common Stock issuable pursuant to stock options
which may be exercised within 60 days of March 31, 1998
(13) Includes 378,000 shares of Common Stock issuable pursuant to stock
options which may be exercised within 60 days after March 31, 1998,
including 180,000 shares of Common Stock issuable pursuant to stock
options granted to Mr. Whiteman and Mr. Bahadori, the Company's Vice
President, Engineering, subsequent to March 31, 1998.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 35,000,000 shares of Common Stock, $0.001 par value,
and 5,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
As of March 31, 1998, there were 10,486,017 shares of Common Stock
outstanding that were held of record by approximately 75 stockholders. There
will be shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and assuming no exercise after March 31,
1998 of outstanding options) 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 per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy". In the event of the 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, subject to
prior distribution rights of Preferred Stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued upon completion of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the
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 and may adversely affect the voting and
other rights of the holders of Common Stock. The issuance of Preferred Stock
with voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. At
present, the Company has no plans to issue any of the Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Effective upon the closing of this offering, the Certificate of
Incorporation will provide that all stockholder actions must be effected at a
duly called meeting and not by a consent in writing. This provision of the
Certificate of Incorporation could discourage potential acquisition proposals
and could delay or prevent a change in control of the Company. This provision
is intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve
54
<PAGE>
an unsolicited acquisition of the Company. The provision also is intended to
discourage certain tactics that may be used in proxy fights. However, such
provision could have the effect of discouraging others from making tender
offers for the Company's shares. Such provision also may have the effect of
preventing changes in the management of the Company. See "Risk Factors--Anti-
Takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and
Delaware Law".
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of approximately 6,489,732 shares of Common
Stock will be entitled to certain rights with respect to the registration of
such shares under the Securities Act. Under the terms of the agreement between
the Company and the holders of such registrable securities, if the Company
proposes to register any of its securities under the Securities Act, either
for its own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include their shares of such Common Stock therein.
Additionally, such holders are also entitled to certain demand registration
rights pursuant to which they may require the Company to file a registration
statement under the Securities Act at its expense with respect to their shares
of Common Stock, and the Company is required to use its best efforts to effect
such registration. Further, holders may require the Company to file additional
registration statements on Form S-3 at the Company's expense. All of these
registration rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of
shares included in such registration and such registration not taking place
prior to six months following the effective date of the offering.
55
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is , and its
telephone number is .
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
shares of Common Stock ( shares if the Underwriters' over-allotment
option is exercised in full), assuming no exercise of options after March 31,
1998. Of these shares, the shares offered hereby ( shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction under the Securities Act, unless they are held
by "affiliates" of the Company as that term is used under the Securities Act
and the Regulations promulgated thereunder.
The remaining 10,376,017 outstanding shares are "restricted securities" as
that term is defined in Rule 144 under the Securities Act (assuming no
exercise of the Underwriters' over-allotment option) ("Restricted Shares").
All such Restricted Shares are subject to lock-up agreements pursuant to which
such holders have agreed not to sell any securities of the Company without the
prior consent of Goldman, Sachs & Co. for a period of 180 days from the date
of this Prospectus. Beginning 180 days after the date of this Prospectus,
approximately 10,376,017 Restricted Shares will become eligible for sale under
Rule 144 or Rule 701(assuming no exercise of the Underwriters' over-allotment
option), of which 8,616,337 shares will be subject to the volume and/or manner
of sale restrictions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year is entitled to sell within any three-month period commencing 90 days
after the date of this Prospectus a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock
(approximately shares immediately after the offering) or (ii) the average
weekly trading volume during the four calendar weeks preceding such sale,
subject to the filing of a Form 144 with respect to such sale. A person (or
persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale who has beneficially owned his or her shares for at least two years
is entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above. Persons deemed to be affiliates must always sell
pursuant to Rule 144, even after the applicable holding periods have been
satisfied.
Under Rule 701 as currently in effect, any employee, officer or director of
or consultant to the Company who purchased shares under the 1994 Stock Option
Plan or pursuant to a written compensatory plan or contract is entitled to
rely on the resale provisions of Rule 701, which permits nonaffiliates to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after
the date of this Prospectus. However, all Rule 701 shares are subject to lock-
up agreements with the Underwriters restricting their sale during the 180-day
period following this offering.
57
<PAGE>
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register 2,655,450 shares of Common Stock subject to
outstanding stock options or reserved for issuance under the 1994 Stock Option
Plan, the 1998 Plan, the Nonemployee Director Plan and the Purchase Plan
within 180 days after the date of this Prospectus; thus permitting the resale
of such shares by nonaffiliated in the public market without restriction under
the Securities Act.
In addition, after this offering, the holders of approximately 6,489,732
shares of Common Stock 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
traceable 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."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. Certain legal matters in connection with the offering
will be passed upon for the Underwriters by Venture Law Group, A Professional
Corporation, Menlo Park, California.
EXPERTS
The financial statements of the Company at December 31, 1996 and 1997 and
for each of the three years in the period ended December 31, 1997 appearing in
this Prospectus and the Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report,
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement. For further information with respect to the Company and such Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified by such reference to such exhibit. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at
the Commission's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from such office after payment of fees
prescribed by the Commission. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
http://www.sec.gov.
58
<PAGE>
ACTUATE SOFTWARE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Financial Statements:
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998
(Unaudited)............................................................ F-3
Statements of Operations for the Years Ended December 31, 1995, 1996 and
1997 and for the Three Months Ended March 31, 1997 and 1998
(Unaudited)............................................................ F-4
Statement of Stockholders' Equity (Deficiency) for the Years Ended
December 31, 1995, 1996 and 1997 and for the Three Months Ended March
31, 1998 (Unaudited)................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997 and for the Three Months Ended March 31, 1997 and 1998
(Unaudited)............................................................ F-6
Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders Actuate Software Corporation
We have audited the accompanying balance sheets of Actuate Software
Corporation as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' equity (net capital deficiency), and cash flows for
each of the three years in the 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 Actuate Software
Corporation at December 31, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
Palo Alto, California Ernst & Young LLP
April 17, 1998, except for Note 10, as to which the date is , 1998
- -------------------------------------------------------------------------------
The foregoing report is in the form that we will sign upon the consummation
of the Delaware reincorporation described in Note 10 to the financial
statements.
Palo Alto, California /s/ Ernst & Young LLP
June 1, 1998
F-2
<PAGE>
ACTUATE SOFTWARE CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
----------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 1,040 $ 2,901 $ 2,386
Short-term investments........... -- 290 --
Accounts receivable, net of
allowance for doubtful accounts
of $82, $573 and $573 at
December 31, 1996 and 1997, and
March 31, 1998, respectively.... 1,873 2,984 2,958
Other current assets............. 165 66 140
------- -------- --------
Total current assets.............. 3,078 6,241 5,484
Property and equipment, net....... 495 1,096 1,123
Other assets...................... 91 144 178
------- -------- --------
$ 3,664 $ 7,481 $ 6,785
======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable................. $ 296 $ 843 $ 1,076
Accrued compensation............. 368 997 763
Other accrued liabilities........ 340 1,679 2,608
Deferred revenue................. 3,509 6,021 6,257
Capital lease obligations........ 129 125 113
------- -------- --------
Total current liabilities......... 4,642 9,665 10,817
Capital lease obligations......... 213 124 102
Commitments
Stockholders' equity (net capital
deficiency):
Convertible preferred stock,
$0.001 par value, issuable in
series: 9,059,610 shares
authorized at December 31, 1996;
10,939,464 shares authorized at
December 31, 1997 and March 31,
1998 (5,000,000 pro forma);
5,549,805, 6,489,732 and
6,489,732 shares issued and
outstanding (none pro forma);
aggregate liquidation preference
of $8,520,002, $14,375,747 and
$14,375,747 at December 31, 1996
and 1997, and March 31, 1998,
respectively (none pro forma)... 5 6 6 $ --
Common stock, $0.001 par value,
20,000,000 shares authorized
(35,000,000 pro forma);
3,039,447, 3,976,285 and
3,996,285 shares issued and
outstanding at December 31, 1996
and 1997, and March 31, 1998,
respectively
(10,486,017 pro forma).......... 3 4 4 10
Additional paid-in capital....... 8,572 14,908 15,054 15,054
Note receivable from officer..... (40) (40) (40) (40)
Deferred stock compensation...... -- (107) (209) (209)
Accumulated deficit.............. (9,731) (17,079) (18,949) (18,949)
------- -------- -------- --------
Total stockholders' equity (net
capital deficiency).............. (1,191) (2,308) (4,134) $ (4,134)
------- -------- -------- ========
$ 3,664 $ 7,481 $ 6,785
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
ACTUATE SOFTWARE CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.................... $ -- $ 343 $ 7,542 $ 1,095 $ 3,190
Services........................ 22 308 1,976 284 873
------- ------- ------- ------- -------
Total revenues.................... 22 651 9,518 1,379 4,063
------- ------- ------- ------- -------
Operating expenses:
Cost of license fees............ -- 171 647 103 280
Cost of services................ 53 305 1,263 195 730
Sales and marketing............. 847 2,965 7,366 1,043 2,715
Research and development........ 1,883 2,731 6,213 926 1,674
General and administrative...... 240 603 1,317 140 556
------- ------- ------- ------- -------
Total operating expenses.......... 3,023 6,775 16,806 2,407 5,955
------- ------- ------- ------- -------
Loss from operations.............. (3,001) (6,124) (7,288) (1,028) (1,892)
Equity in losses of affiliate and
write down of loans to affiliate. -- (25) (142) -- --
Interest and other income
(expense), net................... 166 90 82 (2) 22
------- ------- ------- ------- -------
Net loss.......................... $(2,835) $(6,059) $(7,348) $(1,030) $(1,870)
======= ======= ======= ======= =======
Basic and diluted net loss per
share............................ $ (1.09) $(2.21) $ (2.52) $ (0.38) $ (0.57)
======= ======= ======= ======= =======
Weighted average shares
outstanding used in per share
calculation...................... 2,591 2,741 2,920 2,723 3,296
======= ======= ======= ======= =======
Pro forma basic and diluted net
loss per share (unaudited)....... $ (0.82) $ (0.19)
======= =======
Shares used in computing pro forma
basic and diluted net loss per
share (unaudited)................ 8,940 9,786
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
ACTUATE SOFTWARE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
CONVERTIBLE NOTE STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED EQUITY (NET
---------------- ----------------- PAID-IN FROM STOCK ACCUMULATED CAPITAL
SHARES AMOUNT SHARES AMOUNT CAPITAL OFFICER COMPENSATION DEFICIT DEFICIENCY)
--------- ------ --------- ------ ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... 4,373,334 $ 4 2,580,000 $ 3 $ 4,513 $ -- $ -- $ (837) $ 3,683
Issuance of common stock
for services........... -- -- 6,667 -- 1 -- -- -- 1
Issuance of common stock
upon exercise of stock
options................ -- -- 427,500 -- 61 (40) -- -- 21
Net loss................ -- -- -- -- -- -- -- (2,835) (2,835)
--------- --- --------- --- ------- ----- ----- -------- -------
BALANCE AT DECEMBER 31,
1995................... 4,373,334 4 3,014,167 3 4,575 (40) -- (3,672) 870
Issuance of Series C
convertible preferred
stock, net of issuance
costs of $12........... 1,176,471 1 -- -- 3,987 -- -- -- 3,988
Issuance of common stock
for cash............... -- -- 18,530 -- 9 -- -- -- 9
Issuance of common stock
upon exercise of stock
options................ -- -- 6,750 -- 1 -- -- -- 1
Net loss................ -- -- -- -- -- -- -- (6,059) (6,059)
--------- --- --------- --- ------- ----- ----- -------- -------
BALANCE AT DECEMBER 31,
1996................... 5,549,805 5 3,039,447 3 8,572 (40) -- (9,731) (1,191)
Issuance of Series D
convertible preferred
stock, net of issuance
costs of $26........... 939,927 1 -- -- 5,828 -- -- -- 5,829
Issuance of common stock
for services........... -- -- 1,605 -- 1 -- -- -- 1
Issuance of common stock
upon exercise of stock
options................ -- -- 817,733 1 236 -- -- -- 237
Repurchase of common
stock.................. -- -- (7,500) -- (3) -- -- -- (3)
Issuance of common stock
for acquisition of
intellectual property.. -- -- 125,000 -- 77 -- -- -- 77
Deferred compensation
related to grant of
stock options.......... -- -- -- -- 197 -- (197) -- --
Amortization of deferred
compensation........... -- -- -- -- -- -- 90 -- 90
Net loss................ -- -- -- -- -- -- -- (7,348) (7,348)
--------- --- --------- --- ------- ----- ----- -------- -------
BALANCE AT DECEMBER 31,
1997................... 6,489,732 6 3,976,285 4 14,908 (40) (107) (17,079) (2,308)
Issuance of common stock
upon exercise of stock
options (unaudited).... -- -- 20,000 -- 19 -- -- -- 19
Deferred compensation
related to grant of
stock options
(unaudited)............ -- -- -- -- 127 -- (127) -- --
Amortization of deferred
compensation
(unaudited)............ -- -- -- -- -- -- 25 -- 25
Net loss (unaudited).... -- -- -- -- -- -- -- (1,870) (1,870)
--------- --- --------- --- ------- ----- ----- -------- -------
BALANCE AT MARCH 31,
1998 (unaudited)....... 6,489,732 $ 6 3,996,285 $ 4 $15,054 $ (40) $(209) $(18,949) $(4,134)
========= === ========= === ======= ===== ===== ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
ACTUATE SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss......................... $(2,835) $(6,059) $(7,348) $(1,030) $(1,870)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Amortization of deferred
compensation.................. -- -- 90 -- 25
Depreciation................... 51 170 402 67 149
Issuance of common stock for
services and intellectual
property...................... 1 -- 78 -- --
Changes in operating assets and
liabilities:
Accounts receivable........... (6) (1,868) (1,111) 785 26
Other current assets.......... (71) (89) 99 (59) (74)
Accounts payable.............. 86 200 547 92 233
Accrued compensation.......... 118 250 629 (112) (234)
Other accrued liabilities..... 49 291 1,339 540 929
Deferred revenue.............. 350 3,160 2,512 (457) 236
------- ------- ------- ------- -------
Net cash used in operating
activities...................... (2,257) (3,945) (2,763) (174) (580)
------- ------- ------- ------- -------
INVESTING ACTIVITIES
Purchases of property and
equipment....................... (286) (335) (1,003) (207) (176)
Purchases of short-term
investments..................... -- -- (290) -- --
Proceeds from maturity of short-
term investments................ 3,547 -- -- -- 290
Increase in other assets......... (23) (44) (53) (11) (34)
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities............ 3,238 (379) (1,346) (218) 80
------- ------- ------- ------- -------
FINANCING ACTIVITIES
Proceeds from issuance of common
stock........................... 21 9 234 11 19
Payments on capital lease
obligations..................... (41) (114) (93) (37) (34)
Proceeds from issuance of
preferred stock................. -- 3,988 5,829 -- --
Proceeds from sale and leaseback
of equipment.................... 232 229 -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities............ 212 4,112 5,970 (26) (15)
------- ------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents............ 1,193 (212) 1,861 (418) (515)
Cash and cash equivalents at
beginning of year............... 59 1,252 1,040 1,040 2,901
------- ------- ------- ------- -------
Cash and cash equivalents at end
of year......................... $ 1,252 $ 1,040 $ 2,901 $ 622 $ 2,386
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF
NONCASH FINANCING ACTIVITIES
Issuance of common stock for note
receivable...................... $ 40 $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid.................... $ 12 $ 36 $ 81 $ 10 $ 10
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED MARCH
31, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
The Company has incurred operating losses to date and incurred a net loss of
$7.3 million for the year ended December 31, 1997 and $1.9 million for the
three months ended March 31, 1998. At December 31, 1997 and March 31, 1998,
the Company had a working capital deficiency of $3.4 million and $5.3 million,
respectively. The Company anticipates additional debt or equity funding may be
needed to finance expected operations in the fiscal year ending December 31,
1998 and for existing obligations. If such additional funding is not
available, management believes, based on anticipated obligations, that
available resources will be sufficient to enable the Company to meet its
obligations through at least December 31, 1998. If anticipated operations are
not achieved, management has the intent and believes it has the ability to
delay or reduce expenditures so as not to require additional financial
resources if such resources were not available (see Note 10--Bank Line of
Credit).
INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 1998, and for the three months
ended March 31, 1997 and 1998 are unaudited but include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and
the operating results and cash flows for those periods. Results for the three
months ended March 31, 1998 are not necessarily indicative of results to be
expected for the entire year.
INVESTMENT IN AFFILIATE
In 1996, the Company made an equity investment of approximately $95,000 in
Actuate Japan Company Ltd. ("Actuate Japan"). This represented approximately
8.3% of the outstanding voting stock of Actuate Japan. This investment is
accounted for on the equity basis due to the Company's ability to exercise
significant influence. During 1996, the Company loaned a total of $160,000 in
the form of loans. An additional $100,000 was advanced in 1997. The equity
investment and remaining outstanding loans were fully written down as of
December 31, 1997 due to impairment indicators.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ materially from these
estimates.
NET REVENUE
The Company recognizes revenue from license fees when a non-cancelable
license agreement has been signed with an end user customer or indirect
channel partner, the software product covered by the license agreement has
been shipped, there are no uncertainties surrounding product acceptance, the
license fees are fixed and determinable, and collection of the license fee is
considered probable. The Company's products do not require significant
customization.
Revenue from license fees from sales of software products directly to end-
users is recognized as revenue after execution of a license agreement or
receipt of a definitive purchase order, and shipment of the product, if no
significant vendor obligations remain and collection of the resulting
receivables is
F-7
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
deemed probable. The majority of end user license revenues are derived from
end user customer orders for specific individual products. These types of
transactions are recognized as revenue upon shipment of product. Advance
payments from end-users, in arrangements in which the end user customer has
the right to future unspecified products, are deferred and recognized as
revenue ratably over the estimated term of the period, typically one year,
during which the end-user is entitled to receive the products.
License arrangements with enterprise application vendors, resellers and
distributors generally take the form of either (a) fixed price arrangements in
which the contracting entity has the right to the unlimited usage and resale
of the licensed software for a specified term and pursuant to which license
fee revenue is deferred and recognized on a straight-line basis over the term
of the license agreement or (b) arrangements pursuant to which a royalty is
paid to the Company, which the Company recognizes as revenue based on the
enterprise application vendor's sell-through.
Service revenues are primarily comprised of revenue from maintenance
agreements, training and consulting fees. Revenue from maintenance agreements
is deferred and recognized on a straight-line basis as service revenue over
the life of the related agreement, which is typically one year. Service
revenues from training and consulting are recognized upon completion of the
work to be performed.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-
2"). Effective January 1, 1998, the Company adopted SOP 97-2. SOP 97-2
generally requires revenue earned on software arrangements involving multiple
elements such as software products, upgrades, enhancements, postcontract
customer support, installation and training to be allocated to each element
based on the relative fair values of the elements. The fair value of an
element must be based on evidence which is specific to the vendor. The revenue
allocated to software products, including specified upgrades or enhancements,
generally is recognized upon delivery of the products. The revenue allocated
to unspecified upgrades and updates and postcontract customer support
generally is recognized as the services are performed. If evidence of the fair
value for all elements of the arrangement does not exist, all revenue from the
arrangement is deferred until such evidence exists or until all elements are
delivered. There was no material change to the Company's accounting for
revenues as a result of the adoption of SOP 97-2.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of cash deposited with banks and highly
liquid high quality debt securities with original maturities of 90 days or
less. All short-term investments are classified as available-for-sale, are
carried at amortized cost, which approximates fair value, and consist of high
quality debt securities with original maturities between 90 days and one year.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of marketable investments and accounts
receivable. The Company places its investments with high-credit-quality
multiple issuers. The Company sells to a diverse customer base primarily to
customers in the United States. No single customer accounts for more than 10%
of the Company's sales. The Company does not require collateral on sales with
credit terms. During the years ended
F-8
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
December 31, 1996 and 1997, respectively, the Company added approximately
$82,000 and $630,000 to its bad debt reserves. Total write-offs of
uncollectible amounts were zero and approximately $139,000 in these years,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values for marketable debt securities are based on quoted market
prices. The carrying value of these securities approximate their fair value.
The fair value of notes is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. The carrying
value of the note receivable from officer approximates the fair value.
The fair value of short-term and long-term capital lease obligations is
estimated based on current interest rates available to the Company for debt
instruments with similar terms, degree of risk and remaining maturities. The
carrying value of these obligations approximates their respective fair values.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion
of a working model. Costs incurred by the Company between completion of the
working model and the point at which the product is ready for general release
have been insignificant. Through December 31, 1997, all research and
development costs have been expensed.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets which range from three to five years.
Assets held under capital leases are amortized over the shorter of the asset
life or the remaining lease term. The related amortization expense is included
in depreciation expense.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
Company has elected to follow Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees" and related
interpretations and to adopt the pro forma disclosure alternative as described
in SFAS 123 in accounting for its employee stock option plan (see Note 8).
NET LOSS PER SHARE
Net loss per share is presented under Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 requires the
presentation of basic earnings (loss) per share and diluted earnings (loss)
per share, if more dilutive, for all periods presented. Pursuant to SEC Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock
issued for nominal
F-9
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
consideration, prior to the anticipated effective date of the IPO are included
in the calculation of basic and diluted net loss per share as if they had been
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.
In accordance with SFAS 128, basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period. Basic pro forma net loss per share as presented in the statement
of operations has been computed as described above and also gives effect,
under Securities and Exchange Commission guidance, to the conversion of the
convertible preferred stock that will automatically convert upon completion of
the Company's proposed initial public offering (using the if-converted method)
from the original date of issuance. If the offering contemplated by this
Prospectus is consummated, all of the convertible preferred stock outstanding
as of March 31, 1998 will automatically be converted into an aggregate of
6,489,732 shares of common stock, based on the shares of convertible preferred
stock outstanding as of March 31, 1998. Unaudited pro forma shareholders'
equity at March 31, 1998, as adjusted for the conversion of convertible
preferred stock, is disclosed on the balance sheet.
A reconciliation of shares used in the calculation of basic and diluted and
pro forma net loss per share follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss...................... $(2,835) $(6,059) $(7,348) $(1,030) $(1,870)
Basic and diluted:
Weighted-average shares of
common stock outstanding... 2,728 3,033 3,578 3,060 3,981
Weighted-average shares
subject to repurchase...... (137) (292) (658) (337) (685)
------- ------- ------- ------- -------
Shares used in computing basic
and diluted net loss per
share........................ 2,591 2,741 2,920 2,723 3,296
======= ======= ======= ======= =======
Basic and diluted net loss per
share........................ $ (1.09) $ (2.21) $ (2.52) $ (0.38) $ (0.57)
======= ======= ======= ======= =======
Pro forma:
Shares used above
Adjusted to reflect the
weighted effect of the
assumed conversion of
convertible
preferred stock............ 6,020 6,490
------- -------
Shares used in computing pro
forma basic and diluted net
loss per share............. 8,940 9,786
======= =======
Pro forma basic and diluted
net loss per share
(unaudited)................ $ (0.82) $ (0.19)
======= =======
</TABLE>
Had the Company been in a net income position, diluted earnings per share
for fiscal year 1997 and the three months ended March 31, 1998 would have
included the shares used in the computation of pro forma basic net loss per
share as well as the dilutive effect of 229,270 and 479,193 shares,
respectively, related to outstanding options, calculated using the treasury
method.
F-10
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130") which will be required to be adopted by the Company in
the year ended December 31, 1998. The Company adopted SFAS 130 in the three
months ended March 31, 1998. There was no impact to the Company as a result of
the adoption of SFAS 130, as there is no difference between the Company's
reported net loss and the comprehensive net loss under SFAS 130 for the
periods presented.
SEGMENTS
In June 1997, the FASB issued SFAS 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS 131 is effective for the fiscal year
ended December 31, 1998 and establishes standards for disclosures about
products, geographies and major customers. The Company expects that
implementation of this standard will not have a material effect on its
financial statement disclosures.
2. INVESTMENT IN AFFILIATE
In March 1996, the Company established a joint venture company in Japan with
six other corporate partners, receiving approximately 8.3% of the equity
ownership of the venture known as Actuate Japan. For the year ended December
31, 1997 and the three months ended March 31, 1998, royalties received from
sales made by Actuate Japan were approximately $56,000 and $8,000,
respectively.
The Company has a call option for all of the shares issued to the other
investors. The price to purchase the remaining (approximately 92%) of Actuate
Japan at December 31, 1997 would have been a maximum of 220,000,000 yen
(approximately $1,680,000).
In March 1999, or nine months following a public offering of the Company,
the other corporate partners have the right to cause the Company to buy all of
their outstanding shares, at a specified price, for securities of the Company,
cash or through the reduction of a future royalty stream.
3. SHARE PURCHASE AGREEMENT
Under a share purchase agreement dated March 1996, and related agreements,
the Company agreed to grant a license to a Dutch corporation, Actuate B.V.
This license permits Actuate B.V. to produce, commercialize, sell and support
the Company's products through wholly owned operating companies in France,
England and Germany. The Company has no equity ownership in Actuate B.V.
The Company has a right of first refusal to purchase the shares of Actuate
B.V., which may be tendered to the Company by Actuate B.V. shareholders at any
stage at a specified price, dependent upon timing and company status.
F-11
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. SHORT-TERM INVESTMENTS
The following table summarizes the amortized cost, which approximates the
fair value of the Company's investments and their contractual maturities (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Corporate debt obligations...................................... $2,073
======
Included in cash and cash equivalents........................... $1,783
Included in short-term investments.............................. 290
------
Due within one year............................................. $2,073
======
</TABLE>
Unrealized gains and losses at December 31, 1997 and realized gains and
losses for the year ended December 31, 1997 were not material.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
----- ------
<S> <C> <C>
Furniture and fixtures........................................ $ 105 $ 282
Computers and purchased software.............................. 624 1,450
----- ------
729 1,732
Less accumulated depreciation................................. (234) (636)
----- ------
Property and equipment, net................................... $ 495 $1,096
===== ======
</TABLE>
Property and equipment includes certain furniture, computers and equipment
financed under capital leases. The cost and accumulated depreciation of such
assets under capital leases was approximately $564,000 and $213,000 at
December 31, 1996 and $564,000 and $381,000 at December 31, 1997,
respectively.
6. NOTE RECEIVABLE
As of December 31, 1996 and 1997, the Company had outstanding a note
receivable under full recourse terms from an officer of the Company in the
amount of $40,375, for the issuance of 269,167 shares of common stock upon
exercise of the shareholders stock options. Interest accrues at the rate of
6.28% per annum. The entire principal balance, together with all accrued
interest, becomes due and payable in one lump sum on September 22, 2000.
7. COMMITMENTS
OPERATING LEASE COMMITMENTS
The Company leases its facilities under noncancelable operating leases
expiring in May 2000 and May 2002. The Company also leases equipment under
operating lease agreements. Rent expense for facilities under operating leases
was approximately $96,000, $189,000 and $441,000 for the years
F-12
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
ended December 31, 1995, 1996 and 1997, respectively. Future minimal rental
commitments under operating leases are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal year
1998................................................................. $ 781
1999................................................................. 767
2000................................................................. 689
2001................................................................. 633
2002................................................................. 345
------
$3,215
======
</TABLE>
CAPITAL LEASE OBLIGATIONS
The Company leases certain furniture, computers and equipment under
noncancelable capital leases resulting from sale and leaseback transactions.
Obligations under capital leases represent the present value of future
noncancelable rental payments under various lease agreements. Upon completion
of each lease, the Company has the option to renew the lease or purchase the
equipment for 15% of the original purchase price.
Future minimum lease payments under capital leases are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Fiscal year ended
1998........................................................... $ 158
1999........................................................... 102
2000........................................................... 36
-----
Total minimum lease payments.................................... 296
Less amount representing interest............................... (47)
-----
Present value of net minimum lease payments..................... 249
Less current portion............................................ (125)
-----
Long-term portion............................................... $ 124
=====
</TABLE>
8. SHAREHOLDERS EQUITY
CONVERTIBLE PREFERRED STOCK
A summary of convertible preferred stock is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1996 1997
---------------------------------- ----------------------------------
ISSUED AND LIQUIDATION ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING PREFERENCE AUTHORIZED OUTSTANDING PREFERENCE
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series A................ 2,040,000 2,040,000 $1,020,000 2,040,000 2,040,000 $ 1,020,000
Series B................ 2,333,334 2,333,334 3,500,001 2,333,334 2,333,334 3,500,001
Series B1............... 2,333,334 -- -- 2,333,334 -- --
Series C................ 1,176,471 1,176,471 4,000,001 1,176,471 1,176,471 4,000,001
Series C1............... 1,176,471 -- -- 1,176,471 -- --
Series D................ -- -- -- 939,927 939,927 5,855,745
Series D1............... -- -- -- 939,927 -- --
--------- --------- ---------- ---------- --------- -----------
9,059,610 5,549,805 $8,520,002 10,939,464 6,489,732 $14,375,747
========= ========= ========== ========== ========= ===========
</TABLE>
F-13
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
Each share of Series A, B, B1, C, C1, D and D1 preferred stock is
convertible, at the option of the holder, into a share of common stock, on a
one-for-one basis, subject to certain adjustments for dilution, if any,
resulting from future stock issuances or stock splits or combinations.
Additionally, the preferred shares automatically convert into common stock
concurrent with the closing of an underwritten public offering of common stock
under the Securities Act of 1933 in which the Company receives at least
$10,000,000 in gross proceeds and the price per share is at least $9.00
(subject to adjustment for a recapitalization or certain other stock
adjustments). With the exception of certain protective voting provisions, the
Series A, B, B1, C, C1, D and D1 preferred shareholders have voting rights
equal to the common shares they would own upon conversion.
Series A, B, B1, C, C1, D and D1 preferred shareholders are entitled to
annual noncumulative dividends, before and in preference to any dividends paid
on common stock, when and as declared by the board of directors. No dividends
have been declared through December 31, 1997.
The Series A, B, B1, C, C1, D and D1 preferred shareholders are entitled to
receive, upon liquidation or merger, a distribution of $0.50, $1.50, $1.50,
$3.40, $3.40, $6.23 and $6.23 per share, respectively (subject to adjustment
for a recapitalization) plus all declared but unpaid dividends. Thereafter,
the remaining assets and funds, if any, shall be distributed ratably on a per-
share basis among the common shareholders and the Series A, B, B1, C, C1, D
and D1 preferred shareholders.
If, upon liquidation, the assets and funds distributed among the preferred
shareholders are insufficient to permit the entitled payment, the entire
assets and funds of the Company legally available for distribution shall be
distributed ratably among the holders of Series A, B, B1, C, C1, D and D1
preferred shares in proportion to the aggregate preferential amounts owed to
each such holder.
After the earlier of December 1, 1998 or three months after the effective
date of the first registration statement for a public offering of the
Company's securities, at least 30% of the preferred shareholders may request
the Company to file a registration statement for aggregate proceeds in excess
of $7,500,000, as defined in the agreement. No more than two such registration
statements may be requested and such request may be deferred for up to 120
days in the event that the CEO of the Company considers such filing to be
detrimental to the Company. The preferred shareholders also hold certain
additional registration rights.
The Company's Articles of Incorporation designate the rights, preferences
and privileges of Series B1, C1 and D1 preferred stock. Shares of Series B1,
C1 and D1 preferred stock are automatically issuable in the event that a
holder of the Company's Series B, C or D preferred stock does not purchase its
pro rata share of a dilutive equity financing of the Company. If a holder
chooses not to participate for its pro rata share of a dilutive equity
financing, each share of the Series B, C or D preferred stock, as applicable,
is automatically converted upon closing of the financing into one share of the
derivative series of preferred stock, either Series B1, C1 or D1 preferred
stock, as applicable. The Series B1, C1 and D1 preferred shares have the
identical rights as the original Series B, C and D preferred shares except
that the Series B1, C1 and D1 preferred stock have no price-based antidilution
protection.
COMMON STOCK
As of December 31, 1996 and 1997, the Company has reserved 5,549,805 and
6,489,732 shares of common stock, respectively, for issuance upon conversion
of its Series A, B and C preferred stock.
F-14
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
STOCK OPTION PLAN
In May 1994, the board of directors adopted the 1994 Stock Option Plan (the
"Option Plan") for issuance of common stock to employees, consultants and
nonemployee directors. There are 2,097,100 shares of common stock reserved for
issuance under this Plan as of December 31,1997.
Options granted may be either incentive stock options or nonstatutory stock
options. Incentive stock options may be granted to employees with exercise
prices of no less than the fair value and nonstatutory options may be granted
to eligible participants at exercise prices of no less than 85% of the fair
value of the common stock on the grant date as determined by the Plan
Administrator. Options are generally exercisable upon grant, subject to
repurchase rights by the Company until vested. Shares generally vest at the
rate of 20% after one year from the date of grant, with the remaining balance
vesting monthly over the next four years. However, the Company has the
discretion to accelerate the vesting at the time an option is granted or at
any time while the option remains outstanding. All options outstanding will
automatically vest at the time of an acquisition, unless the option is either
assumed by the successor corporation or the option is replaced with a cash
incentive program to preserve the spread existing between the fair value and
the exercise price.
At December 31, 1996 and 1997, 260,293 and 770,436 shares of common stock
issued under the Plan were subject to repurchase by the Company, respectively.
All outstanding repurchase rights under the Plan shall terminate automatically
upon the occurrence of any merger, consolidation, or disposition of all or
substantially all of the Company's assets, except to the extent the repurchase
rights are expressly assigned to the successor corporation.
Activity under the Plan was as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES ---------------------- WEIGHTED-
AVAILABLE NUMBER OF PRICE PER AVERAGE
FOR GRANT SHARES SHARE EXERCISE PRICE
---------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Balance at December 31,
1994..................... 815,500 25,000 $ 0.03 $0.03
Options granted......... (815,500) 815,500 $ 0.15 $0.15
Options exercised....... -- (427,500) $0.03-$0.15 $0.14
---------- --------- ----------- -----
Balance at December 31,
1995..................... -- 413,000 $ 0.15 $0.15
Additional
authorization.......... 182,000 -- -- --
Options granted......... (159,500) 159,500 $0.15-$0.34 $0.29
Options exercised....... -- (6,750) $ 0.15 $0.15
Options forfeited....... 56,000 (56,000) $0.15-$0.34 $0.18
---------- --------- ----------- -----
Balance at December 31,
1996..................... 78,500 509,750 $0.15-$0.34 $0.19
Additional
authorization.......... 1,074,600 -- -- --
Options granted......... (1,146,350) 1,146,350 $0.34-$2.10 $0.81
Options exercised....... -- (817,733) $0.15-$1.25 $0.29
Options forfeited....... 36,417 (36,417) $0.15-$0.62 $0.34
Options repurchased..... 7,500 -- $ 0.34 $0.34
---------- --------- ----------- -----
Balance at December 31,
1997..................... 50,667 801,950 $0.15-$2.10 $0.97
Additional authorization
(unaudited)............ 678,250 -- -- --
Options granted
(unaudited)............ (158,900) 158,900 $2.10-$3.00 $2.60
Options exercised
(unaudited)............ -- (20,000) $0.15-$3.00 $0.90
Options forfeited
(unaudited)............ 35,400 (35,400) $0.34-$2.10 $1.10
---------- --------- ----------- -----
Balance at March 31,
1998 (unaudited)....... 605,417 905,450 $0.15-$3.00 $1.26
========== ========= =========== =====
</TABLE>
The weighted-average deemed fair value of stock options granted in fiscal
year 1996 and 1997 was $0.05 and $0.21, respectively.
F-15
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
The following table summarizes information concerning outstanding and
exercisable options:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------------------------------
WEIGHTED-
AVERAGE
RANGE OF OPTIONS REMAINING WEIGHTED-
EXERCISE OUTSTANDING AND CONTRACTUAL AVERAGE
PRICES EXERCISABLE LIFE EXERCISE PRICE
-------- --------------- ----------- --------------
<S> <C> <C> <C>
$0.15-$0.62 489,450 9.3 years $0.46
$1.25-$2.10 312,500 9.8 years $1.77
-------
$0.15-$2.10 801,950 9.5 years $0.97
=======
</TABLE>
At December 31, 1996 and 1997, 117,099 and 26,037 outstanding options were
vested, respectively.
STOCK COMPENSATION
The Company recorded deferred compensation of approximately $197,000 and
$127,000 during the year ended December 31, 1997 and three months ended March
31, 1998, respectively. These amounts represent the difference between the
exercise price and the deemed fair value of the Company's common stock during
the periods in which such stock options were granted. The Company recorded
amortization of deferred compensation as an expense of approximately $90,000
and $25,000, respectively, during these periods. At March 31, 1998, the
Company has a total of approximately $209,000 remaining to be amortized over
the corresponding vesting period of each respective option, generally five
years (see Note 10--Option Grants).
PRO FORMA INFORMATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of SFAS
123. The fair value for these options was estimated at the date of grant using
the minimum value method with the following weighted-average assumptions for
fiscal year 1995, 1996 and 1997: risk-free interest rate of approximately
6.6%, 6.0% and 6.0%, respectively; a weighted-average expected life of the
option of five years and a dividend yield of zero for all periods.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss (in thousands):
As reported................................. $ (2,835) $ (6,059) $ (7,348)
Pro forma................................... $ (2,840) $ (6,067) $ (7,376)
Basic and diluted net loss per share:
As reported................................. $ (1.09) $ (2.21) $ (2.52)
Pro forma................................... $ (1.10) $ (2.21) $ (2.52)
</TABLE>
F-16
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
9. INCOME TAXES
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $14,800,000. The Company also had federal
research and development tax credit carryforwards of approximately $300,000 at
December 31, 1997. The net operating loss and credit carryforwards will expire
beginning in 2008 through 2012, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets for federal and state income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 3,300 $ 5,200
Research credit carryforwards.............................. 200 500
Capitalized research and development....................... 200 300
Warranty reserve........................................... -- 400
Other, net................................................. 200 400
------- -------
Total deferred tax assets.................................. 3,900 6,800
Valuation allowance........................................ (3,900) (6,800)
------- -------
$ -- $ --
======= =======
</TABLE>
The net valuation allowance increased by $2,300,000 during the year ended
December 31, 1996.
10. SUBSEQUENT EVENTS
BANK LINE OF CREDIT
On May 26, 1998, the Company obtained a bank line of credit which provides
for up to $5.0 million in borrowings. The Company can borrow up to 80% of
eligible accounts receivable against the line of credit. The interest rate on
borrowed amounts is prime plus 2.25%. The Company is required to comply with
various financial covenants, is prohibited from paying dividends and the
Company must deposit $3.0 million of the proceeds of the proposed initial
public offering with the lender through May 25, 1999, the maturity date of the
line of credit.
OPTION GRANTS
In April 1998, the Company's Board of Directors authorized the grant of
options to acquire an aggregate of 115,000 shares of the Company's Common
Stock with a weighted average exercise price of $5.04 per share. The Company
will record deferred stock compensation of $229,000 in connection with these
options which it will recognize over the vesting period of the options.
F-17
<PAGE>
ACTUATE SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
REINCORPORATION, AMENDMENT TO THE ARTICLES OF INCORPORATION
During May 1998, the Company's Board of Directors authorized the
reincorporation, effective prior to the Company's initial public offering, of
the Company in the State of Delaware. Upon reincorporation, the Company will
be authorized to issue 35,000,000 shares of Common Stock, $0.001 par value and
5,000,000 shares of undesignated Preferred Stock, $0.001 par value.
1998 EQUITY INCENTIVE PLAN
On May 27, 1998, the Company's Board of Directors adopted the 1998 Equity
Incentive Plan (the "Plan"), subject to stockholder approval. A total of
1,300,000 shares were reserved for issuance under the Plan, including any
shares remaining available for grant under the 1994 Stock Option Plan. Each
year, the number of shares reserved for issuance under the Plan will be
increased by the lesser of 700,000 shares or 5% of the total number of shares
of Common Stock then outstanding.
1998 EMPLOYEE STOCK PURCHASE PLAN
On May 27, 1998, the Company's Board of Directors adopted the 1998 Employee
Stock Purchase Plan (the "Purchase Plan"), subject to stockholder approval. A
total of 250,000 shares of Common Stock have been reserved for issuance
thereunder with annual increases of 150,000 shares. The Purchase Plan permits
eligible employees to acquire shares of the Company's Common Stock through
periodic payroll deductions of up to 15% of base compensation. No more than
1,000 shares may be purchased on any purchase date per employee. Each offering
period will have a maximum duration of 24 months. The price at which the
Common Stock may be purchased is 85% of the lesser of the fair market value of
the Company's Common Stock on the first day of the applicable offering period
or on the last day of the respective purchase period. The initial offering
period will commence on the effectiveness of the initial public offering and
will end on July 31, 2000.
1998 NON-EMPLOYEE DIRECTORS OPTION PLAN
On May 27, 1998, the Company's Board of Directors adopted the 1998 Non-
Employee Directors Option Plan (the "Directors Option Plan"), subject to
approval by the stockholders. For issuance under the Directors Option Plan,
200,000 shares of Common Stock have been authorized. No shares have been
issued to date. Each individual who joints the Board as a non-employee
director on or after the effective date of the Directors Option Plan and after
the date of the initial public offering will receive at that time an automatic
option grant of 20,000 shares of Common Stock. The initial grant will vest
over 5 years, with the first 20% of the grant vesting after one year.
Additional grants of 2,500 shares per annum will automatically be made at each
annual shareholder meeting to each non-employee director.
F-18
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co. and Deutsche Bank Securities Inc. are acting as representatives
(the "Representatives"), has severally agreed to purchase from the Company and
the Selling Stockholders, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co. ..............................................
Deutsche Bank Securities Inc.......................................
---
Total..........................................................
===
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company and the Selling Stockholders have granted the Underwriters an
option exercisable for 30 days after the date of this Prospectus to purchase
up to an aggregate of additional shares of Common Stock to cover over-
allotments, if any. If the Underwriters exercise their over-allotment option,
the Underwriters have severally agreed, subject to certain conditions, to
purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them, as shown in the foregoing table, bears to the
shares of Common Stock offered.
The Company and Selling Stockholders have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of the Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) which are substantially similar to the shares of Common Stock
or which are convertible into or exchangeable for securities which are
substantially similar to the shares of Common Stock without the prior written
consent of the representatives, except for the shares of Common Stock offered
in connection with the offering.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby determined through negotiations among the Company, the
Selling Stockholders and the Representatives. Among the factors to be
considered in determining the initial public offering price of the Common
Stock, in addition
U-1
<PAGE>
to prevailing market conditions, are the Company's historical performance,
estimates of the business potential and earning prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
Application has been made for listing on the Nasdaq National Market under
the symbol "ACTU".
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
In connection with the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Company in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in the offering for their account may be reclaimed by the
syndicate if such Common Stock are repurchased by the syndicate in stabilizing
or covering transactions. These activities may stabilize, maintain or
otherwise affect the market price of the Common stock, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market
or otherwise.
The Underwriters have reserved for sale, at the initial public offering
price, up to % of the Common Stock offered hereby for certain individuals
designated by the Company who have expressed an interest in purchasing such
shares of Common Stock in the offering. The number of shares available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares not so purchased will be offered by
the Underwriters to the general public on the same basis as other shares
offered hereby.
U-2
<PAGE>
ACTUATE REPORTING SYSTEM GRAPHIC
Description: Graphic illustration of boxes representing each of Actuate's
software products arranged in circular form and connected to a single hub.
Below are computer screenshots exhibiting an HTML Report, ReportCast Channel
and Actuate Report Encyclopedia.
Caption: The Actuate Reporting System is a scalable, dynamic reporting
platform which is designed to allow organizations to replace traditional
paper-based and online reports with Live Report Documents.
Screenshots Captions:
HTML Report
Actuate can generate HTML reports that resemble standard internet pages.
These HTML reports can include graphs, GIF images and standard URL links to
other reports or web pages, as well as incorporate Java applets.
ReportCast Channels
Actuate's ReportCast Channels focus the delivery of corporate content in a
predetermined user-specific format to an organization's employees, customers
and partners. Users can click on the headline to actively view the report in
its entirety.
Report Encyclopedia
Actuate's Report Encyclopedia organizes reports and components into
hierarchical folders for simplified access. The auto-versioning feature groups
reports together for easier administration.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 30
Management................................................................ 42
Certain Transactions...................................................... 50
Principal and Selling Stockholders........................................ 52
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 57
Legal Matters............................................................. 58
Experts................................................................... 58
Additional Information.................................................... 58
Index to Financial Statements............................................. F-1
Underwriting.............................................................. U-1
</TABLE>
----------------
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PRO-
SPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
ACTUATE SOFTWARE CORPORATION
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
----------------
(LOGO)
----------------
GOLDMAN, SACHS & CO.
DEUTSCHE BANK SECURITIES
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 fees.
<TABLE>
<S> <C>
SEC registration fee.................................................... *
NASD fee................................................................ *
Nasdaq National Market listing fee...................................... *
Printing and engraving expenses......................................... *
Legal fees and expenses................................................. *
Accounting fees and expenses............................................ *
Blue sky fees and expenses.............................................. *
Transfer agent fees..................................................... *
Miscellaneous fees and expenses......................................... *
----
Total................................................................. *
====
</TABLE>
- --------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification 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, Section 7.6, of the
Registrant's Bylaws provides for mandatory indemnification of its directors
and officers and permissible indemnification of employees and other agents to
the maximum extent permitted by the Delaware General Corporation Law. The
Registrant's Certificate of Incorporation provides that, pursuant to Delaware
law, its directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty as directors to the Company and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company for acts
or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. Prior to the
effectiveness of the offering, the Registrant expects to enter into
Indemnification Agreements with its officers and directors, a form of which is
attached as Exhibit 10.1 hereto and incorporated herein by reference. The
Indemnification Agreements provide the Registrant's officers and directors
with further indemnification to the maximum extent permitted by the Delaware
General Corporation Law." Reference is made to Section 8 of the Underwriting
Agreement contained in Exhibit 1.1 hereto, indemnifying officers and directors
of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following transactions reflect the issuance during the previous three
years of securities not registered under the Securities Act:
1. In January 1996, the Company issued 1,176,471 shares of Series C
Preferred Stock for an aggregate purchase price of approximately $4,000,000
to a group of 9 investors.
II-1
<PAGE>
2. In May 1996, the Company issued 18,530 shares of its Common Stock with
a value of $6,300 to a consultant.
3. In April 1997, the Company issued 939,927 shares of Series D Preferred
Stock for an aggregate purchase price of approximately $5,885,745 to a
group of 16 investors.
4. In June 1997, the Company issued 1,605 shares of its Common Stock with
a value of $995 to a consultant.
5. In August and September 1997, the Company issued an aggregate of
125,000 shares of its Common Stock with a value of $124,750 in connection
with the acquisition of certain assets from Netscheme Solutions, Inc.
6. As of March 31, 1998, the Company had issued and sold 1,264,483 shares
of its Common Stock to employees at prices of between $0.03 and $2.10 per
share pursuant to exercises of options under its 1994 Stock Option Plan.
The issuances described in Items 15(1)-(6) were exempt from registration
under the Securities Act in reliance upon Rule 701 promulgated under the
Securities Act or Section 4(2) of the Securities Act as transactions by an
issuer not involving any public offering. In addition, 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 Articles issued in such transactions. All recipients had adequate
access, through their relationships with the Registrant, to information about
the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant, as amended to date.
3.2 Amended and Restated Certificate of Incorporation to be filed upon the
closing of the reincorporation of the Registrant in Delaware.
3.3 Form of Certificate of Incorporation to be filed upon the closing of
the offering made hereby.
3.4 Bylaws of the Registrant, as amended to date.
3.5 Form of Bylaws of the Registrant to be in effect upon the closing of
the reincorporation of the Registrant in Delaware.
3.6 Amended and Restated Investor Rights Agreement.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
*4.2 Specimen Common Stock Certificate.
*5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
10.1 Form of Indemnification Agreement.
10.2 1994 Stock Option Plan, as amended.
10.3 1998 Equity Incentive Plan.
10.4 1998 Employee Stock Purchase Plan.
10.5 1998 Non-Employee Directors Option Plan.
10.7 Promissory Note between the Company and Actuate Japan, Co., Ltd. dated
December 27, 1997.
10.8 Office Lease, as amended, between the Company and Insignia, Inc. dated
March 27, 1995.
10.9 Sublease Agreement between the Company and Cisco Systems, Inc. dated
January 15, 1998.
10.10 Share Purchase Agreement, as amended, between the Company and Schroder
Ventures French Enterprise Fund L.P.I., Schrader Ventures French
Enterprise Fund UKLP, SUK VFIV Nominees Limited, Michael Berman,
Pierre Braude, Patrick Chancerelle and Giles Vliegen, dated September
25, 1997.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.11 Shareholders Agreement between the Company and Air Co., Ltd., Toshiba
Information Systems Corporation, Computer Institute of Japan, Ltd.,
Sumitomo Metal Industries and Masanori Harada, dated March 29, 1996.
10.12 Business Loan Agreement between the Company and Silicon Valley Bank,
dated May 26, 1998.
10.13 Offer Letter between the Company and Daniel A. Gaudreau dated May 7,
1997.
10.14 Offer Letter between the Company and Hamid Bahadori dated May 20,
1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors dated June 1, 1998.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set forth
therein is not applicable or is readily available in the financial statements
or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, Articles 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 Delaware General Corporation Law, the Restated
Certificate of Incorporation or the Bylaws of the Registrant, the Underwriting
Agreement, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the 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 hereunder, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The 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, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN
MATEO, CALIFORNIA, ON THIS 1ST DAY OF JUNE, 1998.
Actuate Software Corporation
/s/ Daniel A. Gaudreau
By: _________________________________
DANIEL A. GAUDREAU
CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Nicolas C. Nierenberg and Daniel A.
Gaudreau, and each of them, his or her true and lawful attorneys-in-fact and
agents with full power of substitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or his, her or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ Nicolas C. Nierenberg
President, Chief June 1, 1998
- ------------------------------------- Executive Officer
NICOLAS C. NIERENBERG and Director
(Principal
Executive Officer)
/s/ Daniel A. Gaudreau Chief Financial June 1, 1998
- ------------------------------------- Officer, Vice
DANIEL A. GAUDREAU President Finance
(Principal
Financial and
Accounting Officer)
/s/ James Breyer Director June 1, 1998
- -------------------------------------
JAMES BREYER
/s/ Arthur Patterson Director June 1, 1998
- -------------------------------------
ARTHUR PATTERSON
/s/ Nancy Schoendorf Director June 1, 1998
- -------------------------------------
NANCY SCHOENDORF
/s/ Steven Whiteman Director June 1, 1998
- -------------------------------------
STEVEN WHITEMAN
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant, as amended to date.
3.2 Amended and Restated Certificate of Incorporation to be filed upon
the closing of the reincorporation of the Registrant in Delaware.
3.3 Form of Certificate of Incorporation to be filed upon the closing
of the offering made hereby.
3.4 Bylaws of the Registrant, as amended to date.
3.5 Form of Bylaws of the Registrant to be in effect upon the closing
of the reincorporation of the Registrant in Delaware.
3.6 Amended and Restated Investor Rights Agreement.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
*4.2 Specimen Common Stock Certificate.
*5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1 Form of Indemnification Agreement.
10.2 1994 Stock Option Plan, as amended.
10.3 1998 Equity Incentive Plan.
10.4 1998 Employee Stock Purchase Plan.
10.5 1998 Non-Employee Directors Option Plan.
10.7 Promissory Note between the Company and Actuate Japan, Co., Ltd.
dated December 27, 1997.
10.8 Office Lease, as amended, between the Company and Insignia, Inc.
dated March 27, 1995.
10.9 Sublease Agreement between the Company and Cisco Systems, Inc.
dated January 15,1998.
10.10 Share Purchase Agreement, as amended, between the Company and
Schroder Ventures French Enterprise Fund L.P.I., Schrader Ventures
French Enterprise Fund UKLP, SUK VFIV Nominees Limited, Michael
Berman, Pierre Braude, Patrick Chancerelle and Giles Vliegen,
dated September 25, 1997.
10.11 Shareholders Agreement between the Company and Air Co., Ltd.,
Toshiba Information Systems Corporation, Computer Institute of
Japan, Ltd., Sumitomo Metal Industries and Masanori Harada, dated
March 29, 1996.
10.12 Business Loan Agreement between the Company and Silicon Valley
Bank, dated May 26, 1998.
10.13 Offer Letter between the Company and Daniel A. Gaudreau dated May
7, 1997.
10.14 Offer Letter between the Company and Hamid Bahadori dated May 20,
1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors dated June 1,
1998.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF ACTUATE SOFTWARE CORPORATION,
a California Corporation
The undersigned, Nicolas Nierenberg and Edward M. Leonard, hereby
certify that:
ONE: They are the duly elected and acting President and Assistant
Secretary, respectively, of said corporation.
TWO: The Articles of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Actuate Software Corporation.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. This corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Thirty Million Nine Hundred Thirty-Nine Thousand Four Hundred Sixty-Four
(30,939,464) shares. Twenty Million (20,000,000) shares shall be Common Stock
and Ten Million Nine Hundred Thirty-Nine Thousand Four Hundred Sixty-Four
(10,939,464) shares shall be Preferred Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by these Amended and Restated Articles of
Incorporation may be issued from time to time in one or more series. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of 2,040,000 shares, the Series B
Preferred Stock, which series shall consist of 2,333,334 shares, the Series B1
Preferred Stock, which series shall consist of 2,333,334 shares, the Series C
Preferred Stock, which series shall consist of 1,176,471
<PAGE>
shares, the Series C1 Preferred Stock, which series shall consist of 1,176,471
Shares, the Series D Preferred Stock, which series shall consist of 939,927
shares, and the Series D1 Preferred Stock, which series shall consist of 939,927
shares, are as set forth below in this Article III(B). The Board of Directors is
hereby authorized to fix or alter the rights, preferences, privileges and
restrictions granted to or imposed upon additional series of Preferred Stock,
and the number of shares constituting any such series and the designation
thereof, or of any of them. Subject to compliance with applicable protective
voting rights which have been or may be granted to the Preferred Stock or series
thereof in Certificates of Determination or the corporation's Articles of
Incorporation ("Protective Provisions"), but notwithstanding any other rights of
the Preferred Stock or any series thereof, the rights, privileges, preferences
and restrictions of any such additional series may be subordinated to, pari
----
passu with (including, without limitation, inclusion in provisions with respect
- -----
to liquidation and acquisition preferences, redemption and/or approval of
matters by vote or written consent), or senior to any of those of any present or
future class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series, prior or subsequent to
the issue 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.
1. Dividend Provisions. Subject to the rights of series of Preferred
-------------------
Stock which may from time to time come into existence, the holders of shares of
Series A Preferred Stock, Series B Preferred Stock, Series B1 Preferred Stock,
Series C Preferred Stock, Series C1 Preferred Stock, Series D Preferred Stock
and Series D1 Preferred Stock shall, on a pari passu basis, be entitled to
receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation) on the Common Stock of this corporation, at the rate
of $0.04 per share per annum with respect to the Series A Preferred Stock, $0.12
per share per annum with respect to the Series B Preferred Stock and Series B1
Preferred Stock, $0.272 per share per annum with respect to the Series C
Preferred Stock and Series C1 Preferred Stock, and $0.498 per share per annum
with respect to the Series D Preferred Stock and Series D1 Preferred Stock, or,
if greater (as determined on a per annum basis and an as-converted basis for
each such series of Preferred Stock), an amount equal to that paid on any other
outstanding shares of this corporation, payable quarterly when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative.
2.
<PAGE>
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock, Series B Preferred Stock, Series B1
Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series D
Preferred Stock and Series D1 Preferred Stock shall, on a pari passu basis, be
entitled to receive, prior and in preference to any distribution of any of the
assets of this corporation to the holders of Common Stock by reason of their
ownership thereof, (i) with respect to the Series A Preferred Stock, an amount
per share equal to the sum of (A) $0.50 for each outstanding share of Series A
Preferred Stock (the "Original Series A Issue Price") and (B) an amount equal to
declared but unpaid dividends on such share; (ii) with respect to the Series B
Preferred Stock and Series B1 Preferred Stock, an amount per share equal to the
sum of (A) $1.50 for each outstanding share of Series B Preferred Stock and
Series B1 Preferred Stock (the "Original Series B Issue Price" and the "Original
Series B1 Issue Price", respectively) and (B) an amount equal to any declared
but unpaid dividends on such share; (iii) with respect to the Series C Preferred
Stock and Series C1 Preferred Stock, an amount per share equal to the sum of (A)
$3.40 for each outstanding share of Series C Preferred Stock and Series C1
Preferred Stock (the "Original Series C Issue Price" and the "Original Series C1
Issue Price", respectively) and (B) an amount equal to any declared but unpaid
dividends on such share; and (iv) with respect to the Series D Preferred Stock
and Series D1 Preferred Stock, an amount per share equal to the sum of (A) $6.23
for each outstanding share of Series D Preferred Stock and Series D1 Preferred
Stock (the "Original Series D Issue Price" and the "Original Series D1 Issue
Price", respectively) and (B) an amount equal to any declared but unpaid
dividends on such share. If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A Preferred Stock, Series
B Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock, Series
C1 Preferred Stock, Series D Preferred Stock and Series D1 Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series B1 Preferred Stock,
Series C Preferred Stock, Series C1 Preferred Stock, Series D Preferred Stock
and Series D1 Preferred Stock in proportion to the aggregate full aforesaid
preferential amounts to which each such holder would otherwise be entitled.
(b) Upon the completion of the distribution required by subparagraph
(a) of this Section 2 and any other distribution that may be required with
respect to series of Preferred Stock that may from time to time come into
existence, if assets remain in this corporation, the holders of the Common Stock
of this corporation shall receive all of the remaining assets of this
corporation.
3.
<PAGE>
(c) (i) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's shareholders of record as constituted
------
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events specified in subparagraph (c)(i), if
the consideration received by the corporation is other than cash, its value will
be deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the corporation and the
holders of at least a majority of the voting power of all then outstanding
shares of Preferred Stock.
(B) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c) are
not complied with, this corporation shall forthwith either:
4.
<PAGE>
(A) cause such closing to be postponed until such time as the
requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of Preferred Stock shall revert to and
be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock.
3. Conversion. The holders of Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of this corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Original Series A Issue Price,
Original Series B Issue Price, Original Series B1 Issue Price, Original Series C
Issue Price, Original Series C1 Issue Price, Original Series D Issue Price and
Original Series D1 Issue Price, as applicable, by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share for shares of Series A Preferred Stock, Series B Preferred Stock,
Series B1 Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock,
Series D Preferred Stock and Series D1 Preferred Stock shall be the Original
Series A Issue Price, Original Series B Issue Price, Original Series B1 Issue
Price, Original Series C Issue Price, Original Series C1 Issue Price, Original
Series D Issue Price and Original Series D1 Issue Price, respectively; provided,
however, that the Conversion Price for the Preferred Stock shall be subject to
adjustment as set forth in subsection 3(d).
5.
<PAGE>
(b) Automatic Conversion. Except as provided below in subsection
--------------------
3(c), each share of Preferred Stock shall automatically be converted into shares
of Common Stock at the applicable Conversion Price at the time in effect for
each series immediately upon the earlier of (i) the corporation's sale of its
Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
the public offering price of which is not less than $9.00 per share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization) and
$10,000,000 in the aggregate or (ii) the date specified by written consent or
agreement of the holders of a majority of the then outstanding shares of (a)
Series A, Series B and Series C Preferred Stock, voting together as a single
class on an as-converted basis and (b) the Series D Preferred Stock voting as a
single class on an as-converted basis.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to this corporation at its principal corporate office, of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Preferred Stock for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant to
such offering, in which event the person(s) entitled to receive the Common Stock
upon conversion of the Preferred Stock shall not be deemed to have converted
such Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Preferred Stock. The Conversion
-----------------------------------------------
Price of the Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) (A) If after the date upon which any shares of the Series D
Preferred Stock were first issued (the "Purchase Date"), the corporation issues
(or is deemed hereunder to have issued any shares of Additional Stock (as
defined below in Section 3(d)(ii)), without consideration or for a consideration
per share less than: (1) with respect to the Series B Preferred Stock, the
Conversion Price for the Series B Preferred Stock in effect immediately prior to
the issuance of such Additional Stock,
6.
<PAGE>
(2) with respect to the Series C Preferred Stock, the Conversion Price for the
Series C Preferred Stock in effect immediately prior to the issuance of such
Additional Stock, or (3) with respect to the Series D Preferred Stock, the
Conversion Price for the Series D Preferred Stock in effect immediately prior to
the issuance of such Additional Stock, then the Conversion Price for the Series
B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as
applicable, in effect immediately prior to each such issuance shall forthwith
(except as otherwise provided in this clause (i)) be adjusted to a price
determined by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of Common Stock which the
aggregate consideration received by the corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of such Additional Stock so issued. No adjustment
shall be made to the Conversion Price of the Series A Preferred Stock, Series B1
Preferred Stock, Series C1 Preferred Stock or Series D1 Preferred Stock pursuant
to this subsection 3(d)(i).
(B) No adjustment of the Conversion Price for the Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall be
made in an amount less than one cent per share, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in subsections (E)(3) and (E)(4), no
adjustment of such Conversion Price pursuant to this subsection 3(d)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(C) In the case of the issuance of Additional Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Additional Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
corporation's Board of Directors in good faith irrespective of any accounting
treatment.
(E) In the case of the issuance (whether before, on or
after the Purchase Date) of options, warrants or other rights to purchase or
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options, warrants or other rights to purchase
or subscribe for such convertible
7.
<PAGE>
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 3(d)(i) and subsection 3(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions
to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of
such options, warrants or other rights to purchase or subscribe for
Common Stock shall be deemed to have been issued at the time such
options, warrants or rights were issued and for a consideration equal
to the consideration (determined in the manner provided in subsections
3(d)(i)(C) and (d)(i)(D)), if any, received by the corporation upon
the issuance of such options, warrants or other rights plus the
minimum exercise price provided in such options, warrants or other
rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking
into account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise of
options, warrants or other rights to purchase or subscribe for such
convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
securities were issued or such options, warrants or other rights were
issued and for a consideration equal to the consideration, if any,
received by the corporation for any such securities and related
options, warrants or other rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the corporation
(without taking into account potential antidilution adjustments) upon
the conversion or exchange in full of such securities or the exercise
in full of any related options, warrants or other rights (the
consideration in each case to be determined in the manner provided in
subsections 3(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options, warrants or other rights or
upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, to
8.
<PAGE>
the extent in any way affected by or computed using such options,
warrants or other rights, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the
actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options, warrants or other rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options, warrants
or other rights, the termination of any such rights to convert or
exchange or the expiration of any options, warrants or other rights
related to such convertible or exchangeable securities, the Conversion
Price of the Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, to the extent in any way affected by or
computed using such options, warrants, other rights or securities or
options, warrants or other rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of
Common Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon the exercise of such options, warrants
or other rights, upon the conversion or exchange of such securities or
upon the exercise of the options, warrants or other rights related to
such securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections
3(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 3(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by this
corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction described
in subsection 3(d)(iii) hereof,
(B) shares of Common Stock issuable or issued to employees,
consultants or directors, directly or pursuant to a plan, arrangement
or agreement approved by the Board of Directors of this corporation,
(C) shares of Common Stock issued or issuable (I) in a
public offering registered under the Securities Act of 1933, as
amended, before or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock or (II) upon
exercise of warrants
9.
<PAGE>
or rights granted to underwriters in connection with such a public
offering, or
(D) the issuance of stock, warrants or other securities or
rights as approved by the Board of Directors to persons or entities
with which the Company has business relationships provided such
issuances are for other than primarily equity financing purposes.
(iii) In the event the corporation should at any time or from time
to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Preferred Stock shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of each share of each series of
Preferred Stock shall be increased in proportion to such increase of the
aggregate number of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents, with the number of shares issuable
with respect to Common Stock Equivalents determined from time to time in the
manner provided for deemed issuances in subsection 3(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Preferred Stock shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of each share
of each series of Preferred Stock shall be decreased in proportion to such
decrease in the outstanding shares of Common Stock as a result of such
combination.
(e) Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 3(d), then, in
each such case for the purpose of this subsection (e), the holders of the
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
10.
<PAGE>
(f) Recapitalizations. If at any time or from time to time there shall
-----------------
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 3
or Section 2) provision shall be made so that the holders of the Preferred Stock
shall thereafter be entitled to receive upon conversion of the Preferred Stock
the number of shares of stock or other securities or property of the Company or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 3
with respect to the rights of the holders of the Preferred Stock after the
recapitalization to the end that the provisions of this Section 3 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of the Preferred Stock pursuant to this Section 3, this
corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for such series of Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other
11.
<PAGE>
property which at the time would be received upon the conversion of a share of
such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to these articles.
(k) Notices. Any notice required by the provisions of this Section 3
-------
to be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
(1) Special Mandatory Conversion.
----------------------------
(i) At any time following the Purchase Date, if (a) the holders
of shares of Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock are entitled to exercise the right of first offer (the "Right of
First Offer") set forth in Section 2.4 of the Amended and Restated Investors'
Rights Agreement of equal date with the Purchase Date, by and between this
corporation and certain investors, as amended from time to time (the "Rights
Agreement"), with respect to an equity financing of the corporation (the "Equity
Financing"), (b) the Equity Financing would result in a Conversion Price
adjustment to the Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock as provided in subsection 3(d)(i) herein, (c) this corporation
has complied with its notice obligations, or such obligations have been waived,
under the
12.
<PAGE>
Right of First Offer with respect to such Equity Financing and this corporation
thereafter proceeds to consummate the Equity Financing and (d) such holder (a
"Non-Participating Holder") does not by exercise of such holder's Right of First
Offer acquire his, her or its pro rata share offered in such Equity Financing (a
"Mandatory Offering"), then all of such Non-Participating Holder's shares of
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
as the case may be, shall automatically and without further action on the part
of such holder be converted effective upon, subject to, and concurrently with,
the consummation of the Mandatory Offering (the "Mandatory Offering Date") into
an equivalent number of shares of Series B1 Preferred Stock, Series C1 Preferred
Stock or Series D1 Preferred Stock, respectively; provided, however, that no
-------- -------
such conversion shall occur in connection with a particular Equity Financing if,
pursuant to the written request of this corporation, such holder agrees in
writing to waive his, her or its Right of First Offer with respect to such
Equity Financing. Upon conversion pursuant to this subsection 3(1)(i), the
shares of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock so converted shall be cancelled and not subject to reissuance.
(ii) The holder of any shares of Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock converted pursuant to this
subsection 3(1) shall deliver to this corporation during regular business hours
at the office of any transfer agent of the corporation for such Preferred Stock,
or at such other place as may be designated by the corporation, the certificate
or certificates for the shares so converted, duly endorsed or assigned in blank
or to this corporation. As promptly as practicable thereafter, this corporation
shall issue and deliver to such holder, at the place designated by such holder,
a certificate or certificates for the number of full shares of Series B1
Preferred Stock, Series C1 Preferred Stock or Series D1 Preferred Stock to be
issued and such holder shall be deemed to have become a shareholder of record of
Series B1 Preferred Stock, Series C1 Preferred Stock or Series D1 Preferred
Stock immediately prior to the close of business on the Mandatory Offering Date.
(iii) In the event that any shares of Series B1 Preferred Stock are
issued, concurrently with such issuance, this corporation shall use its best
efforts to take all such action as may be required, including amending its
Articles of Incorporation, (a) to cancel all authorized shares of Series B1
Preferred Stock that remain unissued after such issuance, (b) to create and
reserve for issuance upon conversion pursuant to this subsection 3(1) of any
Series B Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series B1 Preferred Stock so cancelled and designated Series
B2 Preferred Stock, with the designations, powers, preferences and rights and
the qualifications, limitations and restrictions identical to those then
applicable to the Series B1 Preferred Stock, except that the Conversion Price
for such shares of Series B2 Preferred Stock shall be the Series B Conversion
Price in effect immediately prior to such issuance, and (c) to amend the
provisions of this subsection 3(1) to provide that any subsequent conversion
pursuant to this subsection 3(1) will be into shares of Series B2 Preferred
Stock. This corporation shall take the same actions with respect to
13.
<PAGE>
the Series B2 Preferred Stock and each subsequently authorized series of
Preferred Stock upon initial issuance of shares of the last such series to be
authorized. The right to receive any dividend declared but unpaid at the time of
conversion on any shares of Preferred Stock converted pursuant to the provisions
of this subsection 3(1) shall accrue to the benefit of the new shares of
Preferred Stock issued upon conversion thereof.
(iv) In the event that any shares of Series C1 Preferred Stock are
issued, concurrently with such issuance, this corporation shall use its best
efforts to take all such action as may be required, including amending its
Articles of Incorporation, (a) to cancel all authorized shares of Series C1
Preferred Stock that remain unissued after such issuance, (b) to create and
reserve for issuance upon conversion pursuant to this subsection 3(1) of any
Series C Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series C1 Preferred Stock so cancelled and designated Series
C2 Preferred Stock, with the designations, powers, preferences and rights and
the qualifications, limitations and restrictions identical to those then
applicable to the Series C1 Preferred Stock, except that the Conversion Price
for such shares of Series C2 Preferred Stock shall be the Series C Conversion
Price in effect immediately prior to such issuance, and (c) to amend the
provisions of this subsection 3(1) to provide that any subsequent conversion
pursuant to this subsection 3(1) will be into shares of Series C2 Preferred
Stock. This corporation shall take the same actions with respect to the Series
C2 Preferred Stock and each subsequently authorized series of Preferred Stock
upon initial issuance of shares of the last such series to be authorized. The
right to receive any dividend declared but unpaid at the time of conversion on
any shares of Preferred Stock converted pursuant to the provisions of this
subsection 3(1) shall accrue to the benefit of the new shares of Preferred Stock
issued upon conversion thereof.
(v) In the event that any shares of Series D1 Preferred Stock are
issued, concurrently with such issuance, this corporation shall use its best
efforts to take all such action as may be required, including amending its
Articles of Incorporation, (a) to cancel all authorized shares of Series D1
Preferred Stock that remain unissued after such issuance, (b) to create and
reserve for issuance upon conversion pursuant to this subsection 3(1) of any
Series D Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series D1 Preferred Stock so cancelled and designated Series
D2 Preferred Stock, with the designations, powers, preferences and rights and
the qualifications, limitations and restrictions identical to those then
applicable to the Series D1 Preferred Stock, except that the Conversion Price
for such shares of Series D2 Preferred Stock shall be the Series D Conversion
Price in effect immediately prior to such issuance, and (c) to amend the
provisions of this subsection 3(1) to provide that any subsequent conversion
pursuant to this subsection 3(1) will be into shares of Series D2 Preferred
Stock. This corporation shall take the same actions with respect to the Series
D2 Preferred Stock and each subsequently authorized series of Preferred Stock
upon initial issuance of shares of the last such series to be authorized. The
right to receive any dividend declared but unpaid at the time of conversion on
any shares of
14.
<PAGE>
Preferred Stock converted pursuant to the provisions of this subsection 3(1)
shall accrue to the benefit of the new shares of Preferred Stock issued upon
conversion thereof.
4. Voting Rights. The holder of each share of Preferred Stock shall
-------------
have the right to one vote for each share of Common Stock into which such share
of Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any shareholders' meeting in accordance with
the bylaws of this corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
5. Protective Provisions. Subject to the rights of series of
---------------------
Preferred Stock which may from time to time come into existence, so long as any
shares of Preferred Stock are outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of Preferred
Stock (voting together as a class on an as-converted basis):
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(b) alter or change the rights, preferences or privileges of the
shares of Preferred Stock so as to affect adversely the shares;
(c) increase (other than by conversion) the total number of authorized
shares of Preferred Stock;
(d) authorize or issue, or obligate itself to issue, any other equity
security, including any other security convertible into or exercisable for any
equity security having a preference over, or being on a parity with, the
Preferred Stock with respect to voting, dividends or upon liquidation; or
(e) do any act or thing which would result in taxation of the holders
of shares of Preferred Stock under Section 305 of the Internal Revenue Code of
1954, as amended (or any comparable provision of the Internal Revenue Code as
hereafter amended from time to time).
15.
<PAGE>
6. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 3 hereof, the shares so converted
shall be cancelled and shall not be issuable by the corporation. The Articles of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.
7. Repurchase of Shares. In connection with repurchases by this
--------------------
Corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
C. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article III hereof.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall have
-------------
the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
Section 1. The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
Section 2. This corporation is authorized to provide indemnification
of agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject only to
applicable limits set forth in Section 204 of the California Corporations Code
with respect to actions for breach of duty to the corporation and its
shareholders.
16.
<PAGE>
* * *
THREE The foregoing amendment has been approved by the Board of
Directors of said corporation.
FOUR The foregoing amendment was approved by the holders of the
requisite number of shares of said corporation in accordance with Sections 902
and 903 of the California General Corporation Law; the total number of
outstanding shares of each class entitled to vote with respect to the foregoing
amendment was 3,557,863 shares of Common Stock and 5,549,805 shares of Preferred
Stock. The number of shares voting in favor of the foregoing amendment equaled
or exceeded the vote required, such required vote being a majority of the
outstanding shares of Common Stock and Preferred Stock (voting together on an
as-converted basis) and a majority of the outstanding shares of Common Stock
voting as a class and a majority of the outstanding shares of Preferred Stock
voting as a class. No shares of Series D Preferred Stock are outstanding.
17.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate on
April 21, 1997.
/s/ Nicolas Nierenberg
---------------------------------
Nicolas Nierenberg
President
/s/ Edward M. Leonard
---------------------------------
Edward M. Leonard
Assistant Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Amended and Restated Articles of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed at San Mateo, California, on April 21, 1997.
/s/ Nicolas Nierenberg
---------------------------------
Nicolas Nierenberg
/s/ Edward M. Leonard
---------------------------------
Edward M. Leonard
18.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF ACTUATE SOFTWARE CORPORATION,
a Delaware corporation
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
Actuate Software Corporation (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law") originally incorporated on May 27,
1998.
DOES HEREBY CERTIFY:
FIRST: The name of the corporation is Actuate Software Corporation.
SECOND: That the Board of Directors of the Corporation adopted
resolutions proposing to amend and restate the Certificate of Incorporation of
the Corporation (the "Certificate"), declaring said amendment and restatement to
be advisable and in the best interests of the Corporation and its stockholders
and authorizing the appropriate officer of the Corporation to solicit the
consent of the stockholders therefor, which resolution setting forth the
proposed amendment and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of the Corporation
(the "Certificate") be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Actuate Software Corporation.
ARTICLE II
The address of the registered officer of the corporation in the State
of Delaware is 15 East North Street, in the city of Dover, 19901, County of
Kent. The name of the corporation's registered agent is Incorporating Services,
Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
this corporation are 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. This corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number
<PAGE>
of shares which the corporation is authorized to issue is Thirty Million Nine
Hundred Thirty-Nine Thousand Four Hundred Sixty-Four (30,939,464) shares. Twenty
Million (20,000,000) shares shall be Common Stock, par value $0.001 per share
and Ten Million Nine Hundred Thirty-Nine Thousand Four Hundred Sixty-Four
(10,939,464) shares shall be Preferred Stock, par value $0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by these Amended and Restated Articles of
Incorporation may be issued from time to time in one or more series. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of 2,040,000 shares, the Series B
Preferred Stock, which series shall consist of 2,333,334 shares, the Series B1
Preferred Stock, which series shall consist of 2,333,334 shares, the Series C
Preferred Stock, which series shall consist of 1,176,471 shares, the Series C1
Preferred Stock, which series shall consist of 1,176,471 shares, the Series D
Preferred Stock, which series shall consist of 939,927 shares, and the Series D1
Preferred Stock, which series shall consist of 939,927 shares, are as set forth
below in this Article III(B). The Board of Directors is hereby authorized to fix
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights which have been
or may be granted to the Preferred Stock or series thereof in Certificates of
Determination or the corporation's Articles of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or any
series thereof, the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, pari passu with (including, without
---- -----
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also authorized to increase or decrease the number of
shares of any series, prior or subsequent to the issue 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.
1. Dividend Provisions. Subject to the rights of series of
-------------------
Preferred Stock may from time to time come into existence, the holders of shares
of Series A Preferred Stock, Series B Preferred Stock, Series B1 Preferred
Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series D Preferred
Stock and Series D1 Preferred Stock shall, on a pari passu basis, be entitled to
receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation) on the Common Stock of this corporation, at the rate
of $0.04 per share per annum with respect to the Series A Preferred Stock, $0.12
per share per annum with respect to the Series B Preferred Stock and Series B1
Preferred Stock, $0.272 per share per annum with respect to the Series C
Preferred Stock and Series C1 Preferred Stock, and $0.498 per share per annum
with respect to the Series D Preferred Stock and Series D1 Preferred Stock, or,
if greater (as determined on a per annum basis and an as-converted basis for
each such series of Preferred Stock), an amount equal to that paid on any
2
<PAGE>
other outstanding shares of this corporation, payable quarterly when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock, Series B Preferred Stock, Series B1
Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series D
Preferred Stock and Series D1 Preferred Stock shall, on a pari passu basis, be
entitled to receive, prior and in preference to any distribution of any of the
assets of this corporation to the holders of Common Stock by reason of their
ownership thereof, (i) with respect to the Series A Preferred Stock, an amount
per share equal to the sum of (A) $0.50 for each outstanding share of Series A
Preferred Stock (the "Original Series A Issue Price") and (B) an amount equal to
declared but unpaid dividends on such share; (ii) with respect to the Series B
Preferred Stock and Series B1 Preferred Stock, an amount per share equal to the
sum of (A) $1.50 for each outstanding share of Series B Preferred Stock and
Series B1 Preferred Stock (the "Original Series B Issue Price" and the "Original
Series B1 Issue Price," respectively) and (B) an amount equal to any declared
but unpaid dividends on such share; (iii) with respect to the Series C Preferred
Stock and Series C1 Preferred Stock, an amount per share equal to the sum of (A)
$3.40 for each outstanding share of Series C Preferred Stock and Series C1
Preferred Stock (the "Original Series C Issue Price" and the "Original Series C1
Issue Price," respectively) and (B) an amount equal to any declared but unpaid
dividends on such share; and (iv) with respect to the Series D Preferred Stock
and Series D1 Preferred Stock, an amount per share equal to the sum of (A) $6.23
for each outstanding share of Series D Preferred Stock and Series D1 Preferred
Stock (the "Original Series D Issue Price" and the "Original Series D1 Issue
Price", respectively) and (B) an amount equal to any declared but unpaid
dividends on such share. If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A Preferred Stock, Series
B Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock, Series
C1 Preferred Stock, Series D Preferred Stock and Series D1 Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series B1 Preferred Stock,
Series C Preferred Stock, Series C1 Preferred Stock, Series D Preferred Stock
and Series D1 Preferred Stock in proportion to the aggregate full aforesaid
preferential amounts to which each such holder would otherwise be entitled.
(b) Upon the completion of the distribution required by subparagraph
(a) of this Section 2 and any other distribution that may be required with
respect to series of Preferred Stock that may from time to time come into
existence, if assets remain in this corporation, the holders of the Common Stock
of this corporation shall receive all of the remaining assets of this
corporation.
(c) (i) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
3
<PAGE>
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's shareholders of record as constituted
------
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events specified in subparagraph (c)(i), if
the consideration received by the corporation is other than cash, its value will
be deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c) are
not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of Preferred Stock shall revert to and
be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
4
<PAGE>
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock.
3. Conversion. The holders of Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of this corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Original Series A Issue Price,
Original Series B Issue Price, Original Series B1 Issue Price, Original Series C
Issue Price, Original Series C1 Issue Price, Original Series D Issue Price and
Original Series D1 Issue Price, as applicable, by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share for shares of Series A Preferred Stock, Series B Preferred Stock,
Series B1 Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock,
Series D Preferred Stock and Series D1 Preferred Stock shall be the Original
Series A Issue Price, Original Series B Issue Price, Original Series B1 Issue
Price, Original Series C Issue Price, Original Series C1 Issue Price, Original
Series D Issue Price and Original Series D1 Issue Price, respectively; provided,
however, that the Conversion Price for the Preferred Stock shall be subject to
adjustment as set forth in subsection 3(d).
(b) Automatic Conversion. Except as provided below in subsection
--------------------
3(c), each share of Preferred Stock shall automatically be converted into shares
of Common Stock at the applicable Conversion Price at the time in effect for
each series immediately upon the earlier of (i) the corporation's sale of its
Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
the public offering price of which is not less than $9.00 per share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization) and
$10,000,000 in the aggregate or (ii) the date specified by written consent or
agreement of the holders of a majority of the then outstanding shares of (a)
Series A, Series B and Series C Preferred Stock, voting together as a single
class on an as-converted basis and (b) the Series D Preferred Stock voting as a
single class on an as-converted basis.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the Preferred Stock and shall
give written notice to this corporation at its principal corporate office, of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This corporation shall, as
5
<PAGE>
soon as practicable thereafter, issue and deliver at such office to such holder
of Preferred Stock, or to the nominee or nominees of such holder, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, the conversion may, at the option of any holder tendering Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock. The
-----------------------------------------------
Conversion Price of the Preferred Stock shall be subject to adjustment from
time to time as follows:
(i) (A) If after the date upon which any shares of the Series D
Preferred Stock were first issued (the "Purchase Date"), the corporation issues
(or is deemed hereunder to have issued any shares of Additional Stock (as
defined below in Section 3(d)(ii)), without consideration or for a consideration
per share less than: (1) with respect to the Series B Preferred Stock, the
Conversion Price for the Series B Preferred Stock in effect immediately prior to
the issuance of such Additional Stock, (2) with respect to the Series C
Preferred Stock the Conversion price for the Series C Preferred Stock in effect
immediately prior to the issuance of such Additional Stock, or (3) with respect
to the Series D Preferred Stock, the Conversion Price for the Series D Preferred
Stock in effect immediately prior to the issuance of such Additional Stock, then
the Conversion Price for the Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock, as applicable, in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock which the aggregate consideration received by the corporation for
such issuance would purchase at such Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of such Additional Stock so
issued. No adjustment shall be made to the Conversion Price of the Series A
Preferred, Stock Series B1 Preferred Stock, Series C1 Preferred Stock or Series
D1 Preferred Stock pursuant to this subsection 3(d)(i).
(B) No adjustment of the Conversion Price for the Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall be
made in an amount less than one cent per share, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in subsections (E)(3) and (E)(4), no
adjustment of such Conversion Price pursuant
6
<PAGE>
to this subsection 3(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Additional Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Additional Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
corporation's Board of Directors in good faith irrespective of any accounting
treatment.
(E) In the case of the issuance (whether before, on or
after the Purchase Date) of options, warrants or other rights to purchase or
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options, warrants or other rights to purchase
or subscribe for such convertible or exchangeable securities, the following
provisions shall apply for all purposes of this subsection 3(d)(i) and
subsection 3(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options,
warrants or other rights to purchase or subscribe for Common Stock shall be
deemed to have been issued at the time such options, warrants or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subsections 3(d)(i)(C) and (d)(i)(D)), if any, received by
the corporation upon the issuance of such options, warrants or other rights plus
the minimum exercise price provided in such options, warrants or other rights
(without taking into account potential antidilution adjustments) for the Common
Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options, warrants or other rights to purchase or subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options, warrants or other rights were issued and for a
consideration equal to the consideration, if any, received by the corporation
for any such securities and related options, warrants or other rights (excluding
any cash received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the corporation
(without taking into account potential antidilution adjustments) upon the
conversion or exchange in full of such securities or the exercise in full of any
related options, warrants or other rights (the consideration in each case to be
determined in the manner provided in subsections 3(d)(i)(C) and (d)(I)(D).
7
<PAGE>
(3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to this corporation
upon exercise of such options, warrants or other rights or upon conversion of or
in exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, to the extent in any way affected by or computed using
such options, warrants or other rights, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options, warrants or other rights or the conversion or
exchange of such securities.
(4) Upon the expiration of any such options, warrants
or other rights, the termination of any such rights to convert or exchange or
the expiration of any options, warrants or other rights related to such
convertible or exchangeable securities, the Conversion Price of the Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, to the
extent in any way affected by or computed using such options, warrants, other
rights or securities or options, warrants or other rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon the exercise of such options, warrants or other
rights, upon the conversion or exchange of such securities or upon the exercise
of the options, warrants or other rights related to such securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections 3(d)(i)(E)(1)
and (2) shall be appropriately adjusted to reflect any change, termination or
expiration of the type described in either subsection 3(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by this
corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction described
in subsection 3(d)(iii) hereof,
(B) shares of Common Stock issuable or issued to employees,
consultants or directors, directly or pursuant to a plan, arrangement
or agreement approved by the Board of Directors of this corporation,
(C) shares of Common Stock issued or issuable (I) in a
public offering registered under the Securities Act of 1933, as
amended, before or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock or (II) upon
exercise of warrants or rights granted to underwriters in connection
with such a public offering, or
8
<PAGE>
(D) the issuance of stock, warrants or other securities or
rights as approved by the Board of Directors to persons or entities
with which the Company has business relationships provided such
issuances are for other than primarily equity financing purposes.
(iii) In the event the corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Preferred Stock shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of each share of each series of
Preferred Stock shall be increased in proportion to such increase of the
aggregate number of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents, with the number of shares issuable
with respect to Common Stock Equivalents determined from time to time in the
manner provided for deemed issuances in subsection 3(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Preferred Stock shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of each share
of each series of Preferred Stock shall be decreased in proportion to such
decrease in the outstanding shares of Common Stock as a result of such
combination.
(e) Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 3(d), then, in
each such case for the purpose of this subsection (e), the holders of the
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3 or Section 2) provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Preferred Stock the number of shares of stock or other securities or property of
the Company or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the
9
<PAGE>
holders of the Preferred Stock after the recapitalization to the end that the
provisions of this Section 3 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of the Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(g) No Impairment. This corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any share or shares of Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of the Preferred Stock pursuant to this Section 3, this
corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for such series of Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such
10
<PAGE>
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, this corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best
efforts to obtain the requisite shareholder approval of any necessary amendment
to these articles.
(k) Notices. Any notice required by the provisions of this Section
-------
3 to be given to the holders of shares of Preferred Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
(l) Special Mandatory Conversion.
----------------------------
(i) At any time following the Purchase Date, if (a) the holders
of shares of Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock are entitled to exercise the right of first offer (the "Right of
First Offer") set forth in Section 2.4 of the Amended and Restated Investors'
Rights Agreement of equal date with the Purchase Date, by and between this
corporation and certain investors, as amended from time to time (the "Rights
Agreement"), with respect to an equity financing of the corporation (the "Equity
Financing"), (b) the Equity Financing would result in a Conversion Price
adjustment to the Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock as provided in subsection 3(d)(i) herein, (c) this corporation
has complied with its notice obligations, or such obligations have been waived,
under the Right of First Offer with respect to such Equity Financing and this
corporation thereafter proceeds to consummate the Equity Financing and (d) such
holder (a "Non-Participating Holder") does not by exercise of such holder's
Right of First Offer acquire his, her or its pro rata share offered in such
Equity Financing (a "Mandatory Offering"), then all of such Non-Participating
Holder's shares of Series B Preferred Stock, Series C Preferred Stock or Series
D Preferred Stock, as the case may be, shall automatically and without further
action on the part of such holder be converted effective upon, subject to, and
concurrently with, the consummation of the Mandatory Offering (the "Mandatory
Offering Date") into an equivalent number of shares of Series B1 Preferred
Stock, Series C1 Preferred Stock or Series D1 Preferred Stock, respectively;
provided, however, that no such conversion shall occur in connection with a
- -------- -------
particular Equity Financing if, pursuant to the written request of this
corporation, such holder agrees in writing to waive his, her or its Right of
First Offer with respect to such Equity Financing. Upon conversion pursuant to
this subsection 3(1)(i), the shares of Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock so converted shall be cancelled and
not subject to reissuance.
(ii) The holder of any shares of Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock converted pursuant to this
subsection 3(1) shall deliver to this corporation during regular business hours
at the office of any transfer agent of the corporation for such Preferred Stock,
or at such other place as may be designated by the corporation, the certificate
or certificates for the shares so converted, duly endorsed or assigned
11
<PAGE>
in blank or to this corporation. As promptly as practicable thereafter, this
corporation shall issue and deliver to such holder, at the place designated by
such holder, a certificate or certificates for the number of full shares of
Series B1 Preferred Stock, Series C1 Preferred Stock or Series D1 Preferred
Stock to be issued and such holder shall be deemed to have become a shareholder
of record of Series B1 Preferred Stock, Series C1 Preferred Stock or Series D1
Preferred Stock immediately prior to the close of business on the Mandatory
Offering Date.
(iii) In the event that any shares of Series B1 Preferred Stock
are issued, concurrently with such issuance, this corporation shall use its best
efforts to take all such action as may be required, including amending its
Articles of Incorporation, (a) to cancel all authorized shares of Series B1
Preferred Stock that remain unissued after such issuance, (b) to create and
reserve for issuance upon conversion pursuant to this subsection 3(1) of any
Series B Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series B1 Preferred Stock so cancelled and designated Series
B2 Preferred Stock, with the designations, powers, preferences and rights and
the qualifications, limitations and restrictions identical to those then
applicable to the Series B1 Preferred Stock, except that the Conversion Price
for such shares of Series B2 Preferred Stock shall be the Series B Conversion
Price in effect immediately prior to such issuance, and (c) to amend the
provisions of this subsection 3(1) to provide that any subsequent conversion
pursuant to this subsection 3(1) will be into shares of Series B2 Preferred
Stock. This corporation shall take the same actions with respect to the Series
B2 Preferred Stock and each subsequently authorized series of Preferred Stock
upon initial issuance of shares of the last such series to be authorized. The
right to receive any dividend declared but unpaid at the time of conversion on
any shares of Preferred Stock converted pursuant to the provisions of this
subsection 3(1) shall accrue to the benefit of the new shares of Preferred Stock
issued upon conversion thereof.
(iv) In the event that any shares of Series C1 Preferred Stock
are issued, concurrently with such issuance, this corporation shall use its best
efforts to take all such action as may be required, including amending its
Articles of Incorporation, (a) to cancel all authorized shares of Series C1
Preferred Stock that remain unissued after such issuance, (b) to create and
reserve for issuance upon conversion pursuant to this subsection 3(1) of any
Series C Preferred Stock a new series of Preferred Stock equal in number to the
number of shares of Series C1 Preferred Stock so cancelled and designated Series
C2 Preferred Stock, with the designations, powers, preferences and rights and
the qualifications, limitations and restrictions identical to those then
applicable to the Series C1 Preferred Stock, except that the Conversion Price
for such shares of Series C2 Preferred Stock shall be the Series C Conversion
Price in effect immediately prior to such issuance, and (c) to amend the
provisions of this subsection 3(1) to provide that any subsequent conversion
pursuant to this subsection 3(1) will be into shares of Series C2 Preferred
Stock. This corporation shall take the same actions with respect to the Series
C2 Preferred Stock and each subsequently authorized series of Preferred Stock
upon initial issuance of shares of the last such series to be authorized. The
right to receive any dividend declared but unpaid at the time of conversion on
any shares of Preferred Stock converted pursuant to the provisions of this
subsection 3(1) shall accrue to the benefit of the new shares of Preferred Stock
issued upon conversion thereof.
(v) In the event that any shares of Series D1 Preferred Stock
are issued, concurrently with such issuance, this corporation shall use its best
efforts to take all such
12
<PAGE>
action as may be required, including amending its Articles of Incorporation, (a)
to cancel all authorized shares of Series D1 Preferred Stock that remain
unissued after such issuance, (b) to create and reserve for issuance upon
conversion pursuant to this subsection 3(1) of any Series D Preferred Stock a
new series of Preferred Stock equal in number to the number of shares of Series
D1 Preferred Stock so cancelled and designated Series D2 Preferred Stock, with
the designations, powers, preferences and rights and the qualifications,
limitations and restrictions identical to those then applicable to the Series D1
Preferred Stock, except that the Conversion Price for such shares of Series D2
Preferred Stock shall be the Series D Conversion Price in effect immediately
prior to such issuance, and (c) to amend the provisions of this subsection 3(1)
to provide that any subsequent conversion pursuant to this subsection 3(1) will
be into shares of Series D2 Preferred Stock. This corporation shall take the
same actions with respect to the Series D2 Preferred Stock and each subsequently
authorized series of Preferred Stock upon initial issuance of shares of the last
such series to be authorized. The right to receive any dividend declared but
unpaid at the time of conversion on any shares of Preferred Stock converted
pursuant to the provisions of this subsection 3(1) shall accrue to the benefit
of the new shares of Preferred Stock issued upon conversion thereof.
4. Voting Rights. The holder of each share of Preferred Stock
-------------
shall have the right to one vote for each share of Common Stock into which such
share of Preferred Stock could then be converted, and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
5. Protective Provisions. Subject to the rights of series of
---------------------
Preferred Stock which may from time to time come into existence, so long as any
shares of Preferred Stock are outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of Preferred
Stock (voting together as a class on an as-converted basis):
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(b) alter or change the rights, preferences or privileges of the
shares of Preferred Stock so as to affect adversely the shares;
(c) increase (other than by conversion) the total number of
authorized shares of Preferred Stock;
13
<PAGE>
(d) authorize or issue, or obligate itself to issue, any other equity
security, including any other security convertible into or exercisable for any
equity security having a preference over, or being on a parity with, the
Preferred Stock with respect to voting, dividends or upon liquidation; or
(e) do any act or thing which would result in taxation of the holders
of shares of Preferred Stock under Section 305 of the Internal Revenue Code of
1954, as amended (or any comparable provision of the Internal Revenue Code as
hereafter amended from time to time).
6. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 3 hereof, the shares so converted
shall be cancelled and shall not be issuable by the corporation. The Articles of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.
7. Repurchase of Shares. In connection with repurchases by this
--------------------
Corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
C. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
------------------
winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article III hereof.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
Except as otherwise provided in this Amended and Restated Certificate
of Incorporation, in furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind any or all of the Bylaws of the corporation.
14
<PAGE>
ARTICLE VI
The number of directors of the corporation shall be fixed from time to
time by a Bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders. A director appointed by the Board of Directors to fill a
vacancy shall serve for the remainder of the term of the vacated directorship he
or she is filling.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide. At all elections of directors, the
stockholders of this corporation shall be entitled to cumulative voting in such
election of directors in accordance with Section 214 of the General Corporation
Law and the Bylaws of this corporation.
ARTICLE VIII
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 IX
Any action required to be taken or that may be taken at any annual or
special meeting of the stockholders of this corporation may be taken without a
meeting.
ARTICLE X
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, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Certificate to authorize corporation action
further eliminating or limiting the personal liability of directors then
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article
X by the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
15
<PAGE>
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits this
corporation to provide indemnification) through 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 General Corporation Law of the State
of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any repeal or modification of any foregoing provisions of this Article
XI shall not adversely affect any right or protection of a director, officer,
agent or other person existing at the time of, or increase the liability of any
director of this corporation with respect to any acts or omissions of such
director, officer or agent occurring prior to such repeal or modification.
ARTICLE XII
This 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."
* * *
THIRD: That thereafter said amendment and restatement was duly
adopted in accordance with the provisions of Section 242 and Section 245 of the
General Corporation Law by obtaining a majority vote of the Common Stock, in
favor of said amendment and restatement.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
this ____ day of June, 1998.
____________________________
Nicolas Nierenberg
President
ATTEST:
____________________________
William P. Garvey
Assistant Secretary
16
<PAGE>
EXHIBIT 3.3
SECOND AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION OF
ACTUATE SOFTWARE CORPORATION
a Delaware corporation
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
Actuate Software Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated on May 27,
1998, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing
to amend and restate the Amended and Restated Certificate of Incorporation of
the Corporation, declaring said amendment and restatement to be advisable and in
the best interests of the Corporation and its stockholders, and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
"RESOLVED, that the Amended and Restated Certificate of Incorporation
of the Corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of the corporation is Actuate Software Corporation (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is 15 East North Street, in the City of Dover, County of Kent. The
name of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of
<PAGE>
shares of Common Stock authorized to be issued is Thirty Five Million
(35,000,000), par value $0.001 per share, and the number of Preferred Stock
authorized to be issued is Five Million (5,000,000), par value $0.001 per share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Second Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of 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 issue 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 that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Amended and Restated Certificate,
any action required or permitted to be taken by the stockholders of the
Corporation must be effected at an annual or special meeting of the stockholders
of the Corporation, and may not be effected by any consent in writing of such
stockholders.
ARTICLE IX
A director of the Corporation shall, to the fullest extent permitted
by the General Corporation Law as it now exists or as it may hereafter be
amended, not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a
2
<PAGE>
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the General Corporation Law is amended, after approval by the stockholders of
this Article, to authorize corporation action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the
adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article IX, by the stockholders of the
Corporation shall not apply to or adversely affect any right or protection of a
director of the Corporation existing at the time of such amendment, repeal,
modification or adoption.
ARTICLE X
In addition to any vote of the holders of any class or series of the
stock of the Corporation required by law or by this Restated Certificate, the
affirmative vote of the holders of a majority of the voting power of all of the
then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal the provisions of this Restated Certificate.
ARTICLE XI
To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of the Corporation (and any other persons to which General Corporation Law
permits the Corporation to provide indemnification) through 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 General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to the
Corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of
this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person 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 amendment,
repeal or modification.
* * * *
THIRD: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Certificate this
____ day of June, 1998.
________________________________
Nicolas Nierenberg
President
ATTEST:
___________________________________
William P. Garvey
Assistant Secretary
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
ACTUATE SOFTWARE CORPORATION
ARTICLE I - OFFICES
-------------------
Section 1. The principal executive offices of Actuate Software
Corporation (the "Corporation") shall be at such place inside or outside the
State of California as the Board of Directors may determine from time to time.
Section 2. The Corporation may also have offices at such other places
as the Board of Directors may from time to time designate, or as the business of
the Corporation may require.
ARTICLE II - SHAREHOLDERS' MEETINGS
-----------------------------------
Section l. Annual Meetings. The annual meeting of the shareholders of
---------------
the Corporation for the election of directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting shall be held at such place and at such time as may be fixed
from time to time by the Board of Directors and stated in the notice of the
meeting. If the annual meeting of the shareholders is not held as herein
prescribed, the election of directors may be held at any meeting thereafter
called pursuant to these Bylaws.
<PAGE>
Section 2. Special Meetings. Special meetings of the shareholders, for
----------------
any purpose whatsoever, unless otherwise prescribed by statute, may be called at
any time by the Chairman of the Board, the President, or by the Board of
Directors, or by one or more shareholders holding not less than ten percent
(10%) of the voting power of the Corporation.
Section 3. Place. All meetings of the shareholders shall be at any
-----
place within or without the State of California designated either by the Board
of Directors or by written consent of the holders of a majority of the shares
entitled to vote thereat, given either before or after the meeting. In the
absence of any such designation, shareholders' meetings shall be held at the
principal executive office of the Corporation.
Section 4. Notice. Notice of meetings of the shareholders of the
------
Corporation shall be given in writing to each shareholder entitled to vote,
either personally or by first-class mail (unless the Corporation has 500 or more
shareholders determined as provided by the California Corporations Code on the
record date for the meeting, in which case notice may be sent by third-class
mail) or other means of written communication, charges prepaid, addressed to the
shareholder at his address appearing on the books of the Corporation or given by
the shareholder to the Corporation for the purpose of notice. Notice of any such
meeting of shareholders shall be sent to each shareholder entitled thereto not
less than ten (10) (or, if sent by third-class mail, thirty (30) days) nor more
than sixty (60) days before the meeting. Said notice shall state the place, date
and hour of the meeting and, (1) in the case of special meetings, the general
nature of the business to be transacted, and no other business may be
transacted, or (2) in the case of annual meetings, those matters which the Board
of Directors, at the time of the mailing of the notice, intends to present for
action by the shareholders, but subject to Section
2.
<PAGE>
601(f) of the California Corporations Code any proper matter may be presented at
the meeting for shareholder action, and (3) in the case of any meeting at which
directors are to be elected, the names of the nominees intended at the time of
the mailing of the notice to be presented by management for election.
Section 5. Adjourned Meetings. Any shareholders' meeting may be
------------------
adjourned from time to time by the vote of the holders of a majority of the
voting shares present at the meeting either in person or by proxy. Notice of any
adjourned meeting need not be given unless a meeting is adjourned for forty-five
(45) days or more from the date set for the original meeting.
Section 6. Quorum. The presence in person or by proxy of the persons
------
entitled to vote a majority of the shares entitled to vote at any meeting
constitutes a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares, the holders
of which are either present in person or represented by proxy thereat, but no
other business may be transacted, except as provided above.
Section 7. Consent to Shareholder Action. Any action which may be
-----------------------------
taken at any meeting of shareholders may be taken without a meeting and without
prior notice, if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take
3.
<PAGE>
such action at a meeting at which all shares entitled to vote thereon were
present and voted; provided, however, that (1) unless the consents of all
shareholders entitled to vote have been solicited in writing, notice of any
shareholder approval without a meeting by less than unanimous written consent
shall be given as required by the California Corporations Code, and (2)
directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors.
Any written consent may be revoked by a writing received by the
Secretary of the Corporation prior to the time that written consents of the
number of shares required to authorize the proposed action have been filed with
the Secretary.
Section 8. Waiver of Notice. The transactions of any meeting of
----------------
shareholders, however called and noticed, and whenever held, shall be as valid
as though a meeting had been duly held after regular call and notice, if a
quorum is present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting, or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 9. Voting. The voting at all meetings of shareholders need not
------
be by ballot, but any qualified shareholder before the voting begins may demand
a stock vote whereupon such stock vote shall be taken by ballot, each of which
shall state the name of the shareholder voting and the number of shares voted by
such shareholder, and if such ballot be cast by a proxy, it shall also state the
name of such proxy.
At any meeting of the shareholders, every shareholder having the right
to vote
4.
<PAGE>
shall be entitled to vote in person, or by proxy appointed in a writing
subscribed by such shareholder and bearing a date not more than eleven (11)
months prior to said meeting, unless the writing states that it is irrevocable
and satisfies Section 705(e) of the California Corporations Code, in which event
it is irrevocable for the period specified in said writing and said Section
705(e).
Section 10. Record Dates. In the event the Board of Directors fixes a
------------
day for the determination of shareholders of record entitled to vote as provided
in Section 1 of Article V of these Bylaws, then, subject to the provisions of
the General Corporation Law of the State of California, only persons in whose
name shares entitled to vote stand on the stock records of the Corporation at
the close of business on such day shall be entitled to vote.
If no record date is fixed:
The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day notice is given or, if notice is waived, at
the close of business on the business day next preceding the day on which the
meeting is held;
The record date for determining shareholders entitled to give 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 given; and
The record date for determining shareholders 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, or the sixtieth (60th) day prior to the
date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to
vote at a
5.
<PAGE>
meeting of shareholders shall apply to any adjournment of the meeting unless the
Board of Directors fixes a new record date for the adjourned meeting, but the
Board of Directors shall fix a new record date if the meeting is adjourned for
more than forty-five (45) days.
Section 11. Cumulative Voting for Election of Directors. Provided the
-------------------------------------------
candidate's name has been placed in nomination prior to the voting and one or
more shareholders has given notice at the meeting prior to the voting of the
shareholder's intent to cumulate the shareholder's votes, every shareholder
entitled to vote at any election for directors shall have the right to cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among as many candidates as the shareholder shall
think fit. The candidates receiving the highest number of votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares are elected.
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
Section 1. Powers. Subject to any limitations in the Articles of
------
Incorporation or these Bylaws and to any provision of the California
Corporations Code requiring shareholder authorization or approval for a
particular action, 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. The Board of Directors may delegate the management of the
day-to-day operation of the business of the Corporation to a management company
or other person provided that the business and affairs of the Corporation shall
be managed and all corporate powers shall be
6.
<PAGE>
exercised, under the ultimate direction of the Board of Directors.
Section 2. Number, Tenure and Qualifications. The authorized number of
---------------------------------
directors of this corporation shall be not less than three (3) nor more than
five (5), the exact number of directors to be fixed from time to time within
such limit by a duly adopted resolution of the Board of Directors or
shareholders; provided, however, that (1) before shares are issued, the number
may be one, (2) before shares are issued, the number may be two, (3) so long as
the corporation has only one shareholder, the number may be one, (4) so long as
the corporation has only one shareholder, the number may be two, and (5) so long
as the corporation has only two shareholders, the number may be two.
Directors shall hold office until the next annual meeting of
shareholders and until their respective successors are elected. If any such
annual meeting is not held, or the directors are not elected thereat, the
directors may be elected at any special meeting of shareholders held for that
purpose. Directors need not be shareholders.
Section 3. Regular Meetings. A regular annual meeting of the Board of
----------------
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide for other regular meetings from time to time by
resolution.
Section 4. Special Meetings. Special meetings of the Board of
----------------
Directors may be called at any time by the Chairman of the Board, or the
President or any Vice President, or the Secretary or any two (2) directors.
Written notice of the time and place of all special meetings of the Board of
Directors shall be delivered personally or by telephone or telegraph to each
director at least forty-eight (48) hours before the meeting, or sent
7.
<PAGE>
to each director by first-class mail, postage prepaid, at least four (4) days
before the meeting. Such notice need not specify the purpose of the meeting.
Notice of any meeting of the Board of Directors need not be given to any
director who signs a waiver of notice, whether before or after the meeting, or
who attends the meeting without protesting prior thereto or at its commencement,
the lack of notice to such director.
Section 5. Place of Meetings. Meetings of the Board of Directors may
-----------------
be held at any place within or without the State of California, which has been
designated in the notice, or if not stated in the notice or there is no notice,
the principal executive office of the Corporation or as designated by the
resolution duly adopted by the Board of Directors.
Section 6. Participation by Telephone. Members of the Board of
--------------------------
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
Section 7. Quorum. A majority of the Board of Directors shall
------
constitute a quorum at all meetings. In the absence of a quorum a majority of
the directors present may adjourn any meeting to another time and place. If a
meeting is adjourned for more than twenty-four (24) hours, notice of any
adjournment to another time or place shall be given prior to the time of the
reconvened meeting to the directors who were not present at the time of
adjournment.
Section 8. Action at Meeting. Every act or decision done or made by a
-----------------
majority of the directors present at a meeting duly held at which a quorum is
present is the act of the Board of Directors. 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
8.
<PAGE>
majority of the required quorum for such meeting.
Section 9. Waiver of Notice. The transactions of any meeting of the
----------------
Board of Directors, however called and noticed or wherever held, are as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 10. Action Without Meeting. Any action required or permitted
----------------------
to be taken by the Board of Directors may be taken without a meeting, if all
members of the Board individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
Section 11. Removal. The Board of Directors may declare vacant the
-------
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.
The entire Board of Directors or any individual director may be
removed from office without cause by a vote of shareholders holding a majority
of the outstanding shares entitled to vote at an election of directors;
provided, however, that unless the entire Board is removed, no individual
director may be removed when the votes cast against removal, or not consenting
in writing to such removal, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes cast were
cast (or, if such action is taken by written consent, all shares entitled to
vote were voted) and the entire number of
9.
<PAGE>
directors authorized at the time of the director's most recent election were
then being elected.
In the event an office of a director is so declared vacant or in case
the Board or any one or more directors be so removed, new directors may be
elected at the same meeting.
Section 12. Resignations. Any director may resign effective upon
------------
giving written notice to the Chairman of the Board, the President, the Secretary
or the Board of Directors of the Corporation, unless the notice specifies a
later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective.
Section 13. Vacancies. Except for a vacancy created by the removal of
---------
a director, all vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until his successor is elected at an
annual, regular or special meeting of the shareholders. Vacancies created by the
removal of a director may be filled only by approval of the shareholders. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors. Any such election by written consent requires the consent of a
majority of the outstanding shares entitled to vote.
Section 14. Compensation. No stated salary shall be paid directors, as
------------
such, for their services, but, by resolution of the Board of Directors, a fixed
sum and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of such Board; provided that nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
10.
<PAGE>
meetings.
Section 15. Committees. The Board of Directors may, by resolution
----------
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of directors. Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have all the authority of the Board of Directors
in the management of the business and affairs of the Corporation, except with
respect to (a) the approval of any action requiring shareholder approval or
approval of the outstanding shares, (b) the filling of vacancies on the Board or
any committee, (c) the fixing of compensation of directors for serving on the
Board or a committee, (d) the adoption, amendment or repeal of Bylaws, (e) the
amendment or repeal of any resolution of the Board which by its express terms is
not so amendable or repealable, (f) a distribution to shareholders, except at a
rate or in a periodic amount or within a price range determined by the Board,
and (g) the appointment of other committees of the Board or the members thereof.
11.
<PAGE>
ARTICLE IV - OFFICERS
---------------------
Section 1. Number and Term. The officers of the Corporation shall be a
---------------
Chairman of the Board, a President, one or more Vice Presidents, a Secretary and
a Chief Financial Officer, all of which shall be chosen by the Board of
Directors. In addition, the Board of Directors may appoint such other officers
as may be deemed expedient for the proper conduct of the business of the
Corporation, each of whom shall have such authority and perform such duties as
the Board of Directors may from time to time determine. The officers to be
appointed by the Board of Directors shall be chosen annually at the regular
meeting of the Board of Directors held after the annual meeting of shareholders
and shall serve at the pleasure of the Board of Directors. If officers are not
chosen at such meeting of the Board of Directors, they shall be chosen as soon
thereafter as shall be convenient. Each officer shall hold office until his
successor shall have been duly chosen or until his removal or resignation.
Section 2. Inability to Act. In the case of absence or inability to
----------------
act of any officer of the Corporation and of any person herein authorized to act
in his place, the Board of Directors may from time to time delegate the powers
or duties of such officer to any other officer, or any director or other person
whom it may select.
Section 3. Removal and Resignation. Any officer chosen by the Board of
-----------------------
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of all the members of the Board of Directors.
Any officer chosen by the Board of Directors may resign at any time by
giving written notice of said resignation to the Corporation. Unless a different
time is specified therein, such resignation shall be effective upon its receipt
by the Chairman of the Board, the President,
12.
<PAGE>
the Secretary or the Board of Directors.
Section 4. Vacancies. A vacancy in any office because of any cause may
---------
be filled by the Board of Directors for the unexpired portion of the term.
Section 5. Chairman of the Board. The Chairman of the Board shall
---------------------
preside at all meetings of the Board.
Section 6. President. The President shall be the general manager and
---------
chief executive officer of the Corporation, subject to the control of the Board
of Directors, and as such shall preside at all meetings of shareholders, shall
have general supervision of the affairs of the Corporation, shall sign or
countersign or authorize another officer to sign all certificates, contracts,
and other instruments of the Corporation as authorized by the Board of
Directors, shall make reports to the Board of Directors and shareholders, and
shall perform all such other duties as are incident to such office or are
properly required by the Board of Directors.
Section 7. Vice President. In the absence of the President, or in the
--------------
event of such officer's death, disability or refusal to act, the Vice President,
or in the event there be more than one Vice President, the Vice Presidents in
the order designated at the time of their selection, or in the absence of any
such designation, then in the order of their selection, shall perform the duties
of President, and when so acting, shall have all the powers and be subject to
all restrictions upon the President. Each Vice President shall have such powers
and discharge such duties as may be assigned from time to time by the President
or by the Board of Directors.
Section 8. Secretary. The Secretary shall see that notices for all
---------
meetings are given in accordance with the provisions of these Bylaws and as
required by law, shall keep minutes of all meetings, shall have charge of the
seal and the corporate books, and shall make
13.
<PAGE>
such reports and perform such other duties as are incident to such office, or as
are properly required by the President or by the Board of Directors.
The Assistant Secretary or the Assistant Secretaries, in the order of
their seniority, shall, in the absence or disability of the Secretary, or in the
event of such officer's refusal to act, perform the duties and exercise the
powers and discharge such duties as may be assigned from time to time by the
President or by the Board of Directors.
Section 9. Chief Financial Officer. The Chief Financial Officer may
-----------------------
also be designated by the alternate title of "Treasurer." The Chief Financial
Officer shall have custody of all moneys and securities of the Corporation and
shall keep regular books of account. Such officer shall disburse the funds of
the Corporation in payment of the just demands against the Corporation, or as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors from time to time as
may be required of such officer, an account of all transactions as Chief
Financial Officer and of the financial condition of the Corporation. Such
officer shall perform all duties incident to such office or which are properly
required by the President or by the Board of Directors.
14.
<PAGE>
The Assistant Chief Financial Officer or the Assistant Chief Financial
Officers, in the order of their seniority, shall, in the absence or disability
of the Chief Financial Officer, or in the event of such officer's refusal to
act, perform the duties and exercise the powers of the Chief Financial Officer,
and shall have such powers and discharge such duties as may be assigned from
time to time by the President or by the Board of Directors.
Section 10. Salaries. The salaries of the officers shall be fixed from
--------
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the Corporation.
Section 11. Approval of Loans to Officers. */ The Corporation may,
----------------------------- -
upon the approval of the Board of Directors alone, make loans of money or
property to, or guarantee the obligations of, any officer of the Corporation or
its parent or subsidiary, whether or not a director, or adopt an employee
benefit plan or plans authorizing such loans or guaranties provided that (i) the
Board of Directors determines that such a loan or guaranty or plan may
reasonably be expected to benefit the Corporation, (ii) the Corporation has
outstanding shares held of record by 100 or more persons (determined as provided
in Section 605 of the California Corporations Code) on the date of approval by
the Board of Directors, and (iii) the approval of the Board of Directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE V - MISCELLANEOUS
-------------------------
_________________________
*/ This section is effective only if it has been approved by the shareholders
- -
in accordance with Sections 315(b) and 152 of the California Corporations Code.
15.
<PAGE>
Section 1. Record Date and Closing of Stock Books. The Board of
--------------------------------------
Directors may fix a time in the future as a record date for the determination of
the shareholders entitled to notice of and to vote at any meeting of
shareholders or entitled to receive payment of any dividend or distribution, or
any allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall not be more than sixty (60) nor less than
ten (10) days prior to the date of the meeting or event for the purposes of
which it is fixed. When a record date is so fixed, only shareholders of record
at the close of business on that date are entitled to notice of and to vote at
the meeting or to receive the dividend, distribution, or allotment of rights, or
to exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after the record date.
The Board of Directors may close the books of the Corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, the date when the
right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion or exchange of shares.
16.
<PAGE>
Section 2. Certificates. Certificates of stock shall be issued in
------------
numerical order and each shareholder shall be entitled to a certificate signed
in the name of the Corporation by the Chairman of the Board or the President or
a Vice President, and the Chief Financial Officer, the Secretary or an Assistant
Secretary, certifying to the number of shares owned by such shareholder. Any or
all of the signatures on the certificate may be facsimile. Prior to the due
presentment for registration of transfer in the stock transfer book of the
Corporation, the registered owner shall be treated as the person exclusively
entitled to vote, to receive notifications and otherwise to exercise all the
rights and powers of an owner, except as expressly provided otherwise by the
laws of the State of California.
Section 3. Representation of Shares in Other Corporations. Shares of
----------------------------------------------
other corporations standing in the name of this Corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
Corporation by the Chairman of the Board, the President or any Vice President
and the Chief Financial Officer or the Secretary or an Assistant Secretary.
Section 4. Fiscal Year. The fiscal year of the Corporation shall end
-----------
on the 31st day of December.
Section 5. Annual Reports. The Annual Report to shareholders,
--------------
described in the California Corporations Code, is expressly waived and dispensed
with.
Section 6. Amendments. Bylaws may be adopted, amended, or repealed by
----------
the vote or the written consent of shareholders entitled to exercise a majority
of the voting power of the Corporation. Subject to the right of shareholders to
adopt, amend, or repeal Bylaws, Bylaws may be adopted, amended, or repealed by
the Board of Directors, except that a Bylaw
17.
<PAGE>
amendment thereof changing the authorized number of directors may be adopted by
the Board of Directors only if these Bylaws permit an indefinite number of
directors and the Bylaw or amendment thereof adopted by the Board of Directors
changes the authorized number of directors within the limits specified in these
Bylaws.
Section 7. Indemnification of Corporate Agents. The Corporation shall
-----------------------------------
indemnify each of its agents against expenses, judgments, fines, settlements and
other amounts, actually and reasonably incurred by such person by reason of such
person's having been made or having threatened to be made a party to a
proceeding to the fullest extent permissible under California law and the
Corporation shall advance the expenses reasonably expected to be incurred by
such agent in defending any such proceeding upon receipt of the undertaking
required by subdivision (f) of Section 317 of the California Corporations Code.
The terms "agent", "proceeding" and "expenses" made in this Section 7 shall have
the same meaning as such terms in said Section 317.
18.
<PAGE>
I, Nicolas Nierenberg, Secretary of Actuate Software Corporation, a
California corporation do hereby certify that the foregoing Amended and Restated
Bylaws of Actuate Software Corporation are the duly adopted Bylaws of said
Corporation as they are in effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 15th day
of April, 1997.
_____________________________
Nicolas Nierenberg
19.
<PAGE>
EXHIBIT 3.5
BYLAWS OF
ACTUATE SOFTWARE CORPORATION
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES...................................................... 1
ARTICLE II. MEETINGS OF STOCKHOLDERS..................................... 1
ARTICLE III. DIRECTORS.................................................... 3
ARTICLE IV. NOTICES...................................................... 5
ARTICLE V. OFFICERS..................................................... 5
ARTICLE VI. CERTIFICATE OF STOCK......................................... 8
ARTICLE VII. GENERAL PROVISIONS........................................... 9
ARTICLE VIII. AMENDMENTS................................................... 11
ARTICLE IX. LOANS TO OFFICERS............................................ 12
</TABLE>
<PAGE>
BYLAWS
OF
ACTUATE SOFTWARE CORPORATION
ARTICLE I
OFFICES
1.1 The registered office shall be in the City of Dover, County of
Kent, State of Delaware.
1.2 The corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 All meetings of the stockholders for the election of directors
shall be held at such time and place, within or without the State of Delaware,
as may be fixed from time to time by the Board of Directors, and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
2.2 Annual meetings of stockholders, shall be held at such date and
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
2.3 Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not fewer than ten (10) nor more than sixty (60) days before the date of
the meeting.
2.4 The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
2.5 Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the
<PAGE>
president and shall be called by the president or secretary at the request in
writing of a majority of the Board of Directors. Such request shall state the
purpose or purposes of the proposed meeting.
2.6 Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
2.7 Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
2.8 The holders of fifty percent (50%) 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 shall not be present or
represented at any meeting of the stockholders, 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 shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally
notified. 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.
2.9 When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
2.10 Unless otherwise provided in the certificate of incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
2.11 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 which 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, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. 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. Any written consent may be revoked by a
2
<PAGE>
writing received by the Secretary of the Corporation prior to the time that
written consents of the number of shares required to authorize the proposed
action have been filed with the Secretary.
Notwithstanding the above provisions of this Section 2.11, effective
upon a closing of an initial public offering of the corporation's securities
pursuant to a registration statement filed under the Securities Act of 1933, as
amended, the stockholders of the corporation may not take action by written
consent without a meeting but must take any such actions at a duly called annual
or special meeting.
ARTICLE III
DIRECTORS
3.1 The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Directors need not be
stockholders.
3.2 Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute.
3.3 The business of the corporation shall be managed by or under the
direction of its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these bylaws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
3.4 The Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
3.5 The first meeting of each newly elected Board of Directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected Board of Directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
3.6 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
<PAGE>
3.7 Special meetings of the Board of Directors may be called by the
president on ten (10) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telephone, telegram or
facsimile; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two (2) directors
unless the board consists of only one director, in which case special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of the sole director.
3.8 At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the 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 shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
3.9 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.
3.10 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.
COMMITTEES OF DIRECTORS
-----------------------
3.11 The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
General
4
<PAGE>
Corporation Law of Delaware to be submitted to stockholders for approval or (ii)
adopting, amending or repealing any provision of these bylaws.
3.12 Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
-------------------------
3.13 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. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
--------------------
3.14 Unless otherwise restricted by the certificate of incorporation
or these bylaws, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV
NOTICES
4.1 Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telephone, telegram or facsimile.
4.2 Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
5.1 The officers of the corporation shall be chosen by the Board of
Directors and shall be a president, treasurer and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more vice-
presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
5
<PAGE>
5.2 The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president, a treasurer, and a secretary
and may choose vice-presidents, assistant secretaries and assistant treasurers.
5.3 The Board of Directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board.
5.4 The salaries of all officers and agents of the corporation shall
be fixed by the Board of Directors.
5.5 The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
-------------------------
5.6 The Chairman of the Board, if any, shall preside at all meetings
of the Board of Directors and of the stockholders at which he or she shall be
present. He or she shall have and may exercise such powers as are, from time to
time, assigned to him or her by the board and as may be provided by law.
5.7 In the absence of the Chairman of the Board, the Vice Chairman of
the Board, if any, shall preside at all meetings of the Board of Directors and
of the stockholders at which he or she shall be present. He or she shall have
and may exercise such powers as are, from time to time, assigned to him or her
by the board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
---------------------------------
5.8 The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
the president shall preside at all meetings of the stockholders and the Board of
Directors; the president shall have general and active management of the
business of the corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect.
5.9 The president shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
5.10 In the absence of the president or in the event of his inability
or refusal to act, the vice-president, if any, (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents
6
<PAGE>
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
-------------------------------------
5.11 The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or president, under whose supervision he or she shall be. The secretary shall
have custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his or her signature.
5.12 The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
--------------------------------------
5.13 The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
5.14 He shall disburse the funds of the corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the corporation.
5.15 If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
5.16 The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the Board of Directors (or if
there be no such determination,
7
<PAGE>
then in the order of their election) shall, in the absence of the treasurer or
in the event of his inability or refusal to act, perform the duties and exercise
the powers of the treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
6.1 Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the Board of Directors, or the president or a vice-
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
such stockholder in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, 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 which the corporation shall
issue to represent such class or series of stock, provided 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 which 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, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
6.2 Any of or all the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
-----------------
6.3 The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
8
<PAGE>
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
-----------------
6.4 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 upon its books.
FIXING RECORD DATE
------------------
6.5 In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or 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. 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.
REGISTERED STOCKHOLDERS
-----------------------
6.6 The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a 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 any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
---------
7.1 Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
7.2 Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such
9
<PAGE>
other purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
------
7.3 All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
-----------
7.4 The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
----
7.5 The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
---------------
7.6 The corporation shall, to the fullest extent authorized under the
laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation, provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 7.6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 7.6 shall be offset to the extent of any
other source of indemnification or any otherwise applicable insurance coverage
under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he or
she is or was a director of the corporation (or was serving at the corporation's
request as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation as authorized by relevant sections
of the General Corporation Law of Delaware.
10
<PAGE>
Notwithstanding the foregoing, the corporation shall not be required to advance
such expenses to an agent who is a party to an action, suit or proceeding
brought by the corporation and approved by a majority of the Board of Directors
of the corporation that alleges willful misappropriation of corporate assets by
such agent, disclosure of confidential information in violation of such agent's
fiduciary or contractual obligations to the corporation or any other willful and
deliberate breach in bad faith of such agent's duty to the corporation or its
stockholders.
The foregoing provisions of this Section 7.6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that such person, their
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 7.6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
that may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 7.6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation that is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
8.1 These bylaws may be altered, amended or repealed or new bylaws
may be adopted by stockholders holding at least seventy-five percent (75%) of
the Company's outstanding capital stock ("Amending Stockholders") or by the
Board of Directors, when such power is conferred upon the Board of Directors by
the certificate of incorporation at any regular meeting of the stockholders or
of the Board of Directors or by the Amending Stockholders at any special meeting
of the stockholders or by the Board of Directors at any special meeting of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new bylaws be contained in the notice of such special meeting. If the power
to adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
11
<PAGE>
ARTICLE IX
LOANS TO OFFICERS
9.1 The corporation may lend money to, or guarantee any obligation
of, or otherwise assist any officer or other employee of the corporation or of
its subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under any statute.
12
<PAGE>
CERTIFICATE OF SECRETARY OF
ACTUATE SOFTWARE CORPORATION
The undersigned, William P. Garvey, hereby certifies that he is the
duly elected and acting Secretary of Actuate Software Corporation, a Delaware
corporation (the "Corporation"), and that the Bylaws attached hereto constitute
the Bylaws of said Corporation as duly adopted by the Board of Directors on May
28, 1998.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this ____ day of June, 1998.
___________________________________
William P. Garvey
Assistant Secretary
<PAGE>
EXHIBIT 3.6
ACTUATE SOFTWARE CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
APRIL 25, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. Registration Rights.................................................... 1
1.1 Definitions....................................................... 1
1.2 Request for Registration.......................................... 2
1.3 Company Registration.............................................. 4
1.4 Obligations of the Company........................................ 4
1.5 Furnish Information............................................... 6
1.6 Expenses of Demand Registration................................... 6
1.7 Expenses of Company Registration.................................. 7
1.8 Underwriting Requirements......................................... 7
1.9 Delay of Registration............................................. 8
1.10 Indemnification................................................... 8
1.11 Reports Under Securities Exchange Act of 1934.....................10
1.12 Form S-3 Registration.............................................10
1.13 Assignment of Registration Rights.................................11
1.14 Limitations on Subsequent Registration Rights.....................12
1.15 "Market Stand-Off" Agreement......................................12
1.16 Termination of Registration Rights................................13
2. Covenants of the Company...............................................13
2.1 Delivery of Basic Financial Statements............................13
2.2 Additional Information and Inspection Rights......................14
2.3 Termination of Information and Inspection Covenants...............15
2.4 Right of First Offer..............................................15
2.5 Key-Man Insurance.................................................16
2.6 Observer Rights...................................................17
2.7 Termination of Certain Covenants..................................17
3. Miscellaneous..........................................................17
3.1 Successors and Assigns............................................17
3.2 Governing Law.....................................................17
3.3 Counterparts......................................................18
3.4 Titles and Subtitles..............................................18
3.5 Notices...........................................................18
3.6 Expenses..........................................................18
3.7 Amendments and Waivers............................................18
3.8 Severability......................................................18
3.9 Aggregation of Stock..............................................18
3.10 Entire Agreement; Amendment; Waiver...............................18
3.11 Prior Agreement...................................................19
</TABLE>
Schedule A Schedule of Investors
i.
<PAGE>
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of
the 25th day of April, 1997, by and between Actuate Software Corporation, a
California corporation (the "Company"), and the investors listed on Schedule A
hereto, each of which is herein referred to as an "Investor."
RECITALS
--------
WHEREAS, the Company and certain of the Investors are parties to the
Amended and Restated Investors' Rights Agreement dated January 23, 1996 (the
"Prior Agreement");
WHEREAS, the Company and certain of the Investors are parties to the
Series D Preferred Stock Purchase Agreement of even date herewith (the "Series D
Agreement");
WHEREAS, in order to induce the Company to enter into the Series D
Agreement and to induce certain of the Investors to invest funds in the Company
pursuant to the Series D Agreement, the Investors and the Company desire to
terminate the Prior Agreement and to enter into this Agreement which shall
govern the rights of the Investors to cause the Company to register shares of
Common Stock issuable to the Investors and certain other matters as set forth
herein, and replace and supersede the Prior Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
<PAGE>
(c) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock, Series C1
Preferred Stock, Series D Preferred Stock and Series D1 Preferred Stock, and
(ii) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i) above, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned.
(g) 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.
(h) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of (i)
December 1, 1998 or (ii) three (3) 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 a SEC Rule 145 transaction), a written request from the Holders of at
least 30% of the Registrable Securities then outstanding that the Company file a
registration statement under the Act for aggregate proceeds, net of underwriting
discounts and commissions, in excess of $7,500,000 then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
2.
<PAGE>
(ii) effect as soon as practicable, and in any event within
60 days of the receipt of such request, the registration under the Act of all
Registrable Securities which the Holders request to be registered, subject to
the limitations of subsection 1.2(b), within twenty (20) days of the mailing of
such notice by the Company in accordance with Section 3.5.
(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 subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. 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 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, 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 Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer 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 taking action
with respect to such filing for a period of not more than 120 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.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
3.
<PAGE>
(i) After the Company has effected two registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.
1.3 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
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, 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 or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), 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 3.5, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this
--------------------------
Section 1 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 a period of up to 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
4.
<PAGE>
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 Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation to
file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (I) includes any prospectus required by Section 10(a)(3) of the
Act or (II) 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 (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of 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
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
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, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(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 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.
5.
<PAGE>
(g) Cause all such Registrable Securities registered pursuant
hereunder 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 hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.5 Furnish Information.
-------------------
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 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.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, and 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 1.2 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 1.2; 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 and have
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
1.2.
6.
<PAGE>
1.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder, but excluding underwriting
discounts and commissions relating to Registrable Securities. If Company counsel
does not make itself available to the selling Holders for this purpose, the
Company will pay the reasonable fees and disbursements of one counsel for the
selling Holders selected by them.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 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 (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not,
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 determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall the amount of 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 completely if the underwriters
make the determination described above and no other shareholder's securities are
included. For purposes of the preceding parenthetical concerning apportionment,
for any selling shareholder 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.
7.
<PAGE>
1.9 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 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act, the 1934 Act, or other federal or state law, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the 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 Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will pay 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 1.10(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 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 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 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
8.
<PAGE>
with written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will pay any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.10(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 1.10(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 1.10(b) exceed the gross proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 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 1.10, 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
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate 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
1.10, 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 1.10.
(d) If the indemnification provided for in this Section 1.10 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, shall 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 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 shall 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,
9.
<PAGE>
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
shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
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) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) 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 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 any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive a
---------------------
written request from any Holder or Holders of at least 20% of the Registrable
Securities 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:
10.
<PAGE>
(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 1.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) 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 $500,000; (3) 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 60 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.12; or (5) 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 1.12, 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, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne by the
Company. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such
11.
<PAGE>
securities, who, after such assignment or transfer, holds at least 100,000
shares of Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations), provided:
(a) 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;
(b) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement, including without limitation the
provisions of Section 1.15 below; and (c) 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 Act. For the
purposes of determining the number of shares Of Registrable Securities held by a
transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this Section
1.
1.14 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 a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder any registration
rights the terms of which are more favorable or as favorable as the registration
rights granted to the Holders hereunder.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
----------------------------
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any Registrable Securities of
the Company held by it at any time during such period except common stock
included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements;
12.
<PAGE>
(c) such market stand-off time period shall not exceed 180 days; and
(d) such agreement shall provide that any discretionary waiver or
termination of the restrictions of such agreements by the Company or
representatives of the underwriters shall apply to all persons subject to such
agreements pro rata based on the number of shares held.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-I or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-14 or Form S-15 or similar forms which may be promulgated
in the future.
1.16 Termination of Registration Rights.
----------------------------------
(a) No Holder shall be entitled to exercise any right provided for in
this Section 1 after five (5) years following the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public.
(b) In addition, the right of any Holder to request registration or
inclusion in any registration pursuant to Sections 1.2, 1.3 or 1.12 shall
terminate on the closing of the first Company-initiated registered public
offering of Common Stock of the Company if all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period; or on such date after the closing
of the first Company-initiated registered public offering of Common Stock of the
Company as all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any 90-
day period; provided, however, that the provisions of this Section 1.16(b) shall
not apply to any Holder who owns more than two percent (2%) of the outstanding
stock of the Company until such time as such Holder owns less than two percent
(2%) of the outstanding stock of the Company.
2. Covenants of the Company.
------------------------
2.1 Delivery of Basic Financial Statements. The Company shall deliver
--------------------------------------
to each Investor 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
13.
<PAGE>
balance sheet of the Company and statement of shareholder's equity 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 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.
2.2 Additional Information and Inspection Rights.
--------------------------------------------
(a) The Company shall deliver to each Investor, so long as such
Investor owns at least 100,000 or more shares of Series A Preferred Stock,
Series B Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock,
Series C1 Preferred Stock, Series D Preferred Stock or Series D1 Preferred
Stock, or such number of shares of Common Stock issued upon conversion of
100,000 or more shares of Series A Preferred Stock, Series B Preferred Stock,
Series B1 Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock,
Series D Preferred Stock or Series D1 Preferred Stock, or any combination
thereof (as presently constituted and subject to subsequent adjustment for stock
splits, stock dividends, reverse stock splits, recapitalizations and the like)
(each such Investor referred to hereinafter as a "Significant Investor"):
(i) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited income statement, schedule as to the sources and
application of funds for such fiscal quarter and an unaudited balance sheet;
(ii) 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 for and as of the end of such month, in reasonable detail;
(iii) 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;
(iv) with respect to the financial statements called for in
subsections (i) and (ii) of this Section 2.2(a), an instrument executed by the
Chief Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by gaap) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
14.
<PAGE>
(b) The Company shall permit each Significant Investor, at such
Significant Investor'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 the Significant Investor; provided, however, that the
Company shall not be obligated pursuant to this Section 2.2 to provide access to
any information which it reasonably considers to be a trade secret or similar
confidential information.
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in subsections 2.2(a) and 2.2(b), shall terminate as to
Investors and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its securities to
the general public is consummated or when the Company first becomes subject to
the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this paragraph 2.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this paragraph 2.4, Investor includes
any general partners and affiliates of an Investor. An Investor shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice")
to each Investor stating (i) its bona fide intention to offer such Shares, (ii)
the number, of such Shares to be offered, and (iii) the price and terms, if any,
upon which it proposes to offer such Shares.
(b) By written notification received by the Company within 20
calendar days after giving of the Notice, the Investor may elect to purchase or
obtain, at the price and on the terms specified in the Notice, up to that
portion of such Shares which equals the proportion that the number of shares of
common stock issued and held, or issuable upon conversion of the Preferred Stock
then held, by such Investor bears to the total number of shares of common stock
of the Company then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Company shall promptly, in writing,
inform each Investor which purchases all the shares available to it ("Fully-
Exercising Investor") of any other Investor's failure to do likewise. During the
ten-day period commencing after such information is given, each Fully-Exercising
Investor shall be entitled to obtain that portion of the Shares for which
Investors were
15.
<PAGE>
entitled to subscribe but which were not subscribed for by the Investors which
is equal to the proportion that the number of shares of common stock issued and
held, or issuable upon conversion of Preferred Stock then held, by such Fully-
Exercising Investor bears to the total number of shares of common stock issued
and held, or issuable upon conversion of the Preferred Stock then held, by all
Fully-Exercising Investors who wish to purchase some of the unsubscribed shares.
(c) If all Shares which Investors are entitled to obtain pursuant to
subsection 2.4(b) are not elected to be obtained as provided in subsection
2.4(b) hereof, the Company may, during the 30-day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 30 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of shares of common stock (or options
therefor) as approved by the Board of Directors of the Company to employees,
directors or consultants for the primary purpose of soliciting or retaining
their employment, (ii) to or after consummation of a bona fide, firmly
underwritten public offering of shares of common stock, registered under the Act
pursuant to a registration statement on Form S-l, at an offering price of at
least $9.00 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization) and $10,000,000 in the aggregate, (iii)
the issuance of securities pursuant to the conversion or exercise of convertible
or exercisable securities, (iv) the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, (v) the
issuance of stock, warrants or other securities or rights to persons or entities
with which the Company has business relationships provided such issuances are
for other than primarily equity financing purposes, or (vi) the sale of up to
934,091 shares of the Company's Series D Preferred Stock pursuant to the Series
D Agreement.
(e) The right of first offer set forth in paragraph 2.4 may not be
assigned or transferred, except that (i) such right is assignable by each Holder
to any wholly owned subsidiary or parent of, or to any corporation or entity
that is, within the meaning of the Act, controlling, controlled by or under
common control with, any such Holder, and (ii) such right is assignable between
and among any of the Holders.
2.5 Key-Man Insurance. The Company has as of the date hereof or
-----------------
shall within 90 days of the date hereof use its best efforts to obtain from
financially sound and reputable insurers term life insurance on the life of
Nicolas Nierenberg in the
16.
<PAGE>
amount of $2,000,000, except as otherwise decided in accordance with policies
adopted by the Company's Board of Directors. The Company will cause to be
maintained the term life insurance required by this Section 2.5 hereof, except
as otherwise decided in accordance with policies adopted by the Company's Board
of Directors. Such policies shall name the Company as loss payee and shall not
be cancelable by the Company without prior approval of the Board of Directors.
2.6 Observer Rights. As long as an Investor owns not less than
---------------
100,000 shares of Series D Preferred Stock it is purchasing on the date hereof
(or an equivalent amount of Common Stock issued upon conversion thereof), the
Company shall invite a representative of such Investor to attend all meetings of
its Board of Directors in a nonvoting observer capacity and, in this respect,
shall give such representative copies of all notices, minutes, consents, and
other materials that it provides to its directors; provided, however, that such
representative shall agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information so provided; and, provided
further, that the Company reserves the right to withhold any information and to
exclude such representative from any meeting or portion thereof if access to
such information or attendance at such meeting could adversely affect the
attorney-client privilege between the Company and its counsel or would result in
disclosure of trade secrets to such representative or if such Investor or its
representative is a direct competitor of the Company.
2.7 Termination of Certain Covenants. The covenants set forth in
--------------------------------
Sections 2.5 and 2.6 shall terminate and be of no further force or effect upon
the consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering of its securities to the general public.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided herein, 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 (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
17.
<PAGE>
3.3 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.
3.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
3.6 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held
--------------------
or acquired by affiliated entities or persons, including Registrable Securities
distributed by an Investor which is a partnership to the partners of such
partnership, shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
3.10 Entire Agreement; Amendment; Waiver. This Agreement (including
-----------------------------------
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
18.
<PAGE>
3.11 Prior Agreement. The Prior Agreement is hereby terminated and
---------------
superseded in its entirety by this Agreement.
19.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ACTUATE SOFTWARE CORPORATION
By: /s/ Nicolas Nierenberg,
--------------------------------
Nicolas Nierenberg, President
[SIGNATURE PAGE TO THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ACCEL IV L.P.
By: ACCEL IV ASSOCIATES L.P., its
General Partner
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
General Partner
ACCEL KEIRETSU L.P.
By: ACCEL PARTNERS & CO., INC., its
General Partner
By: [SIGNATURE ILLEGIBLE]
------------------------------------
ACCEL INVESTORS '93 L.P.
By: [SIGNATURE ILLEGIBLE]
------------------------------------
General Partner
ELLMORE C. PATTERSON PARTNERS
By: [SIGNATURE ILLEGIBLE]
------------------------------------
General Partner
PROSPER PARTNERS
By: [SIGNATURE ILLEGIBLE]
------------------------------------
Attorney-In-Fact
[SIGNATURE PAGE TO THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MOHR, DAVIDOW VENTURES III
By: WLPJ Partners, General Partner
By: [SIGNATURE ILLEGIBLE]
------------------------------
General Partner
[SIGNATURE PAGE TO THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PEOPLESOFT, INC.
By: Ronald E.F. Codd
------------------------------
Name: Ronald E.F. Codd
---------------------------
Title: CFO & SR VP
--------------------------
[SIGNATURE PAGE TO THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TCV II, V.O.F.
A NETHERLANDS ANTILLES GENERAL PARTNERSHIP
BY: TECHNOLOGY CROSSOVER
MANAGEMENT II, L.L.C.,
ITS: INVESTMENT GENERAL PARTNER
By: /s/ Robert C. Bensky
---------------------------------
Name: Robert C. Bensky
------------------------------
Title: Chief Financial Officer
------------------------------
TECHNOLOGY CROSSOVER
VENTURES II, L.P.
A DELAWARE LIMITED PARTNERSHIP
BY: TECHNOLOGY CROSSOVER
MANAGEMENT II, L.L.C.,
ITS: GENERAL PARTNER
/s/ Robert C. Bensky
By:-----------------------------
Robert C. Bensky
Name: --------------------------
Chief Financial Officer
Title: -------------------------
[SIGNATURE PAGE TO THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TCV II(Q), L.P.
A DELAWARE LIMITED PARTNERSHIP
BY: TECHNOLOGY CROSSOVER
MANAGEMENT II, L.L.C.,
ITS: GENERAL PARTNER
By: /s/ Robert C. Bensky
-----------------------------
Name: Robert C. Bensky
--------------------------
Title: Chief Financial Officer
--------------------------
TCV II STRATEGIC PARTNERS, L.P.
A DELAWARE LIMITED PARTNERSHIP
BY: TECHNOLOGY CROSSOVER
MANAGEMENT II, L.L.C.,
ITS: GENERAL PARTNER
By: /s/ Robert C. Bensky
------------------------------
Name: Robert C. Bensky
---------------------------
Title: Chief Financial Officer
---------------------------
TECHNOLOGY CROSSOVER
VENTURES II, C.V.
A NETHERLANDS ANTILLES LIMITED PARTNERSHIP
BY: TECHNOLOGY CROSSOVER
MANAGEMENT II, L.L.C.,
ITS: INVESTMENT GENERAL PARTNER
By: /s/ Robert C. Bensky
-----------------------------
Name: Robert C. Bensky
---------------------------
Title: Chief Financial Officer
---------------------------
[SIGNATURE PAGE TO THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
DAN GAUDREAU
/s/ Dan Gaudreau
--------------------------------
[SIGNATURE PAGE TO THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
REED D. TAUSSIG
/s/ Reed D. Taussig
-----------------------------------
[SIGNATURE PAGE TO THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SEQUOIA CAPITAL VI
SEQUOIA TECHNOLOGY PARTNERS VI
SEQUOIA 1995
BY: [SIGNATURE ILLEGIBLE]
---------------------------------
Its: Partner
---------------------------------
[SIGNATURE PAGE TO THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
SCHEDULE A
----------
SCHEDULE OF INVESTORS
ACCEL IV L.P.
ACCEL KEIRETSU L.P.
ACCEL INVESTORS '93 L.P.
ELLMORE C. PATTERSON PARTNERS
PROSPER PARTNERS
MOHR, DAVIDOW VENTURES III
REED TAUSSIG
SEQUOIA CAPITAL VI
SEQUOIA TECHNOLOGY PARTNERS VI
SEQUOIA 1995
PEOPLESOFT, INC.
TECHNOLOGY CROSSOVER VENTURES
TCV II, V.O.F
TECHNOLOGY CROSSOVER VENTURES II, L.P.
TCV II(Q), L.P.
TCV II STRATEGIC PARTNERS, L.P.
TECHNOLOGY CROSSOVER VENTURES II, C.V.
DAN GAUDREAU
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of
___________, ____ between Actuate Software Corporation, a Delaware corporation
("the Company"), and _____________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer or director of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an officer
or director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold
-----------------------
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and Article
VII, Section 7.6 of the Bylaws, as such may be amended. In furtherance of the
foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification provided
- -------
in this Section l(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the
<PAGE>
Company and, with respect to any criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
---------------------------------------------
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware shall determine that such indemnification may
be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
--------------------------------------------------------
Partly Successful. Notwithstanding any other provision of this Agreement, to the
- -----------------
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
--------------------
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall
exist upon the Company's obligations pursuant to this Agreement shall be that
the Company shall not be obligated to make any payment to Indemnitee that is
finally determined (under the procedures, and subject to the presumptions, set
forth in Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. Contribution in the Event of Joint Liability.
--------------------------------------------
(a) Whether or not the indemnification provided in Sections 1 and
2 hereof is available, in respect of any threatened, pending or completed
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding), Company shall pay,
in the first instance, the entire amount of any judgment or
2
<PAGE>
settlement of such action, suit or proceeding without requiring Indemnitee to
contribute to such payment and Company hereby waives and relinquishes any right
of contribution it may have against Indemnitee. Company shall not enter into any
settlement of any action, suit or proceeding in which Company is jointly liable
with Indemnitee (or would be if joined in such action, suit or proceeding)
unless such settlement provides for a full and final release of all claims
asserted against Indemnitee.
(b) Without diminishing or impairing the obligations of the
Company set forth in the preceding subparagraph, if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or proceeding in
which Company is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), Company shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in proportion
to the relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any
-----------------------------------------
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of
-----------------------
this Agreement, the Company shall advance all Expenses incurred by or on behalf
of Indemnitee in connection with any Proceeding by reason of Indemnitee's
Corporate Status within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
3
<PAGE>
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses. Any advances and undertakings to repay pursuant to this Section 5
shall be unsecured and interest free. Notwithstanding the foregoing, the
obligation of the Company to advance Expenses pursuant to this Section 5 shall
be subject to the condition that, if, when and to the extent that the Company
determines that Indemnitee would not be permitted to be indemnified under
applicable law, the Company shall be entitled to be reimbursed, within thirty
(30) days of such determination, by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Company that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
- ---------------------------------------------------------------
Indemnification. It is the intent of this Agreement to secure for Indemnitee
- ---------------
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case by one of the following three methods, which
shall be at the election of Indemnitee: (1) by a majority vote of the
disinterested directors, even though less than a quorum, or (2) by independent
legal counsel in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors). Indemnitee or the Company, as
the case may be, may, within 10 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the
4
<PAGE>
requirements of "Independent Counsel" as defined in Section 13 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. Absent a proper and timely objection, the person so
selected shall act as Independent Counsel. If a written objection is made and
substantiated, the Independent Counsel selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 6(a)
hereof, no Independent Counsel shall have been selected and not objected to,
either the Company or Indemnitee may petition the Court of Chancery of the State
of Delaware or other court of competent jurisdiction for resolution of any
objection which shall have been made by the Company or Indemnitee to the other's
selection of Independent Counsel and/or for the appointment as Independent
Counsel of a person selected by the court or by such other person as the court
shall designate, and the person with respect to whom all objections are so
resolved or the person so appointed shall act as Independent Counsel under
Section 6(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 6(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
6(c), regardless of the manner in which such Independent Counsel was selected or
appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(f) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not
5
<PAGE>
materially misleading, in connection with the request for indemnification, or
(ii) a prohibition of such indemnification under applicable law; provided,
however, that such 30 day period may be extended for a reasonable time, not to
exceed an additional fifteen (15) days, if the person, persons or entity making
the determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating documentation
and/or information relating thereto; and provided, further, that the foregoing
provisions of this Section 6(g) shall not apply if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt
by the Company of the request for such determination the Board of Directors or
the Disinterested Directors, if appropriate, resolve to submit such
determination to the stockholders for their consideration at an annual meeting
thereof to be held within seventy five (75) days after such receipt and such
determination is made thereat, or (B) a special meeting of stockholders is
called within fifteen (15) days after such receipt for the purpose of making
such determination, such meeting is held for such purpose within sixty (60) days
after having been so called and such determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other
disposition short of final judgment may be successful if it permits a party to
avoid expense, delay, distraction, disruption and uncertainty. In the event that
any action, claim or proceeding to which Indemnitee is a party is resolved in
any manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
7. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
6
<PAGE>
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 of this
Agreement, Indemnitee shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction,
of his entitlement to such indemnification. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 7(a). The Company shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding
commenced pursuant to this Section 7, absent a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7,
seeks a judicial adjudication of his rights under, or to recover damages for
breach of, this Agreement, or to recover under any directors' and officers'
liability insurance policies maintained by the Company the Company shall pay on
his behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
-----------------------------------------------------------
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be
7
<PAGE>
afforded currently under the Bylaws and this Agreement, it is the intent of the
parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change. No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every other right and
remedy shall be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any 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 papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
-------------------------------------
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the
---------------------
Company contained herein shall continue during the period Indemnitee is an
officer or director of the Company (or 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) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 7 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of
8
<PAGE>
whether Indemnitee continues to serve as an officer or director of the Company
or any other Enterprise at the Company's request.
11. Security. To the extent requested by the Indemnitee and approved
--------
by the Board of Directors of the Company, the Company may at any time and from
time to time provide security to the Indemnitee for the Company's obligations
hereunder through an irrevocable bank line of credit, funded trust or other
collateral. Any such security, once provided to the Indemnitee, may not be
revoked or released without the prior written consent of the Indemnitee.
12. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as an officer or director of the Company,
and the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
-----------
(a) "Corporate Status" describes the status of a person who is
or was a director, officer, employee or agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past
9
<PAGE>
five years has been, retained to represent: (i) the Company or Indemnitee in any
matter material to either such party (other than with respect to matters
concerning the Indemnitee under this Agreement, or of other indemnitees under
similar indemnification agreements), or (ii) any other party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's rights under this Agreement. The Company
agrees to pay the reasonable fees of the Independent Counsel referred to above
and to fully indemnify such counsel against any and all Expenses, claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he 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; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement
------------
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, each portion of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and shall remain enforceable to the fullest extent
permitted by law; and (b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.
15. Modification and Waiver. No supplement, modification,
-----------------------
termination or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment,
10
<PAGE>
information or other document relating to any Proceeding or matter which may be
subject to indemnification covered hereunder. The failure to so notify the
Company shall not relieve the Company of any obligation which it may have to the
Indemnitee under this Agreement or otherwise unless and only to the extent that
such failure or delay materially prejudices the Company.
17. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee's
signature hereto.
(b) If to the Company, to:
999 Baker Way, Suite 270
San Mateo, CA 94404
Attention: President
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
19. Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include
------
usage of the feminine pronoun where appropriate.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
ACTUATE SOFTWARE CORPORATION
By:____________________________________
Name:______________________________
Title:_____________________________
_______________________________________
Name: ________________________________
Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
<PAGE>
EXHIBIT 10.2
ACTUATE SOFTWARE CORPORATION
1994 STOCK OPTION PLAN
----------------------
(AS AMENDED AND RESTATED THROUGH FEBRUARY 12,1998)
I. PURPOSES OF THE PLAN
This Actuate Software Corporation 1994 Stock Option Plan (the "Plan")
is intended to promote the interests of Actuate Software Corporation, a
California corporation, by providing a method whereby eligible individuals who
provide valuable services to the Corporation (or any Parent or Subsidiary) may
be offered incentives and rewards which will encourage them to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation and continue to render services to the Corporation (or any Parent or
Subsidiary).
II. DEFINITIONS
For the purposes of this Plan, the following definitions shall be in
effect:
A. BOARD shall mean the Corporation's Board of Directors.
-----
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
C. COMMITTEE shall mean a committee of two (2) or more Board members
---------
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE TRANSACTION shall mean either of the following
---------------------
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation or any Parent or Subsidiary.
F. CORPORATION shall mean Actuate Software Corporation, a California
-----------
corporation.
G. DISABILITY shall mean the inability of the Optionee to engage in
----------
any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan Administrator
on the basis of such medical evidence as the Plan Administrator deems warranted
under the circumstances.
H. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation or any Parent or Subsidiary, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXCHANGE ACT shall mean the Securities Exchange Act of 1934, as
------------
amended.
J. EXERCISE DATE shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
under the Plan shall be the value determined in accordance with the following
provisions:
<PAGE>
(i) If the Common Stock is not at the time listed or admitted
to trading on any Stock Exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National Market
or any successor system. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed or admitted to
trading on any Stock Exchange, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in question on
the Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(iii) If the Common Stock is at the time neither listed nor
admitted to trading on any Stock Exchange nor traded on the Nasdaq
National Market, then the Fair Market Value shall be determined by the
Plan Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
L. INCENTIVE OPTION shall mean a stock option which satisfies the
----------------
requirements of Code Section 422.
M. NON-STATUTORY OPTION shall mean a stock option not intended to
--------------------
meet the requirements of Code Section 422.
N. PARENT shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
O. PLAN shall mean the Corporation's 1994 Stock Option Plan, as set
----
forth in this document.
P. PLAN ADMINISTRATOR shall mean either the Board or the Committee,
------------------
to the extent the Committee is at the time responsible for the administration of
the Plan in accordance with Article III.
Q. SERVICE shall mean the provision of services to the Corporation
-------
or any Parent or Subsidiary by an individual in the capacity of an Employee, a
non-employee member of the board of directors or a consultant.
R. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
S. SUBSIDIARY shall mean each corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
T. 10% SHAREHOLDER shall mean the owner of stock (as determined
---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or any Parent
or Subsidiary.
2.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or
all administrative functions otherwise exercisable by the Board may be delegated
to the Committee. Members of the Committee shall serve for such period of time
as the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the
Plan Administrator shall be final and binding on all parties who have an
interest in the Plan or any outstanding option.
IV. ELIGIBILITY FOR OPTION GRANTS
A. The persons eligible to receive option grants under the Plan
are as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants who provide valuable services to the
Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine
which eligible individuals are to receive option grants under the Plan, the
number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of the
Corporation's authorized but unissued or reacquired Common Stock. The maximum
number of shares which may be issued over the term of the Plan shall not exceed
2,775,350 shares, subject to adjustment from time to time in accordance with the
provisions of this Article V. In no event may any one officer of the
Corporation acquire shares of Common Stock under the Plan in excess of twenty-
five percent (25%) of the total share reserve available for issuance under the
Plan.
B. Shares subject to outstanding options shall be available for
subsequent option grants under the Plan to the extent (i) the options expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article IX
of the Plan. Unvested shares issued under the Plan and subsequently repurchased
by the Corporation, at the option exercise price paid per share, pursuant to the
Corporation's repurchase rights under the Plan, shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for subsequent option grants under the Plan.
C. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the maximum number
and/or class of securities issuable under the Plan and (ii) the number and/or
class of securities and the exercise price per share in effect under each
outstanding option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive. In no event shall any adjustments be made for
the conversion of one or more outstanding shares of the Corporation's preferred
stock into shares of the Common Stock.
3.
<PAGE>
VI. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action of
the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or Non-Statutory Options. Each granted option shall be
evidenced by one or more instruments in the form approved by the Plan
Administrator, provided, however, that each such instrument shall comply with
--------
the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Article VII.
A. EXERCISE PRICE.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator. In no event, however, shall the exercise price per share be less
than eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the date of the option grant.
2. If the individual to whom the option is granted is a 10%
Shareholder, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the grant date.
3. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Article X and the
agreement evidencing the grant, be payable in cash or check made payable to the
Corporation. Should the Corporation's outstanding Common Stock be registered
under Section 12(g) of the Exchange Act at the time the option is exercised,
then the exercise price may also be paid as follows:
(i) in shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
optionee shall concurrently provide irrevocable written instructions (a)
to a Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such purchase and (b) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under the Plan
----------------------------
shall be exercisable at such time or times, during such period and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the stock option agreement. However, no option shall have a term in excess
of ten (10) years measured from the grant date. The option shall be exercisable
during the optionee's lifetime only by the optionee and shall not be assignable
or transferable other than by will or by the laws of descent and distribution
following the optionee's death.
C. EFFECT OF TERMINATION OF SERVICE.
--------------------------------
1. Except to the extent otherwise provided pursuant to
subsection C.2 below, the following provisions shall govern the exercise period
applicable to any options held by the optionee at the time of cessation of
Service or death:
(i) Should the optionee cease to remain in Service for any
reason other than death or Disability, then the period during which each
outstanding option held by such optionee is to remain exercisable shall be
limited to the three (3)-month period following the date of such cessation
of Service.
4.
<PAGE>
(ii) Should such Service terminate by reason of Disability,
then the period during which each outstanding option held by the optionee
is to remain exercisable shall be limited to the twelve (12)-month period
following the date of such cessation of Service.
(iii) Should the optionee die while holding one or more
outstanding options, then the period during which each such option is to
remain exercisable shall be limited to the twelve (12)-month period
following the date of the optionee's death. During such limited period,
the option may be exercised by the personal representative of the
optionee's estate or by the person or persons to whom the option is
transferred pursuant to the optionee's will or in accordance with the laws
of descent and distribution.
(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration date of the option term.
(v) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be exercisable for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the optionee's cessation of Service, terminate and
cease to be outstanding with respect to any option shares for which the
option is not at that time exercisable or in which the optionee is not
otherwise at that time vested.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following Optionee's cessation of Service or death from
the limited period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the Optionee
would have vested under the option had the Optionee continued in Service.
D. SHAREHOLDER RIGHTS. An optionee shall have no shareholder rights
------------------
with respect to the shares subject to the option until such individual shall
have exercised the option and paid the exercise price.
E. UNVESTED SHARES. The Plan Administrator shall have the
---------------
discretion to authorize the issuance of unvested shares of Common Stock under
the Plan. Should the optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, all or (at the discretion of the Corporation and with the consent of
the optionee) any of those unvested shares. The terms and conditions upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the agreement
evidencing such repurchase right. In no event, however, may the Plan
Administrator impose a vesting schedule upon any option granted under the Plan
or any shares of Common Stock subject to the option which is more restrictive
than twenty percent (20%) per year vesting, beginning one (1) year after the
grant date.
F. FIRST REFUSAL RIGHTS. Until such time as the Corporation's
--------------------
outstanding shares of Common Stock are first registered under Section 12(g) of
the Exchange Act, the Corporation shall have the right of first refusal with
respect to any proposed sale or other disposition by the optionee (or any
successor in interest by reason of purchase, gift or other transfer) of any
shares of Common Stock issued under the Plan. Such right of first refusal shall
be
5.
<PAGE>
exercisable in accordance with the terms and conditions established by the Plan
Administrator and set forth in the agreement evidencing such right.
6.
<PAGE>
VII. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under the Plan. Except as modified by the provisions
of this Article VII, all the provisions of the Plan shall be applicable to
Incentive Options. Incentive Options may only be granted to individuals who are
Employees. Options which are specifically designated as Non-Statutory shall not
---
be subject to such terms and conditions.
A. EXERCISE PRICE. The exercise price per share of the Common
--------------
Stock subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the date of
grant.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the
-----------------
Common Stock (determined as of the respective date or dates of grant) for which
one (1) or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% SHAREHOLDER. If any individual to whom an Incentive Option
---------------
is granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the grant date.
VIII. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan at
the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, the shares subject to
an outstanding option shall NOT vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to remain outstanding shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been issuable
to the optionee in the consummation of such Corporate Transaction, had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the class and number of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share,
provided the aggregate exercise price payable for such securities shall remain
- --------
the same.
7.
<PAGE>
E. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction shall remain exercisable as an Incentive Option
only to the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
F. The grant of options under this Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IX. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options under the Plan covering the same or different
numbers of shares of Common Stock but with an exercise price per share not less
than (i) one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the new grant date in the case of a grant of an Incentive Option, (ii)
one hundred ten percent (110%) of such Fair Market Value in the case of an
option grant to a 10% Shareholder or (iii) eighty-five percent (85%) of such
Fair Market Value in the case of all other grants.
X. LOANS
A. The Plan Administrator may assist any optionee in the exercise
of one or more options granted to the optionee by:
(i) authorizing the extension of a loan from the Corporation to
the optionee, or
(ii) permitting the optionee to pay the exercise price in
installments over a period of years.
B. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be established by the
Plan Administrator in its sole discretion. Loans or installment payments may be
authorized with or without security or collateral. However, any loan made to a
consultant or non-employee board member must be secured by property other than
the purchased shares of Common Stock. In all events, the maximum credit
available to each optionee may not exceed the sum of (i) the aggregate exercise
---
price payable for the purchased shares plus (ii) any Federal, state and local
income and employment tax liability incurred by the optionee in connection with
such exercise.
C. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this Article X shall be subject
to forgiveness by the Corporation in whole or in part upon such terms and
conditions as the Plan Administrator may in its discretion deem appropriate.
XI. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary) or of the optionee, which rights are hereby expressly reserved by
each, to terminate the optionee's Service at any time for any reason, with or
without cause.
XII. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification shall, without the consent of the holders, adversely
affect their rights and obligations under their outstanding options. In
addition, the Board shall not, without the approval of the Corporation's
shareholders, (i) increase the maximum number of shares issuable under the
8.
<PAGE>
Plan,except for permissible adjustments under Article V, (ii) materially modify
the eligibility requirements for option grants or (iii) otherwise materially
increase the benefits accruing to option holders.
B. Options may be granted under this Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided an amendment sufficiently increasing the number of shares of
--------
Common Stock available for issuance under the Plan is approved by the
Corporation's shareholders within twelve (12) months after the date the excess
grants are first made.
XIII. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan became effective upon its adoption by the Board. The
Plan was amended and restated by the Board in November of 1996 and from time to
time the Board may increase the authorized number of shares under the Plan.
However, no option granted under the Plan on the basis of such share increases
shall become exercisable unless and until the Plan shall have been approved by
the Corporation's shareholders. If such shareholder approval is not obtained
within twelve (12) months after the date of the Board's amendment of the Plan,
then all options previously granted under the Plan on the basis of such share
increase shall terminate and no further options shall be granted.
B. The provisions of each restatement shall apply only to options
granted under the Plan from and after each such restatement. Each option issued
and outstanding under the Plan prior to adoption of each restatement shall
continue to be governed by the terms and conditions of the Plan (and the
instrument evidencing such grant) as in effect on the date each such option was
previously granted, and nothing in the Plan amendment shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such prior
options with respect to the acquisition of shares of Common Stock thereunder.
C. The Plan shall terminate upon the earliest of (i) the
--------
expiration of the ten (10)-year period measured from the date the Plan was
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iii) the
termination of all outstanding options under Article VIII. Upon such plan
termination, each option and unvested share issuance outstanding under the Plan
shall continue to have full force and effect in accordance with the provisions
of the agreements evidencing that option or share issuance.
XIV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to options granted under the Plan shall be used for general
corporate purposes.
XV. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise of
any options granted under the Plan shall be subject to the satisfaction by the
optionee of all applicable Federal, state and local income and employment tax
withholding requirements.
XVI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option hereunder
and the issuance of Common Stock upon the exercise of any option shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the options granted
under it and the Common Stock issued pursuant to it.
XVII. FINANCIAL REPORTS
The Corporation shall deliver at least annually to each individual
holding an outstanding option under the Plan the same financial information
furnished to holders of the Common Stock, unless the optionee is a key employee
whose duties in connection with the Corporation assure such individual access to
equivalent information.
9.
<PAGE>
EXHIBIT 10.3
ACTUATE SOFTWARE CORPORATION
1998 EQUITY INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION.................................................. 1
ARTICLE 2. ADMINISTRATION................................................ 1
2.1 Committee Composition........................................... 1
2.2 Committee Responsibilities...................................... 1
2.3 Committee for Non-Officer Grants................................ 1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS................................... 2
3.1 Basic Limitation................................................ 2
3.2 Annual Increase in Shares....................................... 2
3.3 Additional Shares............................................... 2
3.4 Dividend Equivalents............................................ 2
ARTICLE 4. ELIGIBILITY................................................... 2
4.1 Incentive Stock Options......................................... 2
4.2 Other Grants.................................................... 3
ARTICLE 5. OPTIONS....................................................... 3
5.1 Stock Option Agreement.......................................... 3
5.2 Number of Shares................................................ 3
5.3 Exercise Price.................................................. 3
5.4 Exercisability and Term......................................... 3
5.6 Modification or Assumption of Options........................... 3
5.7 Buyout Provisions............................................... 4
ARTICLE 6. PAYMENT FOR OPTION SHARES..................................... 4
6.1 General Rule.................................................... 4
6.2 Surrender of Common Stock....................................... 4
6.3 Exercise/Sale................................................... 4
6.4 Exercise/Pledge................................................. 4
6.5 Promissory Note................................................. 4
6.6 Other Forms of Payment.......................................... 5
ARTICLE 7. STOCK APPRECIATION RIGHTS..................................... 5
7.1 SAR Agreement................................................... 5
7.2 Number of Shares................................................ 5
7.3 Exercise Price.................................................. 5
7.4 Exercisability and Term......................................... 5
7.5 Exercise of SARs................................................ 5
7.6 Modification or Assumption of SARs.............................. 6
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 8. RESTRICTED SHARES............................................. 6
8.1 Restricted Stock Agreement...................................... 6
8.2 Payment for Awards.............................................. 6
8.3 Vesting Conditions.............................................. 6
8.4 Voting and Dividend Rights...................................... 6
ARTICLE 9. STOCK UNITS................................................... 6
9.1 Stock Unit Agreement............................................ 6
9.2 Payment for Awards.............................................. 7
9.3 Vesting Conditions.............................................. 7
9.4 Voting and Dividend Rights...................................... 7
9.5 Form and Time of Settlement of Stock Units...................... 7
9.6 Death of Recipient.............................................. 7
9.7 Creditors' Rights............................................... 7
ARTICLE 10. CHANGE IN CONTROL............................................. 8
10.1 Effect of Change in Control..................................... 8
10.2 Involuntary Termination......................................... 8
ARTICLE 11. PROTECTION AGAINST DILUTION................................... 8
11.1 Adjustments..................................................... 8
11.2 Dissolution or Liquidation...................................... 9
11.3 Reorganizations................................................. 9
ARTICLE 12. DEFERRAL OF AWARDS............................................ 9
ARTICLE 13. AWARDS UNDER OTHER PLANS...................................... 10
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES...................... 10
14.1 Effective Date.................................................. 10
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units..... 10
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units...... 10
ARTICLE 15. LIMITATION ON RIGHTS.......................................... 10
15.1 Retention Rights................................................ 10
15.2 Stockholders' Rights............................................ 10
15.3 Regulatory Requirements......................................... 11
ARTICLE 16. WITHHOLDING TAXES............................................. 11
16.1 General......................................................... 11
16.2 Share Withholding............................................... 11
ARTICLE 17. FUTURE OF THE PLAN............................................ 11
17.1 Term of the Plan................................................ 11
17.2 Amendment or Termination........................................ 11
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 18. LIMITATION ON PAYMENTS........................................ 11
18.1 Scope of Limitation............................................. 11
18.2 Basic Rule...................................................... 12
18.3 Reduction of Payments........................................... 12
18.4 Overpayments and Underpayments.................................. 12
18.5 Related Corporations............................................ 13
ARTICLE 19. DEFINITIONS................................................... 13
</TABLE>
iii
<PAGE>
ACTUATE SOFTWARE CORPORATION
1998 EQUITY INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board to be effective as of the date of
the IPO. The purpose of the Plan is to promote the long-term success of the
Corporation and the creation of stockholder value by (a) encouraging Employees,
Outside Directors and Consultants to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Corporation, who shall be appointed by the Board. In addition, the
composition of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may establish
for outside directors acting under plans intended to qualify for exemption
under Section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Corporation who need not satisfy the requirements of Section
2.1. Such secondary committee may administer the Plan with respect to Employees
and Consultants who are not considered officers or directors of the Corporation
under Section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all features and conditions of such
Awards.
<PAGE>
Within the limitations of this Section 2.3, any reference in the Plan to the
Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Shares of Common Stock issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed (a) 1,300,000, including shares remaining available for grant under
the Predecessor Plan, plus (b) the additional shares of Common Stock described
in Sections 3.2 and 3.3. The limitation of this Section 3.1 shall be subject to
adjustment pursuant to Article 11.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year, commencing
with the year 1999, the aggregate number of Options, SARs, Stock Units and
Restricted Shares that may be awarded under the Plan shall automatically
increase by a number equal to the lesser of (a) 5% of the total number of shares
of Common Stock then outstanding or (b) 700,000 shares.
3.3 ADDITIONAL SHARES. If Restricted Shares or shares of Common Stock
issued upon the exercise of Options are forfeited (including any options
incorporated from the Predecessor Plan), then such shares of Common Stock shall
again become available for Awards under the Plan. If Stock Units, Options or
SARs are forfeited or terminate for any other reason before being exercised,
then the corresponding shares of Common Stock shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
shares of Common Stock (if any) actually issued in settlement of such Stock
Units shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. If SARs are exercised, then
only the number of shares of Common Stock (if any) actually issued in settlement
of such SARs shall reduce the number available under Section 3.1 and the balance
shall again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of shares of Common Stock that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
Restricted Shares or other shares of Common Stock are forfeited.
3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or credited under
the Plan shall not be applied against the number of Restricted Shares, Stock
Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 INCENTIVE STOCK OPTIONS. Only Employees who are common-law employees
of the Corporation, a Parent or a Subsidiary shall be eligible for the grant of
ISOs. In addition, an Employee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Corporation or any of
its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless
the requirements set forth in Section 422(c)(6) of the Code are satisfied.
2
<PAGE>
4.2 OTHER GRANTS. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the
Corporation. Such Option shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The Stock Option Agreement shall specify whether the Option is an ISO or an NSO.
The provisions of the various Stock Option Agreements entered into under the
Plan need not be identical. Options may be granted in consideration of a
reduction in the Optionee's other compensation. A Stock Option Agreement may
provide that a new Option will be granted automatically to the Optionee when he
or she exercises a prior Option and pays the Exercise Price in the form
described in Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of shares of Common Stock subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Corporation shall not cover more than
[500,000] shares of Common Stock, except that Options granted to a new Employee
in the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not cover more than [1,000,000] shares of Common Stock.
The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Article 11.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a share of Common Stock on the
date of grant and the Exercise Price under an NSO shall in no event be less than
85% of the Fair Market Value of a share of Common Stock on the date of grant.
In the case of an NSO, a Stock Option Agreement may specify an Exercise Price
that varies in accordance with a predetermined formula while the NSO is
outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
5.5 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the
Corporation or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different
3
<PAGE>
exercise price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
5.6 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy out
for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of shares of Common Stock
issued upon exercise of Options shall be payable in cash or cash equivalents at
the time when such shares of Common Stock are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 SURRENDER OF COMMON STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, shares of Common Stock that are already owned
by the Optionee. Such shares of Common Stock shall be valued at their Fair
Market Value on the date when the new shares of Common Stock are purchased under
the Plan. The Optionee shall not surrender, or attest to the ownership of,
shares of Common Stock in payment of the Exercise Price if such action would
cause the Corporation to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable, all
or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) an irrevocable direction to
a securities broker approved by the Corporation to sell all or part of the
shares of Common Stock being purchased under the Plan and to deliver all or part
of the sales proceeds to the Corporation.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) an irrevocable direction to
pledge all or part of the shares of Common Stock being purchased under the Plan
to a securities broker or lender approved by the Corporation, as security for a
loan, and to deliver all or part of the loan proceeds to the Corporation.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) a full-recourse promissory
note. However, the par value of the shares of
4
<PAGE>
Common Stock being purchased under the Plan, if newly issued, shall be paid in
cash or cash equivalents.
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR AGREEMENT. Each grant of a SAR under the Plan shall be evidenced
by an SAR Agreement between the Optionee and the Corporation. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various
SAR Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.
7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number of
shares of Common Stock to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 11. SARs granted to any
Optionee in a single calendar year shall in no event pertain to more than
[500,000] shares of Common Stock, except that SARs granted to a new Employee in
the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not pertain to more than [1,000,000] shares of Common
Stock. The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Article 11.
7.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise Price.
A SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 EXERCISE OF SARS. Upon exercise of a SAR, the Optionee (or any person
having the right to exercise the SAR after his or her death) shall receive from
the Corporation (a) shares of Common Stock, (b) cash or (c) a combination of
shares of Common Stock and cash, as the Committee shall determine. The amount
of cash and/or the Fair Market Value of shares of Common Stock received upon
exercise of SARs shall, in the aggregate, be equal to the amount by which the
Fair Market Value (on the date of surrender) of the shares of Common Stock
5
<PAGE>
subject to the SARs exceeds the Exercise Price. If, on the date when an SAR
expires, the Exercise Price under such SAR is less than the Fair Market Value on
such date but any portion of such SAR has not been exercised or surrendered,
then such SAR shall automatically be deemed to be exercised as of such date with
respect to such portion.
7.6 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Corporation or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES.
8.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under the
Plan shall be evidenced by a Restricted Stock Agreement between the recipient
and the Corporation. Such Restricted Shares shall be subject to all applicable
terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
8.2 PAYMENT FOR AWARDS. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the
extent that an Award consists of newly issued Restricted Shares, the Award
recipient shall furnish consideration with a value not less than the par value
of such Restricted Shares in the form of cash, cash equivalents or past services
rendered to the Corporation (or a Parent or Subsidiary), as the Committee may
determine.
8.3 VESTING CONDITIONS. Each award of Restricted Shares may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.
8.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Corporation's other stockholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.
ARTICLE 9. STOCK UNITS.
9.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the Plan shall
be evidenced by a Stock Unit Agreement between the recipient and the
Corporation. Such Stock Units shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the
Plan. The provisions of the various Stock Unit Agreements
6
<PAGE>
entered into under the Plan need not be identical. Stock Units may be granted in
consideration of a reduction in the recipient's other compensation.
9.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
9.3 VESTING CONDITIONS. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
9.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall have no
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one share of Common Stock while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form
of shares of Common Stock, or in a combination of both. Prior to distribution,
any dividend equivalents which are not paid shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.
9.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) shares of Common Stock or
(c) any combination of both, as determined by the Committee. The actual number
of Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of shares of Common Stock over a
series of trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date. The amount of a deferred distribution may
be increased by an interest factor or by dividend equivalents. Until an Award
of Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.
9.6 DEATH OF RECIPIENT. Any Stock Unit Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Unit Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Corporation. A beneficiary designation may be changed by filing
the prescribed form with the Corporation at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Unit Award that becomes
payable after the recipient's death shall be distributed to the recipient's
estate.
9.7 CREDITORS' RIGHTS. A holder of Stock Units shall have no rights
other than those of a general creditor of the Corporation. Stock Units
represent an unfunded and unsecured
7
<PAGE>
obligation of the Corporation, subject to the terms and conditions of the
applicable Stock Unit Agreement.
ARTICLE 10. CHANGE IN CONTROL
10.1 EFFECT OF CHANGE IN CONTROL. In the event of any Change in Control,
each outstanding Award shall automatically accelerate so that each such Award
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the shares of Common Stock at the time subject to
such Award and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding Award shall NOT so accelerate
if and to the extent such Award is, in connection with the Change in Control,
either to be assumed by the successor corporation (or parent thereof) or to be
replaced with a comparable Award for shares of the capital stock of the
successor corporation (or parent thereof). The determination of Award
comparability shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
10.2 INVOLUNTARY TERMINATION. In addition, in the event that the Award is
assumed by the successor corporation (or parent thereof) and the Participant
experiences an Involuntary Termination within twelve months following a Change
in Control, each outstanding Award shall automatically accelerate so that each
such Award shall, immediately prior to the effective date of the Involuntary
Termination, become fully exercisable for all of the shares of Common Stock at
the time subject to such Award and may be exercised for any or all of those
shares as fully-vested shares of Common Stock.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 ADJUSTMENTS. In the event of a subdivision of the outstanding shares
of Common Stock, a declaration of a dividend payable in shares of Common Stock,
a declaration of a dividend payable in a form other than shares of Common Stock
in an amount that has a material effect on the price of shares of Common Stock,
a combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a lesser number of shares of Common Stock, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or more
of:
(a) The number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
(c) The number of shares of Common Stock covered by each outstanding
Option and SAR;
(d) The Exercise Price under each outstanding Option and SAR; or
(e) The number of Stock Units included in any prior Award which has
not yet been settled.
8
<PAGE>
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
11.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised
or settled, Options, SARs and Stock Units shall terminate immediately prior to
the dissolution or liquidation of the Corporation.
11.3 REORGANIZATIONS. In the event that the Corporation is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Corporation, if the Corporation is
a surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own awards for the
outstanding Awards, (d) full exercisability or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.
ARTICLE 12. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such Participant as a
result of the exercise of an SAR or the settlement of Stock Units credited
to a deferred compensation account established for such Participant by the
Committee as an entry on the Corporation's books;
(b) Have shares of Common Stock that otherwise would be delivered to
such Participant as a result of the exercise of an Option or SAR converted
into an equal number of Stock Units; or
(c) Have shares of Common Stock that otherwise would be delivered to
such Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee as
an entry on the Corporation's books. Such amounts shall be determined by
reference to the Fair Market Value of such shares of Common Stock as of the
date when they otherwise would have been delivered to such Participant.
A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Corporation. Such an
account shall represent an unfunded and unsecured obligation of the Corporation
and shall be subject to the terms and conditions of the applicable agreement
between such Participant and the Corporation. If the deferral or conversion of
Awards is permitted or
9
<PAGE>
required, the Committee (in its sole discretion) may establish rules, procedures
and forms pertaining to such Awards, including (without limitation) the
settlement of deferred compensation accounts established under this Article 12.
ARTICLE 13. AWARDS UNDER OTHER PLANS.
The Corporation may grant awards under other plans or programs. Such
awards may be settled in the form of shares of Common Stock issued under this
Plan. Such shares of Common Stock shall be treated for all purposes under the
Plan like shares of Common Stock issued in settlement of Stock Units and shall,
when issued, reduce the number of shares of Common Stock available under Article
3.
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
14.1 EFFECTIVE DATE. No provision of this Article 14 shall be effective
unless and until the Board has determined to implement such provision.
14.2 ELECTIONS TO RECEIVE NSOS, RESTRICTED SHARES OR STOCK UNITS. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees from the Corporation in the form of cash, NSOs, Restricted Shares
or Stock Units, or a combination thereof, as determined by the Board. Such
NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An
election under this Article 14 shall be filed with the Corporation on the
prescribed form.
14.3 NUMBER AND TERMS OF NSOS, RESTRICTED SHARES OR STOCK UNITS. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 15. LIMITATION ON RIGHTS.
15.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Corporation and its Parents, Subsidiaries
and Affiliates reserve the right to terminate the service of any Employee,
Outside Director or Consultant at any time, with or without cause, subject to
applicable laws, the Corporation's certificate of incorporation and by-laws and
a written employment agreement (if any).
15.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any shares of
Common Stock covered by his or her Award prior to the time when a stock
certificate for such shares of Common Stock is issued or, if applicable, the
time when he or she becomes entitled to receive such shares of Common Stock by
filing any required notice of exercise and paying any required Exercise Price.
No
10
<PAGE>
adjustment shall be made for cash dividends or other rights for which the record
date is prior to such time, except as expressly provided in the Plan.
15.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Corporation to issue shares of Common
Stock under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The
Corporation reserves the right to restrict, in whole or in part, the delivery of
shares of Common Stock pursuant to any Award prior to the satisfaction of all
legal requirements relating to the issuance of such shares of Common Stock, to
their registration, qualification or listing or to an exemption from
registration, qualification or listing.
ARTICLE 16. WITHHOLDING TAXES.
16.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Corporation for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Corporation shall not
be required to issue any shares of Common Stock or make any cash payment under
the Plan until such obligations are satisfied.
16.2 SHARE WITHHOLDING. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Corporation withhold all or a portion of any shares of Common Stock that
otherwise would be issued to him or her or by surrendering all or a portion of
any shares of Common Stock that he or she previously acquired. Such shares of
Common Stock shall be valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective as of the date of the IPO. The Plan shall remain in effect until it
is terminated under Section 17.2, except that no ISOs shall be granted on or
after the 10th anniversary of the later of (a) the date when the Board adopted
the Plan or (b) the date when the Board adopted the most recent increase in the
number of shares of Common Stock available under Article 3 which was approved by
the Corporation's stockholders.
17.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Corporation's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 18. LIMITATION ON PAYMENTS.
18.1 SCOPE OF LIMITATION. This Article 18 shall apply to an Award only
if:
11
<PAGE>
(a) The independent auditors most recently selected by the Board (the
"Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and local
income taxes, employment taxes and excise taxes applicable to the
Participant (including the excise tax under Section 4999 of the Code), will
be greater after the application of this Article 18 than it was before the
application of this Article 18; or
(b) The Committee, at the time of making an Award under the Plan or
at any time thereafter, specifies in writing that such Award shall be
subject to this Article 18 (regardless of the after-tax value of such Award
to the Participant).
If this Article 18 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
18.2 BASIC RULE. In the event that the Auditors determine that any
payment or transfer by the Corporation under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Corporation for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in Section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 18, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Corporation because of
Section 280G of the Code.
18.3 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible by the Corporation because of Section 280G of the Code,
then the Corporation shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Corporation in writing of his or her election within 10
days of receipt of notice. If no such election is made by the Participant
within such 10-day period, then the Corporation may elect which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. For purposes of this Article
18, present value shall be determined in accordance with Section 280G(d)(4) of
the Code. All determinations made by the Auditors under this Article 18 shall
be binding upon the Corporation and the Participant and shall be made within 60
days of the date when a Payment becomes payable or transferable. As promptly as
practicable following such determination and the elections hereunder, the
Corporation shall pay or transfer to or for the benefit of the Participant such
amounts as are then due to him or her under the Plan and shall promptly pay or
transfer to or for the benefit of the Participant in the future such amounts as
become due to him or her under the Plan.
18.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of Section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Corporation which should not
12
<PAGE>
have been made (an "Overpayment") or that additional Payments which will not
have been made by the Corporation could have been made (an "Underpayment"),
consistent in each case with the calculation of the Reduced Amount hereunder. In
the event that the Auditors, based upon the assertion of a deficiency by the
Internal Revenue Service against the Corporation or the Participant which the
Auditors believe has a high probability of success, determine that an
Overpayment has been made, such Overpayment shall be treated for all purposes as
a loan to the Participant which he or she shall repay to the Corporation,
together with interest at the applicable federal rate provided in Section
7872(f)(2) of the Code; provided, however, that no amount shall be payable by
the Participant to the Corporation if and to the extent that such payment would
not reduce the amount which is subject to taxation under Section 4999 of the
Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the
Corporation to or for the benefit of the Participant, together with interest at
the applicable federal rate provided in Section 7872(f)(2) of the Code.
18.5 RELATED CORPORATIONS. For purposes of this Article 18, the term
"Corporation" shall include affiliated corporations to the extent determined by
the Auditors in accordance with Section 280G(d)(5) of the Code.
ARTICLE 19. DEFINITIONS.
19.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Corporation and/or one or more Subsidiaries own not less than 50% of such
entity.
19.2 "AWARD" means any award of an Option, an SAR, a Restricted Share or a
Stock Unit under the Plan.
19.3 "BOARD" means the Corporation's Board of Directors, as constituted
from time to time.
19.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation of the Corporation
with or into another entity or any other corporate reorganization, if more
than 50% of the combined voting power of the continuing or surviving
entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
stockholders of the Corporation immediately prior to such merger,
consolidation or other reorganization;
(b) The sale, transfer or other disposition of all or substantially
all of the Corporation's assets;
(c) A change in the composition of the Board, as a result of which
fewer than two-thirds of the incumbent directors are directors who either
(i) had been directors of the Corporation on the date 24 months prior to
the date of the event that may constitute a Change in Control (the
"original directors") or (ii) were elected, or nominated for election, to
the Board with the affirmative
13
<PAGE>
votes of at least a majority of the aggregate of the original directors who
were still in office at the time of the election or nomination and the
directors whose election or nomination was previously so approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing at
least 50% of the total voting power represented by the Corporation's then
outstanding voting securities. For purposes of this Paragraph (d), the term
"person" shall have the same meaning as when used in Sections 13(d) and
14(d) of the Exchange Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Corporation in
substantially the same proportions as their ownership of the common stock
of the Corporation.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Corporation's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Corporation's securities immediately before such transaction.
19.5 "CODE" means the Internal Revenue Code of 1986, as amended.
19.6 "COMMITTEE" means a committee of the Board, as described in Article
2.
19.7 "COMMON STOCK" means the common stock of the Corporation.
19.8 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Corporation, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
19.9 "CORPORATION" means Actuate Software Corporation, a Delaware
corporation.
19.10 "EMPLOYEE" means a common-law employee of the Corporation, a Parent,
a Subsidiary or an Affiliate.
19.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
19.12 "EXERCISE PRICE," in the case of an Option, means the amount for
which one share of Common Stock may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
19.13 "FAIR MARKET VALUE" means the market price of shares of Common
Stock, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices
14
<PAGE>
reported in The Wall Street Journal. Such determination shall be conclusive and
-----------------------
binding on all persons.
19.14 "INVOLUNTARY TERMINATION" means the termination of the Service of
any individual which occurs by reason of:
(a) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation following (A) a change
in his or her position with the Corporation which materially reduces his or
her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
bonus or incentive programs) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without the
individual's consent.
19.15 "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Corporation with the
Securities and Exchange Commission.
19.16 "ISO" means an incentive stock option described in Section 422(b) of
the Code.
19.17 "MISCONDUCT" means the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
19.18 "NSO" means a stock option not described in Sections 422 or 423 of
the Code.
19.19 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase shares of Common Stock.
19.20 "OPTIONEE" means an individual or estate who holds an Option or SAR.
19.21 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.
19.22 "PARENT" means any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, if each of the
corporations other than the Corporation owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the
15
<PAGE>
status of a Parent on a date after the adoption of the Plan shall be considered
a Parent commencing as of such date.
19.23 "PARTICIPANT" means an individual or estate who holds an Award.
19.24 "PLAN" means this Actuate Software Corporation 1998 Equity Incentive
Plan, as amended from time to time.
19.25 "PREDECESSOR PLAN" means the Corporation's existing 1994 Stock
Option Plan.
19.26 "RESTRICTED SHARE" means a Common Share awarded under the Plan.
19.27 "RESTRICTED STOCK AGREEMENT" means the agreement between the
Corporation and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
19.28 "SAR" means a stock appreciation right granted under the Plan.
19.29 "SAR AGREEMENT" means the agreement between the Corporation and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
19.30 "STOCK OPTION AGREEMENT" means the agreement between the Corporation
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
19.31 "STOCK UNIT" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
19.32 "STOCK UNIT AGREEMENT" means the agreement between the Corporation
and the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
19.33 "SUBSIDIARY" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
16
<PAGE>
EXHIBIT 10.4
ACTUATE SOFTWARE CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. PURPOSE OF THE PLAN............................................. 1
SECTION 2. ADMINISTRATION OF THE PLAN...................................... 1
(a) Committee Composition............................................. 1
(b) Committee Responsibilities........................................ 1
SECTION 3. ENROLLMENT AND PARTICIPATION.................................... 1
(a) Offering Periods.................................................. 1
(b) Accumulation Periods.............................................. 1
(c) Enrollment........................................................ 1
(d) Duration of Participation......................................... 1
(e) Applicable Offering Period........................................ 2
SECTION 4. EMPLOYEE CONTRIBUTIONS.......................................... 2
(a) Frequency of Payroll Deductions................................... 2
(b) Amount of Payroll Deductions...................................... 2
(c) Changing Withholding Rate......................................... 3
(d) Discontinuing Payroll Deductions.................................. 3
(e) Limit on Number of Elections...................................... 3
SECTION 5. WITHDRAWAL FROM THE PLAN........................................ 3
(a) Withdrawal........................................................ 3
(b) Re-Enrollment After Withdrawal.................................... 3
SECTION 6. CHANGE IN EMPLOYMENT STATUS..................................... 3
(a) Termination of Employment......................................... 3
(b) Leave of Absence.................................................. 3
(c) Death............................................................. 4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES............................ 4
(a) Plan Accounts..................................................... 4
(b) Purchase Price.................................................... 4
(c) Number of Shares Purchased........................................ 4
(d) Available Shares Insufficient..................................... 4
(e) Issuance of Common Stock.......................................... 5
(f) Unused Cash Balances.............................................. 5
(g) Stockholder Approval.............................................. 5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.................................. 5
(a) Five Percent Limit................................................ 5
(b) Dollar Limit...................................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE.......................................... 6
SECTION 10. NO RIGHTS AS AN EMPLOYEE........................................ 6
SECTION 11. NO RIGHTS AS A STOCKHOLDER...................................... 7
SECTION 12. SECURITIES LAW REQUIREMENTS..................................... 7
SECTION 13. STOCK OFFERED UNDER THE PLAN.................................... 7
(a) Authorized Shares.................................................. 7
(b) Anti-Dilution Adjustments.......................................... 7
(c) Reorganizations.................................................... 7
SECTION 14. AMENDMENT OR DISCONTINUANCE..................................... 7
SECTION 15. DEFINITIONS..................................................... 8
(a) Accumulation Period................................................ 8
(b) Board.............................................................. 8
(c) Code............................................................... 8
(d) Committee.......................................................... 8
(e) Common Stock....................................................... 8
(f) Corporation........................................................ 8
(g) Compensation....................................................... 8
(h) Corporate Reorganization........................................... 8
(i) Eligible Employee.................................................. 8
(j) Exchange Act....................................................... 8
(k) Fair Market Value.................................................. 9
(l) IPO
(m) Offering Period.................................................... 9
(n) Participant........................................................ 9
(o) Participating Corporation.......................................... 9
(p) Plan............................................................... 9
(q) Plan Account....................................................... 9
(r) Purchase Price..................................................... 9
(s) Subsidiary......................................................... 9
</TABLE>
ii
<PAGE>
ACTUATE SOFTWARE CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board on _______ __, 1998, to be effective as
of the date of the IPO. The purpose of the Plan is to provide Eligible Employees
with an opportunity to increase their proprietary interest in the success of the
Corporation by purchasing Common Stock from the Corporation on favorable terms
and to pay for such purchases through payroll deductions. The Plan is intended
to qualify under Section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Corporation, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each February 1 and August
1, except that the first Offering Period shall commence on the date of the IPO
and end on July 31, 2000.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six-month periods commencing on each February 1 and August 1,
except that the first Accumulation Period shall commence on the date of the IPO
and end on January 31, 1999.
(c) ENROLLMENT. Any individual who, on the day preceding the first day of
an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Corporation at the prescribed location not later than one
business day prior to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or
<PAGE>
her employee contributions were discontinued under Section 4(d) or 8(b). A
Participant who discontinued employee contributions under Section 4(d) or
withdrew from the Plan under Section 5(a) may again become a Participant, if he
or she then is an Eligible Employee, by following the procedure described in
Subsection (c) above. A Participant whose employee contributions were
discontinued automatically under Section 8(b) shall automatically resume
participation at the beginning of the earliest Accumulation Period ending in the
next calendar year, if he or she then is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the Purchase
Price under Section 7(b), the applicable Offering Period shall be determined as
follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of (A) the end of such Offering Period, (B) the end of his or
her participation under Subsection (d) above or (C) re-enrollment for a
subsequent Offering Period under Paragraph (ii) or (iii) below.
(ii) In the event that the Fair Market Value of the Common Stock on
the last trading day before the commencement of the Offering Period for
which the Participant is enrolled is higher than on the last trading day
before the commencement of any subsequent Offering Period, the Participant
shall automatically be re-enrolled for such subsequent Offering Period.
(iii) Any other provision of the Plan notwithstanding, the Corporation
(at its sole discretion) may determine prior to the commencement of any new
Offering Period that all Participants shall be re-enrolled for such new
Offering Period.
(iv) When a Participant reaches the end of an Offering Period but his
or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares of
Common Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate on
the enrollment form the portion of his or her Compensation that he or she elects
to have withheld for the purchase of Common Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
2
<PAGE>
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the rate
of payroll withholding, he or she may do so by filing a new enrollment form with
the Corporation at the prescribed location at any time. The new withholding rate
shall be effective as soon as reasonably practicable after such form has been
received by the Corporation. The new withholding rate shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Corporation at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Corporation. (In addition, employee contributions
may be discontinued automatically pursuant to Section 8(b).) A Participant who
has discontinued employee contributions may resume such contributions by filing
a new enrollment form with the Corporation at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Corporation.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than one
election under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Corporation at the prescribed location at
any time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Corporation to another shall not be treated as a termination of employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the
Corporation in writing. Employment, however, shall be deemed to terminate 90
days after the Participant goes on a leave, unless a contract or statute
guarantees his or her right to return to work. Employment shall be deemed to
terminate in any event when the approved leave ends, unless the Participant
immediately returns to work.
3
<PAGE>
(c) DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Corporation at
the prescribed location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Corporation shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Corporation's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Common Stock
purchased at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last trading
day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last trading
day before the commencement of the applicable Offering Period (as
determined under Section 3(e)) or, in the case of the first Offering Period
under the Plan, 85% of the price at which one share of Common Stock is
offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Common Stock calculated in accordance with this Subsection (c),
unless the Participant has previously elected to withdraw from the Plan in
accordance with Section 5(a). The amount then in the Participant's Plan Account
shall be divided by the Purchase Price, and the number of shares that results
shall be purchased from the Corporation with the funds in the Participant's Plan
Account. The foregoing notwithstanding, no Participant shall purchase more than
1,000 shares of Common Stock with respect to any Accumulation Period nor more
than the amounts of Common Stock set forth in Sections 8(b) and 13(a). The
Committee may determine with respect to all Participants that any fractional
share, as calculated under this Subsection (c), shall be (i) rounded down to the
next lower whole share or (ii) credited as a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate number
of shares that all Participants elect to purchase during an Accumulation Period
exceeds the maximum number of shares remaining available for issuance under
Section 13(a), then the number of shares to which each Participant is entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
4
<PAGE>
(e) ISSUANCE OF COMMON STOCK. Certificates representing the shares of
Common Stock purchased by a Participant under the Plan shall be issued to him or
her as soon as reasonably practicable after the close of the applicable
Accumulation Period, except that the Committee may determine that such shares
shall be held for each Participant's benefit by a broker designated by the
Committee (unless the Participant has elected that certificates be issued to him
or her). Shares may be registered in the name of the Participant or jointly in
the name of the Participant and his or her spouse as joint tenants with right of
survivorship or as community property.
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Common Stock shall be purchased under the Plan
unless and until the Corporation's stockholders have approved the adoption of
the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Common Stock under the Plan
if such Participant, immediately after his or her election to purchase such
Common Stock, would own stock possessing more than 5% of the total combined
voting power or value of all classes of stock of the Corporation or any parent
or Subsidiary of the Corporation. For purposes of this Subsection (a), the
following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or she
has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to purchase
1,000 shares of Common Stock under this Plan with respect to each
Accumulation Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Common Stock with a Fair Market Value in excess of
the following limit:
(i) In the case of Common Stock purchased during an Offering Period
that commenced in the current calendar year, the limit shall be equal to
(A) $25,000 minus (B) the Fair Market Value of the Common Stock that the
Participant previously purchased in the current calendar year (under this
Plan and
5
<PAGE>
all other employee stock purchase plans of the Corporation or any parent or
Subsidiary of the Corporation).
(ii) In the case of Common Stock purchased during an Offering Period
that commenced in the immediately preceding calendar year, the limit shall
be equal to (A) $50,000 minus (B) the Fair Market Value of the Common Stock
that the Participant previously purchased (under this Plan and all other
employee stock purchase plans of the Corporation or any parent or
Subsidiary of the Corporation) in the current calendar year and in the
immediately preceding calendar year.
(iii) In the case of Common Stock purchased during an Offering Period
that commenced in the second preceding calendar year, the limit shall be
equal to (A) $75,000 minus (B) the Fair Market Value of the Common Stock
that the Participant previously purchased (under this Plan and all other
employee stock purchase plans of the Corporation or any parent or
Subsidiary of the Corporation) in the current calendar year and in the two
preceding calendar years.
For purposes of this Subsection (b), the Fair Market Value of Common Stock shall
be determined in each case as of the beginning of the Offering Period in which
such Common Stock is purchased. Employee stock purchase plans not described in
section 423 of the Code shall be disregarded. If a Participant is precluded by
this Subsection (b) from purchasing additional Common Stock under the Plan, then
his or her employee contributions shall automatically be discontinued and shall
resume at the beginning of the earliest Accumulation Period ending in the next
calendar year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's interest
in any Common Stock or moneys to which he or she may be entitled under the Plan,
shall not be transferable by voluntary or involuntary assignment or by operation
of law, or in any other manner other than by beneficiary designation or the laws
of descent and distribution. If a Participant in any manner attempts to
transfer, assign or otherwise encumber his or her rights or interest under the
Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Corporation for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
6
<PAGE>
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock that he or she may have a right to purchase under the
Plan until such shares have been purchased on the last day of the applicable
Accumulation Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Common Stock shall not be issued under the Plan unless the
issuance and delivery of such shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Corporation's securities may then be
traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The aggregate number of shares of Common Stock
available for purchase under the Plan shall be 250,000, subject to adjustment
pursuant to this Section 13. In addition, the number of shares of Common Stock
available for purchase under the Plan shall automatically increase by the lesser
of (i) 2% of the total number of shares of Common Stock outstanding or (ii)
150,000 shares on the first day of each calendar year during the term of the
Plan, beginning with the 1999 calendar year.
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Common
Stock offered under the Plan, the number of shares by which the share reserve is
to increase each calendar year, the 1,000-share limitation described in Section
7(c) and the price of shares that any Participant has elected to purchase shall
be adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Corporation, the distribution of the shares of a Subsidiary to the
Corporation's stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7, unless the Plan is assumed by
the surviving corporation or its parent corporation pursuant to the plan of
merger or consolidation. The Plan shall in no event be construed to restrict in
any way the Corporation's right to undertake a dissolution, liquidation, merger,
consolidation or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 13, any increase in
the aggregate number of shares of Common Stock to be issued under the Plan shall
be subject to approval by a vote of the
7
<PAGE>
stockholders of the Corporation. In addition, any other amendment of the Plan
shall be subject to approval by a vote of the stockholders of the Corporation to
the extent required by an applicable law or regulation.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Common Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Corporation, as
constituted from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of the Board, as described in Section 2.
(e) "COMMON STOCK" means the common stock of the Corporation.
(f) "CORPORATION" means Actuate Software Corporation, a Delaware
corporation.
(g) "COMPENSATION" means (i) the base salary paid to a Participant by a
Participating Corporation, plus (ii) any pre-tax contributions made by the
Participant under section 401(k) or 125 of the Code. "Compensation" shall
exclude bonuses, incentive compensation, commissions, overtime pay and shift
premiums, moving or relocation allowances, cost-of-living equalization payments,
car allowances, tuition reimbursements, imputed income attributable to cars or
life insurance, severance pay, fringe benefits, contributions or benefits
received under employee benefit plans, income attributable to the exercise of
stock options, and similar items. The Committee shall determine whether a
particular item is included in Compensation.
(h) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the Corporation
with or into another entity or any other corporate reorganization; or
(ii) The sale, transfer or other disposition of all or substantially
all of the Corporation's assets or the complete liquidation or dissolution
of the Corporation.
(i) "ELIGIBLE EMPLOYEE" means any employee of a Participating Corporation
if his or her customary employment is for more than five months per calendar
year and for more than 20 hours per week. The foregoing notwithstanding, an
individual shall not be considered an Eligible Employee if his or her
participation in the Plan is prohibited by the law of any country which has
jurisdiction over him or her or if he or she is subject to a collective
bargaining agreement that does not provide for participation in the Plan.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
8
<PAGE>
(k) "FAIR MARKET VALUE" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the Nasdaq National Market on
the date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by the Nasdaq National Market;
(ii) If the Common Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; or
(iii) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
-----------------------
directly to the Corporation by Nasdaq or a stock exchange. Such determination
shall be conclusive and binding on all persons.
(l) "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Corporation with the
Securities and Exchange Commission.
(m) "OFFERING PERIOD" means a 24-month period with respect to which the
right to purchase Common Stock may be granted under the Plan, as determined
pursuant to Section 3(a).
(n) "PARTICIPANT" means an Eligible Employee who elects to participate in
the Plan, as provided in Section 3(c).
(o) "PARTICIPATING CORPORATION" means (i) the Corporation and (ii) each
present or future Subsidiary designated by the Committee as a Participating
Corporation.
(p) "PLAN" means this Actuate Software Corporation 1998 Employee Stock
Purchase Plan, as it may be amended from time to time.
(q) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(r) "PURCHASE PRICE" means the price at which Participants may purchase
Common Stock under the Plan, as determined pursuant to Section 7(b).
(s) "SUBSIDIARY" means any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
9
<PAGE>
EXHIBIT 10.5
ACTUATE SOFTWARE CORPORATION
1998 NON-EMPLOYEE DIRECTORS OPTION PLAN
<PAGE>
ACTUATE SOFTWARE CORPORATION
1998 NON-EMPLOYEE DIRECTORS OPTION PLAN
ARTICLE 1. PURPOSE OF THE PLAN
The Plan is intended to promote the interests of the corporation by
providing the non-employee members of the Board with the opportunity to acquire
a proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation.
ARTICLE 2. ADMINISTRATION
The terms and conditions of each automatic option grant (including
the timing and pricing of the option grant) shall be determined by the express
terms and conditions of the Plan, and neither the Board nor any committee of the
Board shall exercise any discretionary functions with respect to option grants
made pursuant to the Plan.
ARTICLE 3. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The number of shares
of Common Stock reserved for issuance over the term of the Plan shall be fixed
at 200,000 shares.
B. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full, then the shares subject to
the portion of each option not so exercised shall be available for subsequent
option grant under the Plan. Shares subject to any option or portion thereof
surrendered in accordance with Article 6, all share issuances under the Plan,
and shares subsequently repurchased by the Corporation pursuant to its
repurchase rights under the Plan shall be available for subsequent option grant
under the Plan. In addition, should the exercise price of an outstanding option
under the Plan be paid with shares of Common Stock, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the net
number of shares of Common Stock actually issued to the holder of such option.
C. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which automatic option grants are to be subsequently made to each newly-
elected or continuing non-employee Board member under the Plan, and (iii) the
number and/or class of securities and price per share in effect under each
option outstanding under the Plan.
<PAGE>
The adjustments to the outstanding options shall be made by the Board in a
manner which shall preclude the enlargement or dilution of rights and benefits
under such options and shall be final, binding and conclusive.
ARTICLE 4. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant
to the provisions of this Plan shall be limited to (i) those individuals serving
as non-employee Board members on the Effective Date and (ii) those individuals
who are first elected or appointed as non-employee Board members after the
Effective Date, whether through appointment by the Board or election by the
Corporation's stockholders. A non-employee Board member shall not be eligible
to receive the initial automatic option grant if such individual has previously
been in the employ of the Corporation (or any parent or subsidiary). However, a
non-employee Board member shall be eligible to receive one or more annual option
grants, whether or not he or she has previously been in the employ of the
Corporation (or any parent or subsidiary). Each non-employee Board member
eligible to participate in the Plan pursuant to the foregoing criteria is hereby
designated an Eligible Director.
ARTICLE 5. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Date. Option grants shall be made on the dates specified
----------
below:
-- Each individual who first becomes an Eligible Director on or
after the Effective Date, whether through election by the Corporation's
stockholders or appointment by the Board, shall automatically be granted,
at the time of such initial election or appointment, a non-statutory option
to purchase 20,000 shares of Common Stock.
-- On the date of each Annual Meeting, beginning with the 1999
Annual Meeting, each Eligible Director who serves on the Board at the time
of that Annual Meeting, whether or not standing for re-election, shall
automatically be granted a non-statutory option to purchase 2,500 shares of
Common Stock. An Eligible Director who resigns effective at an Annual
Meeting shall not be eligible to be granted a non-statutory option at that
time to purchase an additional 2,500 shares of Common Stock.
There shall be no limit on the number of such annual 2,500-share
option grants any one Eligible Director may receive over his or her period of
continued Board service.
B. Exercise Price. The exercise price per share of Common Stock
--------------
subject to each automatic option grant shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the automatic grant
date.
2
<PAGE>
C. Payment.
-------
The exercise price shall become immediately due upon exercise of the
option and shall be payable in one of the alternative forms specified below:
(i) full payment in cash or check made payable to the
Corporation's order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings for
financial-reporting purposes and valued at Fair Market Value on the Exercise
Date (as such term is defined below); or
(iii) full payment in a combination of shares of Common
Stock held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial-reporting purposes and valued at Fair
Market Value on the Exercise Date and cash or check payable to the Corporation's
order; or
(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the non-employee Board member (i) shall
provide irrevocable written instructions to a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
shares and (ii) shall concurrently provide written directives to the Corporation
to deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
For purposes of this Section 5.C, the Exercise Date shall be the date
on which written notice of the option exercise is delivered to the Corporation.
Except to the extent the sale and remittance procedure specified above is used,
payment of the exercise price for the purchased shares must accompany the
exercise notice.
D. Exercisability/Vesting. Each initial automatic grant shall become
----------------------
exercisable for 20% of the option shares upon the optionee's completion of one
year of Board service and for the balance of the option shares in a series of 48
equal monthly installments upon the optionee's completion of each month of Board
service thereafter. Each annual automatic grant shall become exercisable for all
of the option shares upon the optionee's completion of one year of Board
service.
Exercisability of the option shall be subject to acceleration as
provided in Section 5.G and Article 6. In no event, however, shall the option
become exercisable for any additional option shares after the Optionee's
cessation of Board service.
E. Option Term. Each automatic grant under the Plan shall have a
-----------
maximum term of ten (10) years measured from the automatic grant date.
3
<PAGE>
F. Non-Transferability. During the lifetime of the Optionee, each
-------------------
automatic option grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable only by the Optionee and shall
not be assignable or transferable by the Optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
Optionee's death.
G. Effect of Termination of Board Service.
--------------------------------------
1. Should the Optionee cease to serve as a Board member for any
reason (other than death or Permanent Disability) while holding one or more
automatic option grants under the Plan, then such individual shall have a six
(6)-month period following the date of such cessation of Board service in which
to exercise each such option for any or all of the option shares for which the
option is exercisable at the time of his or her cessation of Board service.
Each such option shall immediately terminate and cease to be outstanding, at the
time of such cessation of Board service, with respect to any option shares for
which the option is not otherwise at that time exercisable.
2. Should the Optionee die within six (6) months after
cessation of Board service, then any automatic option grant held by the Optionee
at the time of death may subsequently be exercised, for any or all of the option
shares for which the option is exercisable at the time of his or her cessation
of Board service (less any option shares subsequently purchased by the Optionee
prior to death), by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution. The
right to exercise each such option shall lapse upon the expiration of the twelve
(12)-month period measured from the date of the Optionee's death.
3. Should the Optionee die or become Permanently Disabled while
serving as a Board member, then any automatic option grant held by the Optionee
at the time of his or her death or cessation of service due to Permanent
Disability may subsequently be exercised for any or all of the option shares.
The Optionee (or the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred upon the Optionee's death)
shall have the right to exercise the option at any time prior to the expiration
of the twelve (12)-month period measured from the date of the Optionee's death
or cessation of service due to Permanent Disability.
4. In no event shall any automatic grant under this Plan remain
exercisable after the expiration date of the maximum ten (10)-year option term.
Upon the expiration of the applicable post-service exercise period under
subparagraphs 1 through 3 above or (if earlier) upon the expiration of the
maximum ten (10)-year option term, the automatic grant shall terminate and cease
to be outstanding for any option shares for which the option was not exercisable
at the time of the Optionee's cessation of Board service.
H. Stockholder Rights. The holder of an automatic option grant shall
------------------
have none of the rights of a stockholder with respect to any shares subject to
such option until such individual shall have exercised the option and paid the
exercise price for the purchased shares.
4
<PAGE>
I. Remaining Terms. The remaining terms and conditions of each
---------------
automatic option grant shall be as set forth in the form Stock Option Agreement
approved for use under the Plan.
ARTICLE 6. SPECIAL ACCELERATION EVENTS
A. In the event of any Change in Control, the shares of Common Stock
at the time subject to each outstanding option but not otherwise fully
exercisable shall automatically accelerate in full so that each such option
shall, immediately prior to the specified effective date for the Change in
Control, become fully exercisable for all of the shares of Common Stock at the
time subject to that option. Immediately following the consummation of the
Change in Control, each automatic option grant under the Plan shall terminate
and cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
B. The automatic option grants outstanding under the Plan shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
ARTICLE 7. AMENDMENT OF THE PLAN AND AWARDS
The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan,
unless the affected Optionees consent to such amendment. Stockholder approval
shall be obtained to the extent required by applicable law.
ARTICLE 8. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective on the Effective Date. One or
more automatic option grants may be made under the Plan at any time on or after
the Effective Date.
B. The Plan shall terminate upon the earlier of (i) May 27, 2008 or
-------
(ii) the date on which all shares available for issuance under the Plan shall
have been issued or cancelled pursuant to the exercise or surrender of the
options granted under the Plan. If the date of termination is determined under
clause (i) above, then all option grants outstanding on such date shall
thereafter continue to have force and effect in accordance with the provisions
of the agreements evidencing those option grants.
ARTICLE 9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants under the Plan shall be used for general corporate
purposes.
ARTICLE 10. REGULATORY APPROVALS
5
<PAGE>
A. The implementation of the Plan, the granting of any option under
the Plan and the issuance of Common Stock upon the exercise of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of the Nasdaq National Market or any Stock Exchange on which the Common Stock is
then listed for trading.
ARTICLE 11. NO IMPAIRMENT OF RIGHTS
Neither the action of the Corporation in establishing the Plan nor
any provision of the Plan shall be construed or interpreted so as to affect
adversely or otherwise impair the right of the Corporation or the stockholders
to remove any individual from the Board at any time in accordance with the
provisions of applicable law.
ARTICLE 12. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee.
B. The provisions of the Plan relating to the exercise of options
shall be governed by the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by Change
in Control or otherwise, and the Optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
ARTICLE 13. DEFINITIONS
ANNUAL MEETING: the annual meeting of the Corporation's stockholders.
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock.
CORPORATION: Actuate Software Corporation, a Delaware corporation.
6
<PAGE>
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. the consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately after
such merger, consolidation or other reorganization is owned by persons who
were not stockholders of the Corporation immediately prior to such merger,
consolidation or other reorganization;
b. the sale, transfer or other disposition of all or
substantially all of the Corporation's assets
c. a change in the composition of the Board, as a result of
which fewer than one-third of the incumbent directors are directors who
either (i) had been directors of the Corporation on the date 24 months
prior to the date of the event that may constitute a Change in Control (the
"original directors") or (ii) were elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the
aggregate of the original directors who were still in office at the time of
the election or nomination and the directors whose election or nomination
was previously so approved; or
d. Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing at
least 50% of the total voting power represented by the Corporation's then
outstanding voting securities. For purposes of this Paragraph (d), the term
"person" shall have the same meaning as when used in sections 13(d) and
14(d) of the Exchange Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Corporation in
substantially the same proportions as their ownership of the common stock
of the Corporation.
e. A transaction shall not constitute a Change in Control if
its sole purpose is to change the state of the Corporation's incorporation
or to create a holding company that will be owned in substantially the same
proportions by the persons who held the Corporation's securities
immediately before such transaction.
EFFECTIVE DATE: the date on which the Underwriting Agreement is
executed and the initial public offering price of the Common Stock is
established.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
a. If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per
7
<PAGE>
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
b. If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
c. For purposes of any option grants made on the date of
execution of the Underwriting Agreement, the Fair Market Value shall be
deemed to be equal to the price per share at which the Common Stock is sold
in the initial public offering pursuant to the Underwriting Agreement.
1934 ACT: the Securities Exchange Act of 1934, as amended.
OPTIONEE: any person to whom an option is granted under the Plan.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
PLAN: this Actuate Software Corporation 1998 Non-Employer Directors
Option Plan.
STOCK EXCHANGE: either the American Stock Exchange or the New York
Stock Exchange.
UNDERWRITING AGREEMENT: the agreement between the Corporation and the
underwriter or underwriters managing the initial public offering of the Common
Stock.
8
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
---------------
$ 164,934 December 27, 1997
San Mateo, California
FOR VALUE RECEIVED, the undersigned Actuate Japan Co., Ltd. ("Maker")
promises to pay to the order of Actuate Software Corporation ("Actuate"),
located at 999 Baker Way, Suite 270, San Mateo, California 94404, the principal
sum of One Hundred Sixty Four Thousand Nine Hundred Thirty Four Dollars
($164,934) upon the terms and conditions specified below.
1. Principal. The entire principal balance of this Promissory Note
---------
("Note"), including any accrued but unpaid interest, shall become due and
payable in the amounts and on the dates set forth in Exhibit A hereto.
---------
2. Interest. Interest shall accrue under this Note at a rate of
--------
10.0% per annum.
3. Application of Payment. Payment shall be made in lawful tender
----------------------
of the United States. Prepayment of principal and accrued interest may be made
at any time without penalty.
4. Events of Acceleration. The entire unpaid principal sum of this
----------------------
Note including any accrued but unpaid interest shall become immediately due and
payable upon the failure of Maker to make any payment when due as set forth in
Exhibit A hereto, the insolvency of the Maker, the commission of any act of
- ---------
bankruptcy by the Maker, the execution by the Maker of a general assignment for
the benefit of creditors, the filing by or against the Maker of any petition in
bankruptcy or any petition for relief under the provisions of the federal
bankruptcy act or any other state or federal law for the relief of debtors and
the continuation of such petition without dismissal for a period of thirty (30)
days or more, the appointment of a receiver or trustee to take possession of any
property or assets of the Maker, or the attachment of or execution against any
property or assets of the Maker.
5. Collection. If action is instituted to collect this Note, the
----------
Maker promises to pay all costs and expenses (including reasonable attorney
fees) incurred in connection with such action.
6. Waiver. No previous waiver and no failure or delay by Actuate in
------
acting with respect to the terms of this Note shall constitute a waiver of any
breach, default, or failure of condition under this Note or the obligations
secured thereby. A waiver of any term of this Note or of any of the obligations
secured thereby must be made in writing and shall be limited to the express
terms of such waiver.
The Maker waives presentment; demand; notice of dishonor; notice of
default or delinquency; notice of acceleration; notice of protest and
nonpayment; notice of costs, expenses or losses and interest thereon; notice of
interest on interest; and diligence in taking any action to collect any sums
owing under this Note.
7. Governing Law. This Note shall be construed in accordance with
-------------
the laws of the State of California.
MAKER
By: ___________________________________
Title: _______________________________
Address: _____________________________
_____________________________
<PAGE>
EXHIBIT A
Schedule of Payments
--------------------
All payments are to be made on or before the dates set forth below
Date Amount of payment
- ---- -----------------
4/30/98 $25,000 plus accrued interest
5/31/98 $25,000 plus accrued interest
6/30/98 $25,000 plus accrued interest
7/31/98 $25,000 plus accrued interest
8/31/98 $30,000 plus accrued interest
9/30/98 $34,934 plus accrued interest
<PAGE>
EXHIBIT 10.8
OFFICE LEASE
THIS LEASE is made on the 27 day of March 1995 by and between Actuate Software
Corporation, a California corporation (hereinafter called "Tenant"), and
Mariners Island, Ltd., a California limited partnership (hereinafter called
"Landlord").
IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED HEREIN, THE PARTIES AGREE
AS FOLLOWS:
1. Premises. Landlord leases to Tenant and Tenant leases from Landlord, upon the
--------
terms and conditions herein set forth, those certain premises (the
"Premises") situated at 999 Baker Way in the City of San Mateo, County of San
Mateo, California, as outlined in Exhibit A, attached hereto and incorporated
---------
herein by this reference, and described as follows: approximately 3,938
useable square feet, plus fifteen percent (15%) "load factor", for
approximately 4,529 rentable square feet, commonly referred to as Suite 330
on the 3rd floor of the Building.
2. Term. The term of this Lease shall commence on the date ("Commencement Date")
----
which is the earlier of the following:
A. The date the Improvements have been Substantially Completed, as these
terms are hereinafter defined in Paragraph 6; or
B. The date on which Tenant takes possession of the Premises.
Landlord shall send to Tenant a notification, in the form attached hereto as
Exhibit B and incorporated herein by this reference, stating the Commencement
---------
Date, when it is ascertained.
The term of the Lease shall end eighteen (18) months from the Commencement
Date, unless sooner terminated pursuant to any provision hereof. Should Lease
not commence on the first (1st) day of the month, the Lease shall nonetheless
terminate on the last day of the month of the last year of the Term as
provided herein.
3. Rent.
----
A. Basic Rent. Tenant shall pay to Landlord, as rent ("Rent") for the
----------
Premises the amount ("Basic Rent") of Eight Thousand Three Hundred
Seventy-Nine Dollars and 00/100ths ($8,379.00) per month for Months 1-12
and Eight Thousand Six Hundred Five and 00/100ths Dollars ($8,605.00)
per month for Months 13-18, in lawful money of the United States of
America, subject to adjustment as provided in subparagraph 3.B, below.
All Rent shall be paid without deduction or offset, prior notice,
abatement or demand, except as herein provided, to Landlord, at 999
Baker Way, Suite 300, San Mateo, CA 94404, Attention: Accounting, or at
such other place as may be designated in writing from time to time by
Landlord in writing reasonably in advance.
Basic Rent for the first month of the term of this Lease shall be paid,
in advance, on the Commencement Date and on the first (1st) day of each
succeeding calendar month until the end of the term. Rent for any period
during the term hereof which is for less than one (1) full month shall
be a pro rata portion of the monthly Rent payment.
Tenant acknowledges that late payment by Tenant to Landlord of Rent or
any other payment due Landlord will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of such costs being
extremely difficult and impracticable to fix. Such costs include,
without limitation, processing and accounting charges, and late charges
that may be imposed on Landlord by the terms of any encumbrance and note
secured by any encumbrance covering the Premises. Therefore, if any
installment of Rent or other payment due from Tenant is not received by
Landlord within five (5) days following the date it is due and payable,
Tenant shall pay to Landlord, in addition to the Rent due, and in
addition to interest thereon as provided in Paragraph 14, an additional
sum of ten percent (10%) of the overdue amount as a late charge. The
parties agree that this late charge and interest represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of
late payment by Tenant. Acceptance of any late charge shall not
constitute a waiver of Tenant's default with respect to the overdue
amount, nor prevent Landlord from exercising any of the other rights and
remedies available to Landlord.
If the parties hereto have agreed upon a specific date for the
Commencement Date and if for any reason whatsoever Landlord cannot
deliver possession of the Premises on the Commencement Date, this Lease
shall not be void or voidable, nor shall Landlord be liable to Tenant
for any loss or damage resulting therefrom; but in such event, Tenant
shall not be obligated to pay Rent until possession of the Premises is
tendered to Tenant, and the Commencement Date and termination date of
this Lease shall be revised to conform to the date of Landlord's
delivery of possession.
<PAGE>
B. Basic Rent Increase. The Basic Rent shall be subject to adjustment at the
-------------------
commencement of the thirteenth (13th) month of the lease term as provided
in Paragraph 3.A. hereof.
C. Additional Rent: Increases in Operating Expenses and Taxes. For purposes
----------------------------------------------------------
of this Lease, the parties agree to the following:
(1) "Base Operating Expenses and Taxes" shall be the amount of the
Operating Expenses and Taxes for the 1995 calendar year (excluding
the rent and cost of the conference center and fitness facility).
(2) Tenant's proportionate share of Operating Expenses and Taxes is
agreed to be seven and 5/10ths percent (7.5%).
(3) "Operating Expenses" shall mean all direct costs of operating,
maintaining and managing the Building and the Property (including
parking areas) including, but not limited to, all charges paid or
expenses incurred by Landlord for: repairs; maintenance; utilities;
water; capital improvements required to meet changed government
regulations; cleaning and janitorial services; security services;
modifications or additional capital improvements or replacement of
existing building systems and equipment to reduce the Operating
Expenses; replacement of capital improvements or Building sewer
equipment existing as of the Commencement Date when required because
of normal wear and tear; maintenance and replacement of landscaping,
glazing, plumbing systems, electrical systems, heating and air
conditioning systems, a fitness center, automatic fire extinguishing
systems, conference centers, roofs, down spouts, elevators, common
area interiors, ceilings, and Building exterior and common area
doors; rubbish removal; property and liability insurance; licenses,
permits and inspections; reasonable accounting, administrative,
property management (equal to five percent (5%) of rent collected),
and legal expenses and the reasonable cost of contesting the validity
or applicability of any government enactments that may affect
Operating Expenses. The following shall not constitute Operating
Expenses for the purposes of this Lease, and nothing contained herein
shall be deemed to require Tenant to pay any of the following as
Operating Expenses: (i) deductible damage and repairs attributable to
condemnation, fire or other casualty (over and above the deductible);
(ii) damage and repairs covered under any warranty or insurance
policy carried by Landlord in connection with the Building or common
areas; (iii) damage and repairs necessitated by the gross negligence
or willful misconduct of Landlord or Landlord's employees,
contractors or agents; (iv) executive salaries of Landlord; (v)
Landlord's general overhead expenses not related to the Premises;
(vi) payments of principal or lease payments or points, commissions
and legal fees associated with financing; (vii) depreciation; (viii)
any cost or expense related to the testing for, removal,
transportation or storage of hazardous materials from the Premises,
Building or common areas; and (ix) interest, penalties or other costs
arising out of Landlord's failure to make timely payments of its
obligations, mortgages, real estate taxes and real estate insurance.
Landlord shall not collect in excess of one hundred percent (100%) of
Operating Expenses or any item of cost more than once. Any Operating
Expenses charged Landlord by any of its affiliates for goods and
service provided to the Building, Premises or common areas shall be
reasonable in the cost thereof that would be charged to Landlord by
non-affiliated parties. All Operating Expenses shall be directly
attributable to the operations, maintenance, management and repair of
the Premises.
(4) "Taxes" shall mean all Real Property Taxes as hereafter defined in
Paragraph 7, but excluding all other taxes which are paid by Landlord
and reimbursed by Tenant under this Lease.
If the aggregate Operating Expenses and Taxes for the 1995 calendar year
and each calendar year thereafter during the Lease term exceeds the Base
Operating Expenses and Taxes, then Tenant shall pay Landlord, as
Additional Rent, Tenant's pro rata share of this Increase ("Increase").
Notwithstanding anything in this Lease to the contrary, Landlord shall
calculate Increases (for purposes of both estimated and actual
calculations) as if the Building were fully occupied during the 1995
calendar year and each lease year thereafter regardless of the actual
2
<PAGE>
occupancy rate. In no event shall Landlord be liable to Tenant or will
Basic Rent be reduced based on any decrease in Operating Expenses and
Taxes during any calendar year in relation to Base Operating Expenses
and Taxes.
Tenant's pro rata share of Increases in Operating Expenses and Taxes
shall be Additional Rent and shall be paid to Landlord, except as
otherwise provided in this Lease, as follows: prior to the commencement
of each calendar year or within a reasonable period thereafter, Landlord
shall estimate Tenant's pro rata share Of such Increase for the
following calendar year and Landlord shall notify Tenant of such
estimate in writing. Commencing on the first day of the first month of
the calendar year for which Landlord has notified Tenant of the
estimated Increase, and on the first day of every month thereafter in
such year, Tenant shall pay to Landlord, as Additional Rent, one-twelfth
(1/12th) of Tenant's estimated pro rata share of the yearly Increase.
Within ninety (90) days of the end of each calendar year for which
Tenant has made estimated payments (the "Increase Adjustment Date"),
Landlord shall furnish Tenant a statement with respect to such year,
showing In reasonable detail actual charges for the past calendar year
and the total payments made by Tenant on the basis of Landlord's
estimate. If Tenant's actual pro rata share of the Increase exceeds the
payments made by Tenant based on Landlord's estimate, Tenant shall pay
the deficiency to Landlord within thirty (30) days of Tenant's receipt
of Landlord's statement. If the total payments by Tenant based on
Landlord's estimate exceed Tenant's actual pro rata share of the
Increase, Tenant's excess payment shall be credited toward future
payments by Tenant of Basic Rent and/or Additional Rent or refunded to
Tenant within thirty (30) days of Landlord's statement to Tenant if no
future Basic Rent or Additional Rent is to become due.
Upon request by Tenant to Landlord, Landlord shall allow Tenant to
review Landlord's records, at Landlord's office in place where the
records are kept, with respect to Operating Expenses and Taxes at all
reasonable times.
All Lease provisions with respect to late charges and interest on unpaid
Rent shall be applicable to Additional Rent, as well as to Basic Rent
and all other monetary amounts due from Tenant under this Lease.
D. Monetary Obligations as Rent. All monetary amounts payable by Tenant to
----------------------------
Landlord under this Lease including but not limited to Basic and
Additional Rent, and amounts paid by Landlord to cure Tenant's
default(s) shall be deemed "Rent" hereunder.
E. First Month's Rent. Landlord hereby acknowledges that Tenant shall have
------------------
deposited Eight Thousand Three Hundred Seventy-Nine and 00/100ths
Dollars ($8,379.00) which represents the First Month's Basic Rent.
4. Security Deposit. EIGHT THOUSAND FIVE HUNDRED AND NO/100THS DOLLARS
----------------
($8,500.00)
5. Use of the Premises. The Premises shall be used exclusively for the purpose
-------------------
of software development and marketing/sales and general office use related
thereto. Tenant shall not use, or permit the Premises or any part thereof to
be used, for any purpose other than as provided herein; and no use shall be
made or permitted to be made of the Premises, nor acts done in, on or about
the Premises, which will increase the existing rate of insurance upon the
Building, or cause a cancellation of any insurance policy covering the
Building, or any part thereof, nor shall Tenant sell or permit to be kept,
used or sold, in or about the Premises, any article which may be prohibited
by the standard form of fire insurance policies. Tenant shall not commit, or
suffer to be committed, any waste upon the Premises, or any public or private
nuisance, or other act or thing which may injure, annoy or disturb the quiet
enjoyment of any occupant of neighboring properties or other tenant in the
Building or on the Property; nor, without limiting the generality of the
foregoing, shall Tenant allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose. Tenant shall not "place any
harmful liquids in the drainage system of the Premises or of the Building.
Tenant shall not place any loads upon the floors, walls, ceilings or roof
which might endanger the structure, nor overload any electrical, mechanical
or other systems.
No waste materials or refuse shall be dumped upon or permitted to remain upon
any part of the Premises outside the Building except in trash containers
placed inside exterior enclosures approved for that purpose by Landlord, or
inside the Building proper where designated by Landlord. No materials or
articles of any nature shall be stored upon or permitted to remain outside of
the Building. Subject to the provisions of Paragraph 35 of this Lease, 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 (including the common areas and hallways of the Building), 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, which consent may be granted at Landlord's absolute
discretion.
3
<PAGE>
Tenant covenants and agrees that no diminution of light, air or view by any
structure which may be hereafter erected, whether or not by Landlord, or use
of the Building by any other occupants or use of neighboring buildings or
areas by others, shall in any way affect this Lease, entitle Tenant to any
reduction of Rent hereunder, or result in any liability of Landlord to Tenant.
Tenant shall comply with all the covenants, conditions and/or restrictions
("CC&Rs") affecting the Premises, the Building and the Property, and all rules
and regulations affecting the Premises, which rules and regulations shall be
enforced by Landlord in a non-discriminatory and non-arbitrary manner.
The term "Hazardous Material" means any hazardous or toxic substance, material
or waste, storage, use or disposition of which is or becomes regulated by any
local governmental authority, the State of California or the United States
government. The term "Hazardous Material" includes, without limitation, any
material or substance which is (i) defined as a "hazardous waste", "extremely
hazardous waste" or "restricted hazardous waste" under Sections 25115, 25117
or 25122.7, or listed pursuant to Section 25140, of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii)
defined as a "hazardous substance" under Section 25136 of the California
Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner
Hazardous Substance Account Act), (iii) defined as a "hazardous material",
"hazardous substance" or "hazardous waste" under Section 25501 of the
California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous
Materials Release Response Plans and Inventory), (iv) defined as a "hazardous
substance" under Section 25281 of the California Health and Safety Code,
Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances), (v)
petroleum, (vi) asbestos, (vii) 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 20, (viii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), (ix) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq. (42 U.S.C. Section 6903), (x) defined as a "hazardous
-- ---
substance" pursuant to Section 101 of the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C.
Section 9601) or (xi) listed or defined as "hazardous waste", "hazardous
substance" or other similar designation by any regulatory scheme of the State
of California or the United States government.
Tenant, at its sole cost, shall comply with all laws and regulations relating
to Tenant's storage, use and disposal of Hazardous Materials on the Premises.
If Tenant does store, use or dispose of any Hazardous Materials on the
Premises, Tenant shall notify Landlord, in writing, at least five (5) days
prior to their first appearance on the Premises; provided, however, that
Tenant shall have the right to store reasonable amounts of chemicals and/or
solvents used for ordinary office equipment without notifying Landlord. Tenant
shall be solely responsible for and shall defend, indemnify and hold Landlord,
and Landlord's partners, officers, employees, successors, assigns and agents,
harmless from and against all claims, demands, damages, costs and liabilities,
including reasonable attorneys' fees and costs, arising out of or in
connection with the storage, use or disposal of Hazardous Materials by Tenant,
its agents, employees, contractors or sublessees.
If the presence of Hazardous Materials on the Premises caused or permitted by
Tenant, its agents, employees, contractors, or sublessees results in or is
likely to result in contamination or deterioration of water or soil resulting
in a level of contamination greater than the safe levels established by any
governmental agency having jurisdiction over such contamination, or if any
investigation of conditions, or any clean-up, remedial removal or restoration
work is required by any federal, state or local governmental agency or
political subdivision ("Governmental Agency") because of the level of
Hazardous Material in the soil or ground water or on the Premises caused or
permitted by Tenant, its agents, employees, contractors or sublessees, then
Tenant shall promptly, and at its sole cost, take any and all action necessary
to investigate and clean up such contamination. Tenant shall further be solely
responsible for, and shall defend, indemnify and hold Landlord and Landlord's
partners, officers, employees, successors, assigns and agents harmless from
and against, all claims, demands, damages, costs and liabilities, including
reasonable attorneys' fees and costs, arising out of or in connection with any
removal, clean-up and restoration work and materials required hereunder to
return the Premises, the Property or the surrounding properties to the
condition existing prior to the appearance of the Hazardous Materials caused
or permitted by Tenant, its agents, employees, contractors or sublessees.
If Landlord has good cause to believe that the Premises or the Property have
or may become contaminated by Hazardous Materials, Landlord may cause tests to
be performed, including wells to be installed on the Property, and may cause
the soil or ground water to be tested to detect the presence of Hazardous
Materials by the use of such tests as are then customarily used for such
purposes, The cost of such tests of the installation, maintenance, repair and
replacement of such
4
<PAGE>
wells shall be paid by Landlord, unless such contamination was caused by
Tenant or Tenant's, agents, employees or contractors.
The termination of the Lease shall not terminate the parties' respective
rights and obligations under this Paragraph 5, and the parties hereto
expressly agree that the provisions contained herein shall survive the
termination of Tenant's leasehold estate.
Tenant shall abide by all laws, ordinances and statutes, as they now exist or
may hereafter be enacted by legislative bodies having jurisdiction thereof,
relating to its use and occupancy of the Premises.
The provisions of this Paragraph are for the benefit of the Landlord only and
shall not be construed to be for the benefit of any other person or occupant
of the Premises.
6. Improvements. Landlord will, at its sole expense and using contractors of its
------------
choice, make improvements ("Improvements") to the Premises as specified in
Exhibit C attached hereto and incorporated herein by this reference. Tenant
---------
has delivered to Landlord, and Landlord has approved, its final plans with
detailed specifications and listing of finish materials, all of which have
been approved by Tenant. Notwithstanding anything in this Lease to the
contrary, if Tenant fails to provide Landlord with such final plans,
specifications, and finish material approved by Tenant on or before the date
specified for such delivery, or if Tenant changes any of the plans,
specifications or finish materials then the Commencement Date shall be the
Anticipated Completion Date as hereafter set forth, or the date of Landlord's
notification to Tenant of Substantial Completion (as hereinafter defined) of
the Improvements, or the date on which Tenant takes possession of the
Premises, whichever shall first occur.
Upon Landlord's approval (which shall not be unreasonably withheld or
delayed) of such final plans and specifications including finish materials
approved by Tenant, and upon Landlord's approval of the same, Landlord shall
diligently undertake to construct the Improvements in accordance with such
final plans, specifications and finish materials as approved by Landlord and
Tenant (collectively referred to as "Final Plans"). All such construction
shall be performed with due diligence and in substantial accordance with the
Final Plans. Landlord agrees to use all commercially reasonable efforts to
substantially complete the Improvements by April 24, 1995 ("Anticipated
--------------
Completion Date"), but without any warranty as to when such Improvements
shall be substantially completed.Should Landlord not so substantially
complete the Improvements by May 31, 1995 and Tenant has not made any changes
to Final Plans after March 15, 1995, then Tenant may cancel this Lease by
providing Landlord within (10)days written notice.
Landlord's obligation to construct the Improvements is specifically subject
to any changes or other requirements of or imposed by all applicable
governmental body(ies), agency(ies) and/or utility(ies); Landlord shall
notify Tenant of any such changes and/or requirements promptly after Landlord
becomes aware of the same. Any improvements to the Premises not expressly
shown or stated in the Final Plans shall be made by Tenant at its sole cost
and expense in accordance with Paragraph 11 of this Lease; provided, however,
that notwithstanding anything in this Lease to the contrary, any delay in
Landlord's construction of the Improvements caused in whole by Tenant and
which are not caused by Tenant within one (1) day of written notice thereof
by Landlord including, but not limited to, delays caused by additional
improvements made or any changes requested by Tenant, shall not delay the
Commencement Date of this Lease, and Substantial Completion, as hereinafter
defined, for purposes of determining the Commencement Date of this Lease,
shall be at such time as the Improvements would have been Substantially
Complete absent such additional improvements made or changes requested by
Tenant.
It is understood that the Final Plans and the exact location of doors, walks,
lighting, plumbing and all other facilities and improvements are subject to
such minor changes as Landlord, or Landlord's architect or general contractor
in charge of the construction of the improvements, determine to be necessary
desirable in the course of construction of or to the Premises, and no such
changes shall affect this Lease or constitute a breach by Landlord hereunder.
If, upon substantial completion of Improvements and tender of the Premises to
Tenant for occupancy, such Improvements do not conform exactly to the Final
Plans, but the general appearance, structural integrity and Tenant's use and
occupancy of the Premises, the Building and such Improvements are not
materially or unreasonably affected by such deviation(s), it is agreed that
the Improvements shall be deemed "Substantially Complete" for purposes of
this Lease, and Tenant's obligation to pay Rent hereunder shall not be
affected by such deviation(s). In such event, Tenant agrees to accept the
Premises and such Improvements as so constructed by Landlord. However,
notwithstanding the above, Tenant shall have twenty (20) days from the date
of Substantial Completion to provide Landlord with a list of items requiring
repair or replacement. Upon Landlord's receipt of such list, Landlord shall
proceed to correct such "punch list" items with due
5
<PAGE>
diligence and in a manner designed to cause the least possible interruption
to Tenant and Tenant's use of the Premises.
7. Taxes and Assessments.
---------------------
A. Tenant shall pay before delinquency any and all taxes, assessments,
license fees and public charges levied, assessed or imposed upon or
against Tenant's fixtures, equipment, furnishings, furniture,
appliances and personal property installed or located on or within the
Premises. Tenant shall cause said fixtures, equipment, furnishings,
furniture, appliances and personal property to be assessed and billed
separately from the real property of Landlord. If any of Tenant's said
personal property shall be assessed with Landlord's real property,
Tenant shall pay to Landlord the taxes attributable to Tenant within
thirty (30) days after receipt of a written statement from Landlord
setting forth the taxes applicable to Tenant's property.
B. All Real Property Taxes shall be paid by Landlord. The term "Real
Property Taxes", as used herein, shall mean and include: (i) all taxes,
assessments, levies and other charges of any kind or nature whatsoever,
general and special, foreseen and unforeseen (including without
limitation, 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, the Building or the Property, or otherwise)
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
Property, the Building or 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
Property, the Building or 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, on or about the Property,
the Building or the Premises; and landscaping areas, walkways and
parking areas; and (ii) 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.
"Real Property Taxes" shall not include any franchise, rental, income,
inheritance or profit tax, capital levy or excise tax payable by
Landlord.
If at any time during the term of this Lease the taxation or assessment
of the Property, the Building or 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 Property, the Building or the Premises
or Landlord's interest therein, or (ii) on or measured by the gross
receipts, income or rentals from the Property, the Building or the
Premises, on Landlord's business of leasing the Property, the Building
or the Premises, or Landlord's interest therein, or based on parking,
employment, production or the like in, on or about the Property, the
Building or the Premises, or computed in any manner with respect to the
operation of the Property, the Building or 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 in part upon property or rents unrelated to
the Property, the Building or the Premises, then only that part of such
Real Property Tax that is fairly allocable to the Property, the
Building or the Premises shall be included within the meaning of the
term "Real Property Taxes".
If, at any time during the term of this Lease, any assessments which
would be deemed to be Real Property Taxes are levied against the
Premises, the Building or the Property, Landlord may elect either to
pay the assessment in full or to allow the assessment to go to bond and
to pay it in installments. In either case, however, Tenant shall only
be obligated to pay to Landlord, with regard to any such assessment,
each time payment of Real Property Taxes is made, a sum equal to that
which would have been payable by Tenant as its pro rata percentage of
the installments of principal and interest which would have become due
during the term of this Lease had Landlord allowed the assessment to go
to bond.
8. Insurance.
---------
A. Indemnity. Tenant agrees to indemnify and defend (with counsel
---------
reasonably acceptable to Landlord) Landlord against and hold Landlord
and Landlord's partners, employees, officers, assigns and successors
harmless from any and all demands, claims, causes of action, judgments,
obligations or liabilities, and all reasonable expenses incurred in
investigating or resisting the same (including reasonable attorneys'
fees), on account of, or arising out of, Tenant's use or occupancy of
the Premises. This Lease is made on the express condition
6
<PAGE>
that Landlord shall not be liable for, or suffer loss by reason of,
injury to person or property, from whatever cause, in any way connected
with the use or occupancy of the Premises specifically including,
without limitation, any liability for injury to the person or property
of Tenant, its agents, officers, employees, licensees and invitees
except to the extent caused by the gross negligence or willful
misconduct of Landlord or Landlord's agents, employees or contractors.
B. Liability and Worker's Compensation Insurance. Tenant shall, at
---------------------------------------------
Tenant's expense, obtain and keep in force during the term of this
Lease a policy of worker's compensation insurance and a policy of
comprehensive public liability insurance insuring Landlord and Tenant;
with cross-liability endorsements, against any liability arising out of
the use or occupancy of the Premises and all areas appurtenant thereto,
including parking areas. Such insurance shall be in an amount
satisfactory to Landlord of not less than $1,000,000 for bodily injury
or death as a result of any one occurrence, and $1,000,000 for damage
to property as a result of any one occurrence. The insurance shall be
with companies admitted to do business in the State of California and
companies of Best's Rating Guide of A+9 or better. Tenant shall deliver
to Landlord, prior to taking possession of the Premises, a certificate
of insurance evidencing the existence of the policy required hereunder,
and such certificate shall certify that the policy (i) names Landlord
as an additional insured; (it) shall not be canceled or altered without
thirty (30) days prior written notice to Landlord; (iii) insures
performance of the indemnity set forth in subparagraph 8.A above; and
(iv) the coverage is primary and any coverage carried or obtained by
Landlord is in excess thereto.
Landlord shall, at all times during the term hereof, maintain in effect
a policy of public liability and property damage insurance insuring
against any liability (including bodily injury or property damage)
arising on or about the Property with policy limits determined by
Landlord in its sole discretion. Such insurance costs (including
deductibles) shall be included in Operating Expenses described in
Paragraph 3 above.
C. Insurance of Personal Property, Fixtures and Equipment. Tenant shall at
------------------------------------------------------
all times during the term hereof, and at its sole cost and expense,
maintain in effect policies of insurance covering: (i) its personal
property, inventory, alterations, fixtures and equipment located on the
Premises, in an amount not less than one hundred percent (100%) of
their actual replacement value, providing protection against any peril
included within the classification "Fire and Extended Coverage,"
together with insurance against sprinkler damage, vandalism and
malicious mischief; and (it) all plate glass on the Premises. The
proceeds of such insurance, so long as this Lease remains in effect,
shall be used to repair or replace the personal property, inventory,
alterations, fixtures, equipment and plate glass so insured. In
addition, Tenant shall obtain and keep in force, at all times during
the term of this Lease, a policy of business interruption insurance
coverage, insuring that one hundred percent (100%) of the monthly Basic
Rent, and all Additional Rent due hereunder, will be paid to Landlord
for a period of not less than one (1) year, if the Premises are damaged
or destroyed or rendered unfit for occupancy by a risk insured against
by a policy of standard fire and extended coverage insurance, with
vandalism, sprinkler damage and malicious mischief endorsements.
D. Property Insurance. Landlord shall obtain and keep in force during the
-------------------
term of this Lease a policy or policies of insurance coverage including
fire and extended coverage (and, at Landlord's sole and absolute
discretion, earthquake and flood), for loss or damage to the Premises
and to the Building, in the amount of the full replacement value
thereof. Such insurance costs and deductibles shall be included in
Operating Expenses described in Paragraph 3 above.
E. Mutual Waiver of Subrogation. The parties hereto release each other and
----------------------------
their respective authorized representatives, partners, officers,
agents, employees and servants, from any and all claims, demands, loss,
expense or injury to any person, or to the Premises or Building, or to
the furnishings, fixtures or equipment located therein, caused by or
resulting from perils, events or happenings which are the subject of
insurance in force at the time of such loss. Each party shall cause
each insurance policy obtained by it to provide that the insurer waives
all right of recovery by way of subrogation against either party in
connection with any damage covered by any policy. Neither party shall
be liable to the other for any damage caused by fire or any of the
risks insured against under any insurance policy in effect as required
by this Lease.
9. Operation, Management, Services and Utilities. All expenses of operation and
---------------------------------------------
management of the Premises and the Building or the Property, including, but
not limited to, water, gas, light, heat, power, electricity, telephone,
trash pick-up, property management services, landscaping, janitorial
services, sewer charges, pest control, security charges, and all other
services supplied to or consumed on the Premises or the Building or the
Property shall be included in Operating Expenses described in Paragraph 3
above, except to the extent such charges are directly billed to Tenant.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of Rent by reason of
7
<PAGE>
any interruption or failure of utility or other services to the Premises
during the Lease term. Utilities and services shall be provided in
accordance with the Standards for Utilities and Services set forth in
Exhibit D attached hereto and incorporated herein. The parties agree to the
terms and provisions set forth in the Standards and to any modifications or
additions thereto.
10. Repair and Maintenance.
----------------------
A. Subject to provisions of Paragraph 15 of this Lease, below, Landlord
shall keep and maintain the roof, paving, structural elements,
landscaping, irrigation systems and exterior walls of the Building and
the Property in good order and repair. Landlord shall also keep and
maintain in good order and repair the windows, window frames, doors,
hardware, interior walls, and the electrical, plumbing, lighting,
heating and air conditioning systems. Such expenses shall be included
in Operating Expenses for purposes of Paragraph 3 above. If, however,
any repairs or maintenance are required because of an act or omission
of Tenant, or its agents, employees or invitees, then Tenant shall pay
to Landlord upon demand one hundred percent (100%) of the costs of such
repair or maintenance (except that if Landlord elects to file a claim
and is reimbursed, Tenant shall pay only the amount not so reimbursed.
Notwithstanding anything in this Lease to the contrary, after the
initial construction of the Improvements in the Premises by Landlord
pursuant to the provisions of Paragraph 6 of this Lease, Landlord shall
have no obligation to alter, remodel, improve, decorate, or paint the
Premises or any part thereof.
B. Except as expressly provided in subparagraph 10.A above, Tenant shall,
at its sole cost, keep and maintain the interior of the Premises in
good and sanitary order, condition and repair.
Notwithstanding anything to the contrary in the Lease, in no event
shall Tenant's obligation to repair under this section extend to (i)
damage and repairs covered under any insurance policy carried by
Landlord in connection with the Premises or Building; (ii) damage
caused by any defects In the design, construction or materials of the
Building, including the Premises, and improvements installed therein by
Landlord; (iii) damage caused in whole or in part by the gross
negligence or willful misconduct of Landlord or Landlord's agents,
employees, invitees or licensees; (iv) repairs covered under any
Operating Expenses; (v) reasonable wear and tear; (vi) conditions
covered under any warranties of Landlord's contractors; or (vii) damage
by fire and other casualties, or acts of governmental authorities, or
acts of god and the elements.
Landlord may give Tenant written notice of any repairs that are
required under the terms of this Lease and Tenant shall proceed
forthwith to effect the same with-reasonable diligence, but in no event
later than ten (10) days after receipt of such notice. If Tenant fails
to proceed to repair or maintain the Premises with due diligence or
within the ten (10) day period provided herein, Landlord may, in
addition to any other remedies Landlord may have at law or in equity,
perform the repairs or maintenance and, in such event, Tenant shall
promptly reimburse Landlord the cost thereof, as Additional Rent within
ten (10) days from written receipt, with interest thereon at the
Interest Rate until such amount is paid in full by Tenant.
Tenant hereby expressly waives the provisions of Subsection 1 of
Section 1932, and Sections 1941 and 1942 of the Civil Code of
California and all rights to make repairs at the expense of Landlord,
as provided in Section 1942 of said Civil Code.
11. Alterations and Additions. Tenant shall not make, or suffer to be made, any
-------------------------
alterations, improvements or additions in, on or about, or to the Premises
or any part thereof, without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, and without a valid building
permit issued by the appropriate governmental authority. Such alterations,
improvements and additions shall then be performed by Landlord's
contractors.
As a condition to giving such consent, Landlord may require that Tenant
agree to remove any such alterations, improvements or additions at the
termination of this Lease, and to restore the Premises to their prior
condition. Any alteration, addition or improvements to the Premises, except
movable furniture and trade fixtures not affixed to the Premises, shall
become the property of Landlord upon installation, and shall (subject to the
provisions of the immediately preceding sentence) remain upon and be
surrendered with the Premises at the termination of this Lease. Landlord can
elect, however, at the time Landlord consents to such alterations to require
Tenant to remove an)/alterations, additions or improvements that Tenant has
made to the Premises. If Landlord so elects, Tenant shall restore the
Premises to the condition designated by Landlord in its election, before the
last day of the term.
8
<PAGE>
Alterations, additions and improvements which are not to be deemed trade
fixtures include heating, lighting and electrical systems, air conditioning,
partitioning, window coverings, carpeting, or any other installation which
has become an integral part of the Premises.
Tenant shall provide Landlord with notice at least two (2) business days
prior to making any alterations to thE Premises so that Landlord may post
notices of non-responsibility thereon.
If, during the term hereof, any alteration, addition or change of any sort
through all or any portion of the Premises is required, due to Tenant's
particular use of the Premises as opposed to office uses generally by law,
regulation, ordinance or order of any public agency, Tenant, at its sole
cost and expense, shall promptly make the same.
12. Acceptance of the Premises and Covenant to Surrender. By entry and taking
----------------------------------------------------
possession of the Premises pursuant to this Lease, upon Substantial
Completion of the Improvements, Tenant, subject to Landlord's obligation to
correct so-called "punch list" items, as provided in Paragraph 6, above,
accepts the Premises as being in good and sanitary order, condition and
repair, and accepts the Building and the Improvements included in the
Premises in their condition existing as of the date of such entry and
without representation or warranty by Landlord as to the condition of the
Building or the Premises, or as to the use or occupancy which may be made
thereof. Tenant further accepts any Improvements to be constructed by
Landlord as being completed in accordance with the Final Plans for such
Improvements, except for items specified in writing as punch list items
pursuant to Paragraph 6.
Tenant agrees, on the last day of the term hereof, or on any sooner
termination of this Lease, to surrender the Premises, together with all
alterations, additions and improvements which may have been made in, to or
on the Premises by Landlord or Tenant, to Landlord, broom clean, in good and
sanitary order, condition and repair, except for damage due to casualty,
acts of the Landlord or its agents, employees or contractors and such wear
and tear as would be normal for the period of Tenant's occupancy. Tenant
further agrees that at the end of the term of this Lease or upon any sooner
termination of this Lease, Tenant, at its sole expense, shall have all the
floors in the Premises cleaned and waxed, the interior walls and columns
patched and repainted as necessary, any damaged ceiling tile replaced, light
lenses and ballasts restored to good order and repair, any damaged doors and
cabinetry replaced or repaired and the carpet steam cleaned and, if damaged,
replaced to match the existing carpet.
Tenant, on or before the end of the term of this Lease or on any sooner
termination of this Lease, shall remove all its personal property and trade
fixtures from the Premises, and all property not so removed shall be deemed
to be abandoned by Tenant and title to the same shall thereupon pass to
Landlord without compensation to Tenant. Landlord may, upon termination of
this Lease, remove, store and/or sell all moveable personal property and
trade fixtures 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 are not so surrendered at the end of the term or sooner
termination of this Lease, then 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 provided Tenant shall have a no liability
hereunder for the first thirty (30) days following the expiration of the
term.
No act or conduct of Landlord, whether consisting of the acceptance of the
keys to the Premises or otherwise, shall be deemed to be or to constitute an
acceptance of the surrender of the Premises by Tenant prior to the
expiration of the term hereof, and such acceptance of any surrender by
Tenant shall only be evidenced by a written acknowledgment of acceptance of
surrender signed by Landlord. The voluntary or other surrender of the
Premises by Tenant or a mutual cancellation of this Lease shall not work as
a merger and, at the option of Landlord, shall either terminate all existing
subleases or operate as an assignment to Landlord of all such subleases.
After 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 Property.
13. Events of Default. The occurrence of any of one or more of the following
-----------------
events shall constitute a default hereunder by Tenant:
A. The abandonment of the Premises by Tenant. Abandonment is herein
defined to include, but Is not limited to, any absence by Tenant from
the Premise, for five (6) days or longer while in default of any
provision of this Lease.
B. The failure by Tenant to make any payment of Rent, or other payment
required to be made by Tenant hereunder, when due.
9
<PAGE>
C. The failure by Tenant to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in subparagraphs 13.A or.
13.B, above, where such failure continues for a period of thirty (30)
days after written notice thereof from Landlord to Tenant; provided,
however, that any such notice shall be in lieu of, and not in addition
to, any notice required under California Code of Civil Procedure
Section 1161; provided further, that if the nature of Tenant's default
is such that more than thirty (30) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if Tenant shall
commence such cure within said thirty (30) day period and thereafter
diligently prosecute such cure to completion.
D. Any assignment or subletting of this Lease without the consent of
Landlord, including, without limitation, an involuntary assignment as
defined in Paragraph 21, below.
14. Remedies for Default.
--------------------
A. In the event of any breach of this Lease by Tenant, or an abandonment
of the Premises by Tenant, Landlord has the option of (i) removing all
persons and property from the Premises and repossessing the Premises to
the extent permitted by law, in which case any of Tenant's property
which Landlord removes from the Premises may be stored in a public
warehouse or elsewhere at the cost of, and for the account of, Tenant,
or (ii) allowing Tenant to remain in full possession and control of the
Premises. If Landlord chooses to repossess the Premises, then this
Lease will automatically terminate in accordance with the provisions of
California Civil Code Section 1951.2. In the event of such termination
of this Lease, Landlord may recover from Tenant: (a) the worth at the
time of award of the unpaid Rent which had been earned at the time of
termination, including interest at the Interest Rate (as hereinafter
defined) charge; (b) the worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided, including interest at
the Interest Rate (c) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the term after the time of
award exceeds the amount of such rental loss that Tenant proves could
be reasonably avoided; and (d) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease or which, in the ordinary
course of things, would be likely to result therefrom. "The worth at
the time of the award", as used in (a) and (b) of this paragraph, is to
be computed by allowing interest at the maximum rate an individual is
permitted by law to charge. "The worth at the time of the award", as
referred to in (c) of this paragraph, is to be computed by discounting
the amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award, plus one percent (1%).
B. If Landlord chooses not to repossess the Premises, but allows Tenant to
remain in full possession and control of the Premises, in accordance
with provisions of California Civil Code Section 1951.4, then Landlord
may treat this Lease as being in full force and effect, and may collect
from Tenant all Rents as they become due through the termination date
of this Lease, as specified in this Lease. For the purpose of this
Paragraph 14, the following shall not constitute a termination of
Tenant's right to possession:
(1) Acts of maintenance or preservation, or efforts to relet the
Premises;
(2) The appointment of a receiver on the initiative of Landlord to
protect its interest under this Lease.
C. Tenant shall be liable immediately to Landlord for all costs Landlord
incurs in reletting the Premises, including, without limitation,
brokers' commissions, expenses of remodeling the Premises required by
the reletting, and like costs. Reletting can be for a period shorter or
longer than the remaining term of this Lease. Tenant shall pay to
Landlord the Rent due under this Lease on the dates the Rent is due,
less the Rent Landlord receives from the new Tenant, unless Landlord
notifies Tenant that Landlord elects to terminate this Lease. After
Tenant's default and for as long as Landlord does not terminate
Tenant's right to possession of the Premises, if Tenant obtains
Landlord's consent, Tenant shall have the right to assign its interest
in this Lease, or sublet all or a portion of the Premises, but Tenant
shall not be released from liability and obligations under this Lease.
Landlord's consent to a proposed assignment or subletting shall be as
required in Paragraph 21.
D. If Landlord elects to relet the Premises as provided in this Paragraph
14, then any Rent that Landlord receives from reletting shall be
applied to the payment of:
(1) First, any indebtedness from Tenant to Landlord other than Rent
due from Tenant;
(2) Second, all costs, including for maintenance, incurred by Landlord
in reletting; and
(3) Third, Rent due and unpaid under this Lease.
10
<PAGE>
E. After deducting the payments referred to in this Paragraph 14, any sum
remaining from any Rent which Landlord receives from reletting shall
be held by Landlord and applied in payment of future Rent as Rent
becomes due under this Lease. In no event shall Tenant be entitled to
any excess Rent received by Landlord. If, on the date Rent is due
under this Lease, the Rent received from any reletting is less than
the Rent due on that date, then Tenant shall pay to Landlord, in
addition to the remaining Rent due, all costs which Landlord incurred
in reletting, including without limitation maintenance, that remain
after applying the Rent received from the reletting, as provided in
this Paragraph 14.
F. Landlord, at any time after Tenant commits a default, can cure the
default at Tenant's cost. If Landlord at any time, by reason of
Tenant's default, pays any sum or does any act that requires the
payment of any sum, then the sum paid by Landlord shall be due
immediately from Tenant to Landlord at the time the sum is paid and,
if paid at a later date, shall bear interest at the Interest Rate from
the date the sum is paid by Landlord until Landlord is reimbursed by
Tenant. The sum, together with interest on it, shall be Additional
Rent.
G. Any Rent not paid when due shall bear interest at a rate equal to the
"Reference Rate" then being charged by Bank of America, NT&SA, plus
four percent (4%) per annum (the "Interest Rate") from the date due
until paid and shall be subject to the late charge set forth in
subparagraph 3.A above.
15. Destruction. If the Premises are destroyed, in whole or in part, from any
-----------
cause, Landlord shall, at its option, either:
A. Rebuild or restore the Premises to their condition prior to the damage
or destruction; or
B. Terminate this Lease.
If Landlord does not give Tenant notice in writing within sixty (60) days
from the destruction of the Premises of its election to either rebuild and
restore the Premises, or to terminate this Lease, and provided that
insurance proceeds actually available to Landlord for the purpose of
rebuilding or restoring the Premises are sufficient to rebuild or restore
the Premises, then Landlord shall be deemed to have elected to rebuild or
restore the Premises, in which event Landlord agrees, at its expense,
promptly to rebuild or restore the Premises to the condition prior to the
damage or destruction.
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 written notice to Landlord within
fifteen (15) days of the expiration of such period.
Landlord's obligation to rebuild or restore the Premises shall not include
restoration of Tenant's trade fixtures, equipment or merchandise, or any
improvements, alterations or additions made by Tenant to the Premises.
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, and Section 1933,
Subdivision 4, of the California Civil Code.
In case of destruction or damage caused by a risk not covered by Tenant's
business interruption insurance described in Paragraph 8, there shall be an
abatement or reduction of Rent between the date of destruction and the date
of substantial completion of restoration, based on the extent to which the
destruction interferes with Tenant's use of the Premises.
If the Building is damaged or destroyed to the extent of not less than
thirty three and one third percent (33 1/3%) of the replacement cost
thereof, then Landlord may elect to terminate this Lease, whether the
Premises are injured or not, provided that Landlord terminates the leases
of all other tenants in the Building similarly situated in terms of damage
or destruction to their respective premises.
16. Condemnation. if any part of the Premises shall be taken for any public or
------------
quasi-public use, under any statute or by right of eminent domain, or
private purchase in lieu thereof, and a part thereof remains which is
susceptible of occupancy hereunder, then this Lease shall, as to the part
so taken, terminate as of the date title vests in the condemnor or
purchaser, and the Rent payable hereunder shall be adjusted so that Tenant
shall be required to pay for the remainder of the term only such portion of
the Rent as the value of the part remaining after such taking bears to the
value of the entire Premises prior to such taking. Landlord shall have the
right to terminate this Lease in the event that such taking causes a
reduction in Rent payable hereunder by twenty-five percent (25%) or more.
If all of the Premises or such part thereof is taken so that there does not
remain a portion
11
<PAGE>
susceptible for occupancy hereunder, as reasonably necessary for Tenant's
conduct of its business as contemplated in this Lease, then this Lease
shall thereupon terminate. If a part or all of the Premises is taken, then
all compensation awarded upon such taking shall go to Landlord and Tenant
shall have no claim thereto, and Tenant hereby irrevocably assigns and
transfers to Landlord any right to compensation or damages to which Tenant
may become entitled during the term hereof by reason of the purchase or
condemnation of all or a part of the Premises. Tenant shall have the right
to separately petition and to claim and recover from the condemning
authority, but not from Landlord, such compensation as may be separately
awarded or recoverable by Tenant in Tenant's own right on account of any
and all damage to Tenant's business, including without limitation the loss
of goodwill by reason of any appropriation, and for or on account of any
cost or loss to which Tenant might be put in removing and relocating
Tenant's merchandise, furniture, moveable trade fixtures and equipment. In
no event, however, shall the loss of goodwill include any diminution in the
value of the leasehold or the bonus value of this Lease. Each party waives
the provisions of Code of Civil Procedure, Section 1265.130, allowing
either party to petition the Superior Court to terminate this Lease in the
event of a partial taking of the Premises.
17. Free from Liens. Tenant shall (i) pay for all labor and services performed
---------------
or materials used by or furnished to Tenant or any contractor employed by
Tenant with respect to the Premises, and (ii) indemnify, defend and hold
Landlord and the Premises harmless and free from any liens, claims,
demands, encumbrances or judgments created or suffered by reason of any
labor or services performed or materials used by or furnished by Tenant or
any contractor employed by Tenant with respect to the Premises.
18. Compliance with Laws. Tenant shall, at its own cost, comply with and
--------------------
observe all requirements of all municipal, county, state and federal
authority now in force, or which may hereafter be in force, pertaining to
the use and occupancy of the Premises.
19. Subordination. Tenant agrees that this Lease shall, at the option of
-------------
Landlord, be subject and subordinate to any mortgage, deed of trust or
other instrument of security which has been or shall be placed on the
Property and the Building, and this subordination is hereby made effective
without any further act of Tenant or Landlord. Tenant shall, at any time
hereinafter, on demand, execute any instruments, releases or other
documents that may be required by a mortgagee, mortgagor, trustor or
beneficiary under any deed of trust, for the purpose of subjecting or
subordinating this Lease to the lien of any such mortgage, deed of trust or
other instrument of security. If Tenant fails to execute and deliver any
such documents or instruments, such failure shall, at Landlord's option,
constitute a default by Tenant under this Lease. Landlord agrees to use its
best efforts to have any beneficiary, mortgagee, mortgagor or trustee
execute a non-disturbance agreement providing that Tenant shall be allowed
quiet enjoyment of the Premises so long as Tenant is not in default under
the terms of this Lease.
If this Lease is or becomes subordinate to any encumbrance now of record or
any encumbrance recorded after this date affecting the Premises, then
Tenant agrees to attorn to any purchaser at any foreclosure sale, or to any
grantee or transferee designated in any deed given in lieu of foreclosure.
In such event, Tenant shall execute, at Landlord's or the lender's request,
such recognition and attornment agreement as the lender, at its option, may
require.
20. Abandonment. Tenant shall not vacate nor 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 process of law, or
otherwise, then 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. Assignment and Subletting.
-------------------------
A. Landlord's Consent Required. Tenant shall not, either voluntarily or
---------------------------
by operation of law, sell, encumber, pledge or otherwise transfer all
or any part of Tenant's leasehold estate hereunder or permit the
Premises to be occupied by anyone other than Tenant or Tenant's
employees, or sublet the Premises or any portion thereof, without
Landlord's prior written consent in each instance, which consent may
not unreasonably be withheld by Landlord. In exercising its reasonable
discretion, Landlord may consider all commercially relevant factors
involved in the leasing, subleasing or assignment of the space,
including, but not limited to, the following: (i) the creditworthiness
and financial stability of the prospective assignee or sublessee; (ii)
the compatibility of the prospective assignee or sublessee with other
tenants in the Building; (iii) the references from prior landlords of
such prospective sublessee or assignee; (iv) the past history of such
sublessee or assignee with respect to involvement in litigation and
bankruptcy proceedings; (v) whether the proposed use of the Premises
by the prospective sublessee or assignee falls within the use
permitted under Paragraph 5; (vi) whether the proposed use is suitable
and in keeping with the ambiance and tone of the Building; (vii) the
impact of said sublessee or assignee and the proposed use of the
Premises on pedestrian and vehicular traffic and parking facilities;
and (viii) the anticipated use, storage, generation, treatment and
disposal of Hazardous Materials by such prospective sublessee or
assignee. The presence of one negative factor enumerated above
12
<PAGE>
shall be deemed reasonable justification for Landlord's withholding
consent. Tenant shall provide Landlord with prior notice of any
proposed assignment or sublease as provided in subparagraph 21.B,
below. Consent by Landlord to one or more assignments of this Lease or
to one or more subletting of the Premises shall not operate to exhaust
Landlord's rights under this Paragraph 21. If Tenant is a corporation,
unincorporated association, or partnership, the transfer, assignment,
or hypothecation of any stock or ownership interest in such
corporation, unincorporated association or partnership in excess of
twenty, five percent (25%) shall be deemed an assignment within the
meaning and provision of this Paragraph 21 provided that this sentence
shall not apply at such time that Tenant offers its share at an
initial public offering (IPO) or subsequent public offering. The
voluntary or other surrender of this Lease by Tenant or a mutual
cancellation hereof shall not work a merger, and shall, at the option
of Landlord, terminate all or any existing subleases or subtenancies.
All Rent received by Tenant from its subtenants in excess of the Rent
payable by Tenant to Landlord under this Lease shall be paid to
Landlord, and any sums to be paid by an assignee to Tenant in
consideration of the assignment of this Lease shall be paid to
Landlord. Any sublease or assignment permitted herein, shall, at
Landlord's reasonable election, automatically terminate Tenant's
option(s), if any, to extend the term of this Lease and, in such
event, any such Options shall not be available to any assignee,
sublessee or other transferee except that if such assignee is the
acquiring entity of Tenant, then the option shall remain in effect.
B. Notice to Landlord. If Tenant desires at any time to assign this Lease
------------------
or to sublet the Premises or any portion thereof, it shall first
notify Landlord of its desire to do so and shall submit in writing to
Landlord (i) the name of the proposed sublessee or assignee; (ii) the
nature of the proposed sublessee's or assignee's business to be carded
on in the Premises; (iii) the material business terms of the proposed
sublease or assignment; and (iv) such reasonable Financial information
concerning the proposed sublessee or assignee as Landlord may need to
make a prudent and considered decision. Tenant shall also provide to
Landlord a copy of the sublease or assignment after such document has
been fully executed.
C. Tenant Not Released. No subletting or assignment, even with the
-------------------
written consent of Landlord, shall relieve Tenant of its obligation to
pay the Rent and perform all of the other obligations to be performed
by Tenant hereunder. Tenant shall indemnify and hold Landlord harmless
from any and all claims, damages, liability and expenses, including
reasonable attorneys' fees and costs, arising out of any claims by
brokers or others for commissions or finder's fees with respect to any
subletting or assignment by Tenant. The acceptance of Rent by Landlord
from any other person shall not be deemed to be a waiver by Landlord
of any provision of this Lease or to be a consent to any assignment or
subletting. Tenant immediately and irrevocably assigns to Landlord, as
security for Tenant's obligations under this Lease, all Rent from any
subletting, and Landlord may collect such Rent and apply it toward
Tenant's obligations under this Lease, except that, until the
occurrence of any act of default by Tenant, Tenant shall have the
right to collect such Rent.
D. Involuntary Assignment. No interest of Tenant in this Lease shall be
----------------------
assignable by operation of law. Without limiting the foregoing, each
of the following acts shall be considered an involuntary assignment:
(i) Transfer of this Lease by testacy or intestacy;
(ii) If Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or institutes a
proceeding under the Bankruptcy Act in which Tenant is the
bankrupt; or, if Tenant is a partnership or consists of more
than one person or entity, if any general partner of the
partnership or other person or entity is or becomes bankrupt
or insolvent, or makes an assignment for the benefit of
creditors;
(iii) The appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises
or of Tenant's interests in this Lease, where possession is
not restored to Tenant within thirty (30) days; or
(iv) The attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where seizure is not
discharged within thirty (30) days.
An involuntary assignment shall constitute a default by Tenant under
this Lease, and in such event Landlord shall have the right to elect
to terminate this Lease, in which case this Lease shall not be treated
as an asset of Tenant.
E. Tenant to Reimburse Landlord for Expenses. Tenant agrees to reimburse
-----------------------------------------
Landlord, as Additional Rent, upon demand, for Landlord's reasonable
costs and attorney's fees, incurred
13
<PAGE>
in conjunction with the processing, investigation and documentation
of any requested assignment, subletting, transfer, change of
ownership or hypothecation of this Lease or Tenant's interest in
and to the Premises, regardless of whether any request actually
results in a permitted assignment, sublease or other transfer.
22. Parking. Any parking charges, surcharges or any other cost hereafter levied
-------
or assessed by local, state or federal governmental agencies in connection
with the use of the parking facilities serving the Premises, including,
without limitation, any parking surcharge imposed by or under the authority
of the Federal Environmental Protection Agency, shall be included in
Operating Expenses as defined in Paragraph 3, above.
Each tenant, its agents, officers, employees and invitees, shall have the
non-exclusive right (in conjunction with the use of the part of the
Building leased to such tenant) to make reasonable use of any driveways,
sidewalks and parking area located on the Property, except such parking
areas as may from time to time be leased for exclusive use by other
tenant(s). Tenant's reasonable use of the parking area shall not exceed
that percent of the total parking area which is equal to Tenant's
proportionate share of Operating Expenses and Taxes set forth in
subparagraph 3.C, above.
23. Insolvency or Bankruptcy. Any of (i) the appointment of a receiver to take
------------------------
possession of all or substantially all of the assets of Tenant, and such
possession is not fully restored to Tenant within thirty (30) days, or (ii)
a general assignment by Tenant for the benefit of creditors, or (iii) any
action taken or suffered by Tenant under any insolvency or bankruptcy act
shall constitute a breach of this Lease by Tenant. Upon the happening of
any such event, this Lease shall terminate ten (10) days after written
notice of termination from Landlord to Tenant The provisions of this
Paragraph 23 are to be applied consistent with applicable state and federal
law in effect at the time such event occurs.
24. Landlord Loan or Sale. Tenant agrees, promptly following request by
---------------------
Landlord, to execute and deliver to Landlord any documents, including
estoppel certificates presented to Tenant by Landlord, (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; (ii) acknowledging that
there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder (or, if there are any such uncured defaults, stating the
nature of any such default[s]); and (iii) evidencing the status of the
Lease as may be required either by a lender making a loan to Landlord, to
be secured by deed of trust or mortgage covering the Premises, or a
purchase of the Property, the Building or the Premises from Landlord.
Tenant's failure to deliver an estoppel certificate within three (3) days
following such request shall constitute a default under this Lease and
shall be conclusive upon Tenant that this Lease is in full force and effect
and has not been modified except as may be represented by Landlord, and
that there are no uncured defaults in Landlord's performance. In addition,
if requested by Landlord, Tenant shall deliver to any prospective lender or
purchaser of the Property and/or the Building, audited financial statements
of Tenant covering the two (2) fiscal years immediately preceding the
request, certified by an independent certified public accountant (or, if
such statements are not normally prepared, audited and certified by an
independent public accountant, then certified by the chief financial
officer or a principal of Tenant).
25. Surrender of Lease. The voluntary or other surrender of this Lease by
------------------
Tenant, or a mutual cancellation thereof, shall not work a merger nor
relieve Tenant of any of Tenant's obligations under this Lease, and shall,
at the option of Landlord, either terminate all or any existing subleases
or subtenancies, or operate as an assignment to Landlord of any or all such
subleases or subtenancies.
26. Attorneys' Fees. If, for any reason, any action or other proceeding is
---------------
initiated to enforce or interpret any provision of this Lease, the
prevailing party shall be entitled to legal costs, expert witnesses
expenses and reasonable attorneys' fees as fixed by the court regardless of
whether the matter proceeds to trial or arbitration.
27. Notices. All notices to be given to either party shall be given in writing,
-------
personally or by depositing the same in the United States mail, postage
prepaid, or by commercial overnight courier, telecopy, or facsimile and
addressed to Tenant at the said Premises, whether or not Tenant has
departed from, abandoned or vacated the Premises, as well as to the address
set forth below, or to such other address as Tenant may specify by notice
given in accordance with the provisions of this Paragraph 27. Any notice
Lease to be given to Landlord shall be addressed to Landlord at the address
set forth below, or at such other address as it may have theretofore
specified by notice delivered in accordance herewith:
Landlord: MARINERS ISLAND, LTD.
--------
999 Baker Way, Suite 300
San Mateo, CA 94404
Tenant: ACTUATE SOFTWARE CORPORATION
------
999 Baker Way, Suite 390
San Mateo, CA 94404
14
<PAGE>
28. Waiver. The waiver by Landlord or Tenant of any broach of any term,
------
covenant or condition herein contained shall not be deemed to be a
subsequent waiver of such term, covenant or condition. The subsequent
acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver
of any preceding breach by Tenant of any term, covenant or condition of
this Lease, other than the failure of Tenant to pay the particular Rent so
accepted, regardless of Landlord's knowledge of such preceding breach at
the time of acceptance of such Rent.
29. Holding Over. Any holding over by Tenant after the expiration of the term
------------
of this Lease or any extension hereof, the consent of Landlord, shall be
construed to be a tenancy from month-to-month, at a Basic Rent of one and
one-half (1-1/2) times the monthly Basic Rent in effect during the last
month of the Lease term, or any extension thereof, and shall otherwise be
on the terms and conditions herein specified, so far as applicable, with
Landlords consent, the Basic Rent shall remain the same for the initial
thirty (30) days following the expiration of the Lease Term, thereafter,
the basic Rent shall be one hundred ten percent (110%) of the Basic Rent
paid in the last month of the Term. This holdover shall be a month to month
tenancy.
30. Covenants. Conditions and Restrictions. The parties by this reference
---------
incorporate herein as if set out in full, all Covenants, Conditions and
Restrictions ("CC&R's") pertaining to the Building and/or to the Property.
As a condition to this Lease, Tenant agrees to abide by all of said CC&Rs.
Moreover, such reasonable rules and regulations as may be hereafter adopted
by Landlord for the safety, care and cleanliness of the Building and/or
Premises and the preservation of good order thereon, are hereby expressly
made a part hereof, and Tenant agrees to obey all such rules and
regulations. At this time, there are no CC&R's.
31. Limitation on Landlord's Liability. If Landlord is in default of this
----------------------------------
Lease, and as a consequence Tenant recovers a money judgment against
Landlord, any such judgment shall be satisfied only out of the proceeds of
sale received on execution of the judgment and levy against the right,
title and interest of Landlord in the Premises, or in the Building, other
improvements and the Property, and out of Rent or other income from such
real property receivable by Landlord, or out of the consideration received
by Landlord from the sale or other disposition of all or any part of
Landlord's right, title and interest in the Premises or in the Building,
other improvements and the Property. Neither Landlord nor any Of the
partners comprising the partnership or officers of the corporation
designated as Landlord shall be personally liable for any deficiency.
32. Sale or Transfer of Premises. If Landlord sells or transfers all or any
----------------------------
portion of the Premises, the Building or the Property, then Landlord, on
consummation of the sale or transfer, shall be released from any liability
thereafter accruing under this Lease. If any security deposit or prepaid
Rent has been paid by Tenant, Landlord agrees to transfer the security
deposit or prepaid Rent to Landlord's successor, other than any portion of
the security deposit applied or retained to compensate Landlord for any
loss or damage which Landlord may have suffered as a result of Tenant's
default, and thereupon Landlord shall be discharged from any further
liability in reference thereto.
33. Landlord's Right 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 fails to pay any sum of money required to be paid by it
hereunder or fails to perform or observe any other term hereunder on its
part to be performed or observed, then Landlord may, at its option, without
waiving or releasing Tenant from any obligation of Tenant hereunder, make
any such payment, or perform or observe any such other term or act on
Tenant's part to be performed or observed. All sums so paid by Landlord and
all reasonably necessary costs of such performance or observation by
Landlord together with interest thereon from the date incurred at the
Interest Rate, shall be paid by Tenant to Landlord as Additional Rent, on
demand, in which event and as to the same Landlord shall have the same
rights and remedies against Tenant as in the case of nonpayment of Rent
hereunder.
34. Landlord's Right of Entry. Landlord (and/or its representatives) shall have
-------------------------
the right upon reasonable notice to Tenant, at all reasonable times, to
enter the Premises in order to post notices; to improve, or alter the
Building; to inspect or repair the Premises or the Building; and to erect
scaffolding and other necessary structures in or near the Premises
(provided the same do not unreasonably impair access to the Premises), the
Building and the Property; and to post "For Sale" signs with respect to the
Building or the Property. During the last six (6) months of the then
current term of this Lease, Landlord (and/or its representatives) shall
have the right, at all reasonable times, to enter the Premises to place
"For Lease" signs on the Premises. Landlord and any purchaser, lessee or
encumbrancer may enter the Premises, at all reasonable times, with respect
to any existing or prospective sale, lease or encumbrance. Landlord shall
also have the right to enter the Premises at any time, without prior
notice, in those emergency situations which could involve potential injury
to persons or loss of property. All of the above shall be without abatement
of Rent and any such entry shall not be construed as a forcible or unlawful
entry, or a detainer, or an actual or constructive eviction of Tenant from
the Premises. Landlord shall perform all of Landlord's activities described
in Section 34 of the Lease in a manner designed to cause the lest possible
interruption to Tenant and Tenant's use of the Premises.
15
<PAGE>
35. Signs. Other than the existing Suite sign to be relocated to Tenant's
-----
Premises, no sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside
of the Premises, or any exterior windows of the Premises, or any interior
windows visible from common areas of the Building, without the prior
written consent of Landlord (which consent may be granted in Landlord's
absolute discretion) and Landlord shall have the right to remove the same
without notice to and at the expense of Tenant. If Tenant is allowed to
display a sign on or about the Premises, then, at Landlord's option, upon
expiration or other sooner termination of this Lease, Tenant shall, at
Tenant's sole cost remove such sign, repair all damage caused thereby and
restore the appearance of the Premises to its condition prior to the
placement of said sign. All approved signs (or lettering on outside doors)
shall be done at the expense of Tenant by a person approved by Landlord.
36. Force Majeure. Subject to the provisions of Paragraphs 15 and 16 of this
-------------
Lease, neither Landlord nor Tenant shall be deemed in default of their
respective obligations under this Lease if performance thereof is delayed
or becomes impossible because the fault or neglect of the other party, or
because of acts of God, war (whether declared or undeclared), earthquake,
fire, labor dispute, strike, acts of public agencies, embargoes, rainy,
stormy or other adverse weather, riot, civil commotion, insurrection,
blockade, inability to obtain materials, supplies or fuels, acts and delays
of subcontractors or contractors, and such other contingencies beyond the
control of the performing party. Upon such an event, the time for
performance shall be reasonably extended, but in no event shall such
extension be longer than sixty (60) days beyond the original date for
performance, in which case the party to whom the obligation is owed may
terminate this Lease by giving notice to the other party. This Paragraph 36
shall not be applicable to the payment of Rent or other monetary sums under
this Lease.
37. Exercise Facility. By its execution of this Lease, Tenant acknowledges that
-----------------
it is aware that the Building may contain an exercise facility. Tenant and
its employees over the age of eighteen (18) years may reasonably use the
exercise facility and its equipment; provided, however, that Tenant, its
employees, agents, or invitees shall not use the exercise facility or its
equipment unless he/she has signed a waiver and release in the form
attached hereto as Exhibit E and made a part hereof, and the original of
such executed waiver and release has been delivered to Landlord. In
consideration for the right to use the exercise facility, Tenant agrees to
faithfully enforce the provision of this Paragraph 37, and to indemnify and
hold Landlord harmless from any claims or damages, including attorneys'
fees, incurred as a result of the use of the exercise facility and its
equipment pursuant to use by its employees, agents, or invitees in this
Paragraph 37.
38. Quiet Enjoyment. Landlord covenants that if, and so long as, Tenant keeps
---------------
and performs each and every covenant, agreement, term, provision and
condition herein contained on the part and on behalf of Tenant to be kept
and performed, Tenant shall quietly enjoy the Premises from and against the
claims of all persons.
39. Miscellaneous.
-------------
A. Time is of the essence of this Lease, and each and all of its
provisions.
B. The term "Building" shall mean the building in which the Premises are
situated.
C. The term "Property" shall mean the real property on which the Building
is situated.
D. The term "assign" shall include the term "transfer".
E. The invalidity or unenforceability of any provision of this Lease
shall not affect the validity or enforceability of the remainder of
this Lease.
F. The headings and titles to the paragraphs of this Lease are not a part
of this Lease and shall have no effect upon the construction or
interpretation of any part thereof.
G. Landlord has made no representation(s) whatsoever to Tenant (express
or implied) except as may be expressly stated in writing in this
Lease.
H. This instrument contains all of the agreements and conditions between
the parties hereto with respect to the Premises, and may not be
modified orally or in any other manner than by agreement in writing,
signed by all of the parties hereto or their respective successors in
interest.
I. It is understood and agreed that the remedies herein given to Landlord
shall be cumulative, and the exercise of any one remedy by Landlord
shall not be to the exclusion of any other remedy.
J. The covenants and conditions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors,
executors, administrators and assigns of all the parties hereto.
16
<PAGE>
K. This Lease has been negotiated jointly by the parties hereto, and the
language hereof shall not be construed for or against either party.
L. All exhibits to which reference is made in this Lease are deemed
incorporated into this Lease, whether or not actually attached.
M. All provisions of this Lease, whether covenants or conditions,
applicable to Tenant shall be deemed to be both covenants and
conditions
N. This Lease shall in all respects be governed, by, and construed and
enforced in accordance. with the laws of the State of California.
O. As used in this Lease, the term "Effective Date" shall mean the latest
date set forth below.
P. Time is of the essence.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
date first above written.
LANDLORD
--------
MARINERS ISLAND, LTD.
a California Limited Partnership
BY: BAKER WAY, INC.
ITS: GENERAL PARTNER
/s/ Richard R. Dewey, Jr.
By -------------------------
Richard R. Dewey, Jr.
Its President
-------------
Date 3/27/95
--------
TENANT
------
ACTUATE SOFTWARE CORPORATION
a California Corporation
/s/ Nicholas Nierenberg
By -----------------------
Nicholas Nierenberg
Its President
----------
Date 3/29/95
--------
17
<PAGE>
ADDENDUM
TO THAT CERTAIN LEASE DATED MARCH 27, 1995, BY AND BETWEEN MARINERS ISLAND,
LTD., A CALIFORNIA LIMITED PARTNERSHIP ("LANDLORD") AND ACTUATE SOFTWARE
CORPORATION, A CALIFORNIA CORPORATION ("TENANT").
47. Option to Extend. Tenant shall have the option to renew the term of this
----------------
lease for between six (6) and eighteen (18) months, subject to a minimum of
one hundred twenty (120) days advance written notice; which notice shall
state the term of the option period (i.e.: not less than six (6) months,
but not more than eighteen (18) months) ("Extension Notice"). The option
rent shall be Eight Thousand Eight Hundred and Seventy-Seven and No/100ths
Dollars ($8,877.00); the Base Operating Expenses and Taxes shall remain the
same provided in Section 3.C.
This option shall be void, at Landlord's option, if Tenant is in default
for any time subsequent to Tenant giving timely notice up to commencement
of the option term. TIME IS OF THE ESSENCE.
48. Tenant's Right of First Refusal.
-------------------------------
a. Right of Tenant. Provided that Tenant is not then in default under
---------------
the terms of this Lease, Tenant shall have a right of first refusal
("Refusal Right") to lease adjacent space which is available for lease on
the third floor of the Building (collectively, the "Available Space") as
specified in Landlord's written notice to Tenant ("Landlord's Notice").
b. Commencement of Right. Landlord hereby covenants and agrees with
---------------------
Tenant that during the Term of the Term of the Lease (i) Landlord shall
provide Tenant with written notice ("Landlord's Notice") at any time that
Landlord intends to lease Available Space to any bona-fide third party
tenant, except in the event that such leasing of Available Space is in
connection with ally tenant of the Building's exercise of any option in its
lease to expand its premises or renew the term of its lease to expand its
premises or renew the term of its lease, in which case Tenant's Refusal
Right shall not apply. Such Landlord's Notice shall contain all material
business terms on which Landlord intends to lease the Available Space in
question and (ii) Landlord shall not lease said Available Space to anyone
other than Tenant without first providing Tenant the opportunity to lease
the Available Space specified in Landlord's Notice upon the same terms and
conditions specified in the Landlord's Notice.
c. Exercise of Right. Tenant shall have three (3) business days after
-----------------
Landlord's delivery of Landlord's Notice to notify Landlord of Tenant's
agreement to lease the Available Space on the terms set forth in the
Landlord's Notice. Tenant shall exercise the Refusal Right, if at all, as
to all the Available Space described in the Landlord's Notice and, at
Tenant's sole discretion, any other Available Space which is then available
for lease. If Tenant does not notify Landlord within the applicable period
that Tenant desires to Lease the Available Space on the terms set forth in
the Landlord's Notice, with the remainder of the terms to be those set
forth in tiffs Lease, Landlord shall have the right to lease the Available
space specified in the Landlord's Notice to bona-fide third party tenant
other than Tenant, subject to the terms of Section 48d below.
d. Continuing Right. In no event shall Tenant's failure to exercise
----------------
its Refusal Right be deemed a waiver or relinquishment by Tenant of: (i)
Tenant's Refusal Right should the Available Space be offered for lease to
any party for a rent that is less than ninety-five percent (95%) of the
rent specified ha the Landlord's Notice, (it) Tenant's Refusal Right if the
Available Space specified in the Landlord's Notice is still not leased
within ninety (90) days from the date of the Landlord's Notice, (iii)
Tenant's Refusal right as to the space specified in Landlord's Notice
should it become available for lease again during the Term of the Lease, or
(iv) Tenant's Refusal Right as to any other Available Space that is not
specified ha the Landlord's Notice and that comes available for lease in
the Project during the Term of the Lease.
18
<PAGE>
Actuate Addendum
Page 2
March 27, 1995
e. Amendment to Lease. Landlord and Tenant hereby agree to execute an
------------------
amendment to this Lease ("Lease Amendment") prior to Tenant's occupancy Of
the Available Space in question. The Lease Amendment shall specify, among
other things, the Rent, date of occupancy and square footage of the
Available Space taken in connection with Tenant's exercise of Tenant's
Refusal right.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
LANDLORD TENANT
MARINERS ISLAND, LTD. ACTUATE SOFTWARE CORPORATION
a California limited partnership a California corporation
By Baker Way, Inc.
Its General Partner
/s/ Richard R.Dewey, Jr. /s/ Nicholas Nierenberg
By: ------------------------ By: ----------------------------
Richard R. Dewey, Jr. Nicholas Nierenberg
President President
Date: 3/27/95 Date: 3/29/95
----------------------- ---------------------------
19
<PAGE>
EXHIBIT A
Description of Premises, including description of Property on which the Premises
are located:
20
<PAGE>
EXHIBIT "A"
[FLOOR PLAN APPEARS HERE]
FLOOR THREE
<PAGE>
EXHIBIT B
[Date]
ACTUATE SOFTWARE CORPORATION
999 BAKER WAY, SUITE 330
SAN MATEO, CA 94404
Re: Commencement Date under Lease dated March 27, 1995 Between Mariners Island,
Ltd., a California limited partnership as Landlord, and Actuate Software
Corporation, a California corporation as Tenant.
Dear Tenant:
Pursuant to Paragraph 2 of the above-mentioned Lease, you are hereby
informed of the following:
Commencement Date of the term of the Lease: _______
Expiration Date of the term of the Lease: _______
Very truly yours,
MARINERS ISLAND, LTD.
By Baker Way, Inc.
Its General Partner
Richard R. Dewey, Jr.
President
RRD/vc
CONFIRMED:
- ---------
______________,
a ____________
By:___________
Its:__________
Date:_________
<PAGE>
EXHIBIT C
Improvements
- ------------
[To be inserted]
<PAGE>
EXHIBIT "C"
[FLOOR PLAN APPEARS HERE]
FLOOR THREE
<PAGE>
EXHIBIT "D"
-----------
STANDARDS FOR UTILITIES AND SERVICES
The following Standards for Utilities and Services shall apply to the Building.
Landlord reserves the right to adopt nondiscriminatory modifications and
additions hereto at any time as Landlord, in its sole discretion, deems
advisable.
A. On the Commencement Date through the date the Lease terminates, during usual
business hours (and at other times for a reasonable additional charge to be
fixed by Landlord), Landlord shall ventilate the Premises and furnish air-
conditioning or heating on such days and hours, when in the judgment of
Landlord it may be required for the comfortable occupancy of the Premises.
The air-conditioning system achieves maximum cooling when the window
coverings are closed. Landlord shall not be responsible for room
temperatures if Tenant does not keep all window coverings in the Premises
closed whenever the system is in operation. Tenant agrees to cooperate fully
at all times with Landlord, and to abide by all regulations and requirements
which Landlord may prescribe for the proper functioning and protection of
said air-conditioning system. Tenant agrees not to connect any apparatus,
device, conduit or pipe to the Building air-conditioning supply lines.
Tenant further agrees that neither Tenant nor its servants, employees,
agents, visitors, licensees or contractors shall at any time enter
mechanical installations or facilities of the Building or adjust, tamper
with, touch or otherwise in any manner affect said installations or
facilities.
B. The Landlord shall furnish to the Premises during the usual business hours,
electric current as required by the Building's standard office lighting and
fractional horsepower office lighting and fractional horsepower office
business machines in the amount of approximately three (3) watts per square
foot. The Tenant agrees, should its electrical installation or electrical
consumption be in excess of the aforesaid quantity or extend beyond normal
business hours, to reimburse Landlord monthly on the date Basic Rent is due
for the measured consumption at the terms, classifications and rates charged
similar consumers by said public utility serving the neighborhood in which
the Building is located. If a separate meter is not installed at Tenant's
cost, such excess cost will be established by an estimate agreed upon by
Landlord and Tenant, and if the parties fail to agree, as established by an
independent licensed engineer, selected by Landlord and approved by Tenant.
Tenant agrees not to use any apparatus or device in, or upon, or about the
Premises which may in any way increase the amount of such services usually
furnished or supplied to said Premises, and Tenant further agrees not to
connect any apparatus or device with wires, conduits or pipes, or other
means by which such services are supplied, for the purpose of using
additional or unusual amounts of such services without the prior written
consent of Landlord. Should Tenant use the same to excess, Tenant shall pay
to Landlord, upon demand, the amount established by Landlord for such excess
usage. At all times Tenant's use of electric current shall never exceed the
capacity of the feeders to the Building or the risers or wiring installation
and Tenant shall not install or use or permit the installation or use of any
computer or electronic data processing equipment in the Premises without the
prior written consent of Landlord.
C. Water will be available in public areas for drinking and lavatory purposes
only, but if, in Landlord's sole determination, Tenant requires, uses or
consumes water for any purpose in addition to ordinary drinking and lavatory
purposes, Landlord may install a water meter and thereby measure Tenant's
water consumption for all purposes. Tenant shall pay Landlord, upon demand,
for the cost of the meter and the cost of the installation thereof and
throughout the duration of Tenant's occupancy Tenant shall keep said meter
and installation equipment in good working order and repair at Tenant's own
cost and expense. If Tenant is in default of its obligations to keep the
meter and equipment in good repair, then Landlord, in addition to all other
remedies for breach in this Lease and at law, may cause such meter and
equipment to be replaced or repaired and collect the cost thereof from
Tenant. Tenant agrees to pay for water consumed, as shown on said meter, as
and when bills are rendered, and on default in making such payment, Landlord
may, in addition to all other remedies for breach in this Lease and at law,
pay such charges and collect the same from Tenant.
D. The Landlord shall provide janitorial services on the Premises, provided the
same are used exclusively as offices and are kept reasonably in order by
Tenant. If the Premises are not used exclusively as offices, they shall be
kept clean and in order by Tenant, at Tenant's expense, and to the
satisfaction of Landlord, and by persons approved by Landlord. Tenant shall
pay to Landlord, upon demand, the cost of removal of Tenant's refuse and
rubbish, to the extent that the same exceeds the refuse and rubbish usually
attendant upon the use of the Premises as offices.
E. "Holidays" for purposes of this Lease, shall be defined as holidays observed
by the United States Post Office. "Usual business hours" for purposes of
this Lease, are from 8:00 a.m. until 5:30 p.m., Monday through Friday,
except holidays.
<PAGE>
Landlord reserves the right to stop service of the elevator, plumbing,,
ventilation, air-conditioning and electric systems, when necessary, by
reason of accident or emergency or for repairs, alterations or
improvements, in the judgment of Landlord desirable or necessary to be
made, until said repairs, alterations or improvements shall have been
completed. Landlord's obligations to provide utilities and services
hereunder shall also be subject to and limited by the Force Majeure
provisions of the Lease. Any failure to supply utilities or services,
whether caused by a Force Majeure described in the Lease or by reason of
accident, emergency, repair, alteration or improvement, shall not be
construed as an eviction of Tenant, whether actual or constructive, and
shall not cause an abatement of Rent, either in whole or in part.
Landlord shall have no obligation whatsoever to supply utilities and
services to the Premises if Tenant is in default of any term, covenant, or
condition of this Lease.
Any costs or expenses incurred by Landlord with respect to Tenant's default
hereunder and all payments to be made by Tenant to Landlord pursuant to the
above provisions, as stated herein or as may be later modified, shall be
deemed to be Additional Rent under the Lease and Landlord shall have all
its rights and remedies under the Lease and at law with respect to the same
including but not limited to the right to late fees and interest upon
default.
F. Tenant shall have the right, upon advance notice to Landlord no later than
3:00 p.m. on the day in question, to request heating/air-conditioning
during other than normal business hours and maintenance and cleaning
services in addition to those set forth above. Tenant shall reimburse
Landlord for the actual costs of any such after-hours additional heating,
air- conditioning, maintenance and cleaning services. The cost for the
after hours heating/air-conditioning shall be $35.00 per hour for the
primary term, and $40.00 per hour during the option term.
<PAGE>
AMENDMENT NUMBER ONE
TO THAT CERTAIN LEASE DATED MARCH 27, 1995 ("LEASE") BY AND BETWEEN MARINER'S
ISLAND, LTD. ("LANDLORD") AND ACTUATE SOFTWARE CORPORATION, A CALIFORNIA
CORPORATION ("TENANT").
Landlord and Tenant agree to amend the Lease as follows:
Premises In addition to the Premises defined in the Lease, Tenant hereby leases
- --------
Suite 260 on the second floor comprised Of approximately 1,150 usable
square feet plus a load factor of fifteen percent (15 %) for an
approximate rentable square footage of 1,322 ("Expansion Area");
see Exhibit A-1 attached hereto and made part hereof. Therefore, the
total area leased by Tenant is approximately 5,088 usable square feet
plus a load factor of fifteen percent (15%) for a total approximate
rentable square footage of 5,851; see Exhibit A-2 attached hereto and
made part hereof.
Deposit 0500
Rent ????
Entered ????
Basic Rent
- ----------
<TABLE>
<CAPTION>
Original Expansion Total Monthly
Months Suite 330 Suite 260 Basis Rent
- ------ --------- --------- ----------
<S> <C> <C> <C>
October 1, 1995 -March 31, 1996 $8,379 ($1.85/rsf) $2,777 ($2.10/rsf) $11,156
April 1, 1996 - October 31, 1996 $8,605 ($1.90/rsf) $2,777 ($2.10/rsf) $11,382
</TABLE>
Basic Rent shall be due without notice on or before the first day of each and
every successive month of the Term of the Lease. Basic Rent on Expansion Area in
Option Term shall be $2856/month (*2.16/FSP)
Tenant's proportionate share of Operating Expenses and Taxes is increased to
nine and 7/10 the percent (9.7 %).
Security Deposit Security Deposit is increased from $8,500 to $11,000. Said
- ----------------
increase of $2,500 shall be payable on or before October 1,
1995 by Tenant to Landlord.
Improvements Tenant shall take the Expansion Area "as-is".
- ------------
Except as provided herein, all terms and conditions of the Lease shall remain in
full force and effect.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
MARINERS ISLAND, LTD. ACTUATE SOFTWARE CORP.
("LANDLORD") ("TENANT")
a California Limited Partnership a California Corporation
by Baker Way, Inc.
Its General Partner
/s/ Richard R. Dewey, Jr. Date 9/25/95 /s/ Nicholas Nierenberg Date 9/25/95
- -------------------------------------- ------------------------------------
Richard R. Dewey, Jr. Nicholas Nierenberg
President President
<PAGE>
EXHIBIT A-1
[FLOOR PLAN APPEARS HERE]
FLOOR TWO
<PAGE>
EXHIBIT A-2, PAGE 1 OF 2
[FLOOR PLAN APPEARS HERE]
FLOOR THREE
<PAGE>
AMENDMENT NUMBER THREE
TO THAT CERTAIN LEASE DATED MARCH 27, 1995 ("LEASE"), LATER AMENDED ON SEPTEMBER
25, 1995 ("AMENDMENT NUMBER ONE"), AND LATER AMENDED ON APRIL 17, 1996
("AMENDMENT NUMBER TWO") BY AND BETWEEN MARINER'S ISLAND, LTD. ("LANDLORD") AND
ACTUATE SOFTWARE CORPORATION, A CALIFORNIA CORPORATION ("TENANT").
Landlord and Tenant agree to amend the Lease as follows:
PREMISES: In addition to the Premises defined in the Lease and in Amendment
- ---------
Number One and Amendment Number Two, Tenant hereby leases Suite 301
on the third floor comprised of approximately 1,120 usable square
feet plus a load factor of fifteen percent (15%)for an approximate
rentable square footage of 1,288 ("Expansion Area"); see Exhibit A-
1 attached hereto and made part hereof. Therefore, the total area
leased by Tenant is approximately 7,485 usable square feet plus a
load factor of fifteen percent (15%) for a total approximate
rentable square footage of 8,608; see Exhibit A-2 attached hereto
and made part hereof.
BASIC RENT:
- -----------
<TABLE>
<CAPTION>
Amend. #1 Amend. #2 Sub-Total Amend. #3
Original Expansion Expansion Monthly Expansion Grand
Months Suite 330 Suite 260 Suite 240 Basic Rent Suite 301 Total
- ------ --------- --------- --------- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
6/1/96 - 11/30/96 $8,605 ($1.90/rsf) $2,777 (2.10/rsf) $3,305 ($2.25) $14,687 N/A $14,687
12/1/96* - 11/30/97 $8,605 ($1.90/rsf) $2,777 (2.10/rsf) $3,305 ($2.25) $14,687 $3,542 ($2.75/rsf) $18,229
12/1/97 - 5/31/98 $8,605 ($1.90/rsf) $2,777 (2.10/rsf) $3,305 ($2.25) $14,687 $3,607 ($2.80/rsf) $18,293
</TABLE>
* The rent of $3,542 shall commence upon existing tenant ("Castle Group")
vacating the Premises. Should the commence date occur before or after 12/1/96,
then the rent of $3,542 shall be prorated accordingly.
Basic Rent shall be due without notice on or before the first day of each and
every successive month of the Term of the Lease.
Tenant's proportionate share of Operating Expenses and Taxes is increased to
fourteen and seven-tenths percent (14.7%) effective on the Commencement Date.
<PAGE>
Actuate - Amendment Number Three
August 7, 1996
Page 2
Improvements: Tenant shall take the Expansion Area "as-is".
- -------------
Expiration Date: May 31, 1998.
- ---------------
Commencement
Date of Suite 301
Expansion Area: This Amendment Number Three commences upon the Castle Group
- ---------------
vacating the Premises.
Except as provided herein, all terms and conditions of the Lease shall remain in
full force and effect.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
MARINERS ISLAND, LTD. ACTUATE SOFTWARE CORP.
("LANDLORD") ("TENANT")
a California Limited Partnership a California Corporation
by Baker Way, Inc.
Its General Partner
/s/ Richard R. Dewey Date 8/7/96 /s/ Nicholas Nierenberg Date 8/12/96
- --------------------------------- ------------------------------------
Richard R. Dewey, Jr. Nicholas Nierenberg
President President
<PAGE>
EXHIBIT "A"
[FLOOR PLAN APPEARS HERE]
FLOOR ONE
<PAGE>
AMENDMENT NUMBER FOUR
TO THAT CERTAIN LEASE DATED MARCH 27, 1995 ("LEASE"), LATER AMENDED ON SEPTEMBER
25, 1995 ("AMENDMENT NUMBER ONE"), LATER AMENED ON APRIL 17, 1996 ("AMENDMENT
NUMBER TWO"), LATER AMENDED ON AUGUST 12, 1996, AND REVISED SEPTEMBER 3, 1996
("AMENDMENT NUMBER THREE"), LATER AMENDED ON APRIL. 11, 1997 ("AMENDMENT NUMBER
FOUR") BY AND BETWEEN 999 BW CORPORATION, A DELAWARE CORPORATION, SUCCESSOR IN
INTEREST TO MARINER'S ISLAND, LTD. ("LANDLORD") AND ACTUATE SOFTWARE
CORPORATION, A CALIFORNIA CORPORATION ("TENANT").
Landlord and Tenant agree to amend the Lease as follows:
PREMISES: In addition to the Premises defined in the Lease and in Amendment
- ---------
Number One, Amendment Number Two and Amendment Number Three, Tenant
hereby leases Suite 110 on the first floor comprised of
approximately 972 rentable square feet ("Expansion Area A"); see
Exhibit "A" attached hereto and made a part hereof. Therefore, the
total area leased by Tenant is approximately 9,580 rentable square
feet.
As of December 1, 1997, Tenant hereby leases Suite 270 on the
second floor comprised of approximately 2,793 rentable square feet
("Expansion Area B"); see Exhibit "B" attached hereto and made a
part hereof. Therefore, the total area leased by Tenant is
approximately 12,373 rentable square feet.
BASIC RENT:
- -----------
<TABLE>
<CAPTION>
Period Suites Sq.Footage Rate Rent
- ----- ----------- ---------- ---- ----------
<S> <C> <C> <C> <C>
May 1, 1997- Nov. 30, 1997 110 972 $2.75 $ 2,673.00
Dec. 1, 1997 - May 31, 1998 110 & 270 3,765 $2.75 $10,353.75
June 1, 1998 - May 31, 2000 110, 240,260, 12,373 $2.85 $35,263.05
270, 301,330
June 1, 2000 - May 31, 2002 110, 240,260, 12,373 $2.95 $36,500.35
270, 301,330
</TABLE>
Basic Rent shall be due without notice on or before the first day of each and
every successive month of the term of the Lease.
Effective May 1, 1997, Tenant's proportionate share of Operating Expenses and
Taxes shall increase to fifteen and forty-five hundredths percent (15.45%).
Effective December 1, 1997, Tenant's proportionate share of Operating Expenses
and Taxes shall increase to nineteen and ninety-six hundredths percent (19.96%).
IMPROVEMENTS: Landlord, at its sole cost and expense, shall paint Suite 110
- -------------
with Building Standard paint. Landlord shall provide Tenant a
$5,000 tenant improvement allowance for Suite 270. Other than
the above, the Premises shall be accepted on an "as is"
basis.
AMENDMENT
NUMBER FOUR
COMMENCEMENT
DATE: This Amendment Number Four commences May 1, 1997.
- -----
<PAGE>
Exhibit "A"
[Partial Floor Plan Appears Here]
Right of First
- --------------
Offer: Provided that Tenant is not in breach or default under any
- ------
of the terms, covenants or conditions in the Lease on
Tenant's part to observe or perform on the date that
additional space becomes available on the second floor,
Suites 200 (5,235 rsf), 290 (1,043 rsf) and on the third
floor, Suite 305 (1,523 rsf), Landlord shall endeavor to
notify Tenant of such space availability and the particular
terms (including rent, term, base year and concessions)
under which Landlord would consider leasing the additional
premises to Tenant. Rental rates per square foot for
additional space leased by Tenant shall be at the same
basic rental rates in effect during the same time periods
as stated on page 1 of Amendment Number Four. This in no
way binds Landlord to establish a lease with the Tenant but
provides for notification, only and is subject to any
existing tenant right in the Building.
Except as provided herein, all terms and conditions of the Lease shall remain in
full force and effect.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
999 BW CORPORATION ACTUATE SOFTWARE CORP.
("LANDLORD") ("TENANT")
a Delaware Corporation A California Corporation
By:/s/ Ronald L. Bower Date 4/28/97 By:/s/ Dan Gaudreau Date 4/29/97
------------------- ------- ---------------- -------
Ronald L. Bower Dan Gaudreau
Vice President Vice President, Finance and
Administration
Chief Financial Officer
By:/s/ Michael R. Neill Date 4/29/97
-------------------- -------
Michael R. Neill
President
<PAGE>
AMENDMENT NUMBER FIVE
TO THAT CERTAIN LEASE DATED MARCH 27, 1995 ("LEASE"), LATER AMENDED ON SEPTEMBER
25, 1995 ("AMENDMENT NUMBER ONE"), LATER AMENDED ON APRIL 17, 1996 ("AMENDMENT
NUMBER TWO"), LATER AMENDED ON AUGUST 12, 1996, AND REVISED SEPTEMBER 3, 1996
("AMENDMENT NUMBER THREE"), LATER AMENDED ON APRIL 11, 1997 ("AMENDMENT NUMBER
FOUR"), LATER AMENDED ON DECEMBER 22, 1997 ("AMENDMENT NUMBER FIVE") BY AND
BETWEEN 999 BW CORPORATION, A DELAWARE CORPORATION, SUCCESSOR IN INTEREST TO
MARINER'S ISLAND, LTD. ("LANDLORD") AND ACTUATE SOFTWARE CORPORATION, A
CALIFORNIA CORPORATION ("TENANT").
Landlord and Tenant agree to amend the Lease as follows:
Premises: In addition to the Premises defined in the Lease and in Amendment
- ---------
Number One, Amendment Number Two, Amendment Number Three, and
Amendment Number Four, Tenant hereby leases Suite 305 on the third
floor comprised of approximately 1,523 rentable square feet
("Expansion Area A"); see Exhibit "A" attached hereto and made a
part hereof. Therefore, the total area leased by Tenant is
approximately 13,896 rentable square feet.
Basic Rent:
- -----------
<TABLE>
<CAPTION>
Period Suite Sq.Footage Rate Rent
- ------ ----- ---------- ---- ----
<S> <C> <C> <C> <C>
June 1, 1998 - May 31, 2000 305 1,523 $2.85 $4,340.55
June l, 2000 - May 31, 2002 305 1,523 $2.95 $4,492.85
</TABLE>
Basic Rent shall be due without notice on or before the first day of each and
every successive month of the term of the Lease.
Effective June 1, 1998, Tenant's proportionate share of Operating Expenses and
Taxes shall increase to twenty-two and ten hundredths percent (22.10%).
Amendment Number
Five Commencement
Date: This Amendment Number Five commences June 1, 1998.
- -----
Expiration Date: Max, 3l, 2002
- ----------------
Except as provided herein, all terms and conditions of the Lease shall remain in
full force and effect.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
999 BW CORPORATION ACTUATE SOFTWARE CORP.
("LANDLORD") ("TENANT")
a Delaware Corporation a California Corporation
By:/s/ Ronald L. Bower Date: 1/17/98 By: /s/ Dan Gaudreau Date: 1/15/98
------------------- ------- ----------------- -------
Ronald L. Bower Dan Gaudreau
Vice President Vice President, Finance and
Administration
Chief Financial Officer
By: /s/ Patrick M. Scruggs Date: 2/4/98
---------------------- ------
Patrick M. Scruggs
Vice President
<PAGE>
EXHIBIT 10.9
SUBLEASE AGREEMENT
------------------
I. DEFINED TERMS
Base Rent
Months 1 - 12:
Monthly: $12,102.40
Annually: $145,228.80
Months 13 - 27:
Monthly: $12,499.20
Annually: $149,990.40
Broker: The Commercial Property Services Company
Building: 999 Baker Way
San Mateo, California 94404
Effective
Date: January 15, 1998
Expiration
Date: May 31, 2000
Landlord: 999 BW Corporation, a Delaware corporation
Master
Lease: Dated as of March 29, 1995, by and between Mariners Island, Ltd.,
a California limited partnership, predecessor-in-interest to
Landlord, and Stratacom, Inc., a Delaware corporation,
predecessor-in-interest to Sublessor, as tenant.
Permitted
Uses: General office use and no other use.
Premises: Improved real property as more particularly described in the
Master Lease, attached hereto as Exhibit A, consisting of
---------
approximately three thousand nine hundred sixty-eight (3,968)
rentable square feet.
1.
<PAGE>
Rent commencement
Date / Occupancy
Date: March 1, 1998.
Security
Deposit: $74,995.20
Sublessee: ACTUATE SOFTWARE CORPORATION, a California
corporation
Sublessee's
Address: Actuate Software Corporation
999 Baker Way, Suite 330
San Mateo, California 94404
Attn: Mr. Dan Gaudreau,
Vice President - Finance, CFO
Phone: (415) 287-2303
Facsimile: (415) 638-3455
Sublessee's
Share: 6.6% of the total Rentable Area of the Building
Sublessor: CISCO SYSTEMS, INC., a California corporation
Sublessor's
Address: 170 West Tasman Drive
San Jose, California 95134-1706
Attention: Director of Real Estate, Worldwide
Sublet Space: That portion of the Premises, as more particularly described in
the Sublet Space Floor Plan, attached hereto as Exhibit A,
---------
consisting of approximately three thousand nine hundred sixty-
eight (3,968) rentable square feet.
Term: Twenty-seven (27) months.
Exhibits: Exhibit A - Sublet Space Floor Plan
---------
Exhibit B - Master Lease
---------
Exhibit C - Commencement Date Memorandum
---------
2.
<PAGE>
II.
THIS SUBLEASE AGREEMENT ("Sublease") is entered as of the Effective
Date by and between Sublessor and Sublessee.
THE PARTIES ENTER this Sublease on the basis of the following facts,
understandings and intentions:
A. Sublessor is presently a lessee of the Premises in the Building
pursuant to the Master Lease by and between Landlord and Sublessor. A copy of
the Master Lease with all exhibits and addenda thereto is attached hereto as
Exhibit B.
- ---------
B. Sublessor desires to sublease the Sublet Space to Sublessee and
Sublessee desires to sublease the Sublet Space from Sublessor on all of the
terms, covenants and conditions hereinafter set forth.
C. All of the terms and definitions in the Defined Terms section are
incorporated herein by this reference.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises
of the parties, the parties hereto agree as follows:
1. SUBLEASE. Sublessor shall sublease to Sublessee, and Sublessee
--------
shall sublease from Sublessor, the Sublet Space for the Term upon all of the
terms, covenants and conditions herein contained. In addition, Sublessor shall
lease to Sublessee, and Sublessee shall lease from Sublessor, any and all
permanent improvements ("Improvements") on the Sublet Space constructed and/or
owned by Sublessor, upon all of the terms, covenants and conditions herein
contained. As used herein, "Sublet Space" shall include the Sublet Space and the
Improvements.
2. CONDITION OF SUBLET SPACE.
-------------------------
a. PHYSICAL CONDITION. As of the Effective Date, Sublessee
------------------
acknowledges that Sublessee shall have conducted Sublessee's own investigation
of the Sublet Space and the physical condition thereof, including accessibility
and location of utilities, improvements, existence of hazardous materials,
including but not limited to asbestos, asbestos containing materials,
polychlorinated biphenyls (PCB) and earthquake preparedness, which in
Sublessee's judgment affect or influence Sublessee's use of the Sublet Space and
Sublessee's willingness to enter this Sublease. Sublessee recognizes that
Sublessor would not sublease the Sublet Space except on an "as is" basis and
acknowledges that Sublessor has made no representations of any kind in
connection with improvements or physical conditions on, or bearing on, the use
of the Sublet Space. Sublessee shall own inspection and examination of such rely
solely on Subslessee's own inspection and examination of such
3.
<PAGE>
items and not on any representations of Sublessor, express or implied. Sublessee
further recognizes and agrees that neither Sublessor nor Landlord shall be
required to perform any work of construction, alteration or maintenance of or to
the Sublet Space; provided, however, Sublessor shall deliver the Sublet Space to
Sublessee in broom clean condition.
b. FURTHER INSPECTION. Sublessee represents and warrants to
------------------
Sublessor that as of the Effective Date Sublessee shall examine and inspect all
matters with respect to taxes, income and expense data, insurance costs, bonds,
permissible uses, the Master Lease, zoning, covenants, conditions and
restrictions and all other matters which in Sublessee's judgment bear upon the
value and suitability of the Sublet Space for Sublessee's purposes. Sublessee
has and will rely solely on Sublessee's own inspection and examination of such
items and not on any representations of Sublessor, express or implied.
3. SUBLEASE SUBJECT TO MASTER LEASE.
--------------------------------
a. INCLUSIONS. It is expressly understood, acknowledged and
----------
agreed by Sublessee that all of the other terms, conditions and covenants of
this Sublease shall be those stated in the Master Lease except as excluded in
Section 3.b herein, modified as appropriate in the circumstances so as to make
such Articles, and any Sections contained therein, applicable only to the
subleasing hereunder by Sublessor of the particular Sublet Space covered hereby.
Whenever the word "Premises" is used in the Master Lease, for purposes of this
Sublease, the word Sublet Space shall be substituted. Sublessee shall be subject
to, bound by and comply with all of said Articles and Sections of the Master
Lease with respect to the Sublet Space and shall satisfy all applicable terms
and conditions of the Master Lease relating to the Sublet Space for the benefit
of both Sublessor and Landlord, it being understood and agreed that wherever in
the Master Lease the word "Tenant" appears, for the purposes of this Sublease,
the word "Sublessee" shall be substituted, and wherever the word "Landlord"
appears, for the purposes of this Sublease, the word "Sublessor" shall be
substituted; and that upon the breach of any of said terms, conditions or
covenants of the Master Lease by Sublessee or upon the failure of Sublessee to
pay Rent or comply with any of the provisions of this Sublease, Sublessor may
exercise any and all rights and remedies granted to Landlord by the Master
Lease. In the event of any conflict between this Sublease and the Master Lease,
the terms of this Sublease shall control. It is further understood and agreed
that Sublessor has no duty or obligation to Sublessee under the aforesaid
Articles and Sections of the Master Lease other than to perform the obligations
of Sublessor as lessee under the Master Lease during the Term of this Sublease.
Whenever the provisions of the Master Lease incorporated as provisions of this
Sublease require the written consent of Landlord, said provisions shall be
4.
<PAGE>
construed to require the written consent of both Landlord and Sublessor.
Sublessee hereby acknowledges that it has read and is familiar with all the
terms of the Master Lease, and agrees that this Sublease is subordinate and
subject to the Master Lease and that any termination thereof not due to a
default by Sublessor thereunder shall likewise terminate this Sublease.
b. EXCLUSIONS. The terms and provisions of the following
----------
Sections and portions of the Master Lease are not incorporated into this
Sublease: First full sentence of Section 3.A., Sections 3.B. and 3.E., first
full sentence of Section 4, first full sentence of the ninth paragraph of
Section 5 beginning with the words "Landlord, at its sole cost,", Section 6,
second full paragraph of Section 8.B. beginning with the words "Landlord shall,
at all times", Section 10.A., the third full paragraph of Section 19, Section
36, Section 38.Q., Exhibit C, the first two full sentences of Paragraph A of
Exhibit D, the first full sentence of Paragraph B of Exhibit D, the first full
sentence of Paragraph D of Exhibit D and the Addendum.
c. TIME FOR NOTICE. The time limits provided for in the
---------------
provisions of the Master Lease for the giving of notice, making of demands,
performance of any act, condition or covenant, or the exercise of any right,
remedy or option, are amended for the purposes of this Sublease by lengthening
or shortening the same in each instance by five (5) days, as appropriate, so
that notices may be given, demands made, or any act, condition or covenant
performed, or any right, remedy or option hereunder exercised, by Sublessor or
Sublessee, as the case may be, within the time limit relating thereto contained
in the Master Lease. If the Master Lease allows only five (5) days or less for
Sublessor to perform any act, or to undertake to perform such act, or to correct
any failure relating to the Premises or this Sublease, then Sublessee shall
nevertheless be allowed three (3) days to perform such act, undertake such act
and/or correct such failure.
4. LANDLORD'S OBLIGATIONS. It shall be the obligation of Landlord to
----------------------
(i) provide all services to be provided by Landlord under the terms of the
Master Lease and (ii) to satisfy all obligations and covenants of Landlord made
in the Master Lease. Sublessee acknowledges that Sublessor shall be under no
obligation to provide any such services or satisfy any such obligations or
covenants; provided, however, Sublessor, upon written notice by Sublessee, shall
diligently attempt to enforce all obligations of Landlord under the Master
Lease.
5. RENT.
----
a. INITIAL RENT. Upon execution hereof, Sublessee shall deliver
------------
the first month's Base Rent to Sublessor, to be applied against Sublessee's
first obligation to pay Base
5.
<PAGE>
Rent hereunder. Sublessee shall pay to Sublessor the Base Rent in advance on the
first day of each month of the Term, commencing on the Rent Commencement Date
without being invoiced by Sublessor. In the event the first day of the Term
shall not be the first day of a calendar month or the last day of the Term is
not the last day of the calendar month, the Base Rent shall be appropriately
prorated based on a thirty (30) day month. All installments of Base Rent shall
be delivered to Sublessor's Address, or at such other place as may be designated
in writing from time to time by Sublessor, in lawful money of the United States
and without deduction or offset for any cause whatsoever.
b. NET RENTAL. Sublessee shall be responsible for Sublessee's
----------
Share of all costs and expenses of every kind and nature which may be imposed,
at any time, on Sublessor pursuant to the Master Lease (except for Base Rent, as
defined in the Master Lease) including, but not limited to, additional rent,
operating costs, and tax costs, all as defined in the Master Lease. As
hereinafter used, "Rent" shall include Base Rent and all additional charges to
be paid by Sublessee pursuant to this Section 5.b.
c. LATE PAYMENT CHARGES AND INTEREST. Any payment of Rent or
---------------------------------
other amount from Sublessee to Sublessor in this Sublease which is not paid on
the date due shall accrue interest from the date due until the date paid at an
annual rate of ten percent (10%) (the "Interest Rate"). If any installment of
Rent is not paid promptly on the first of the month, or otherwise when due,
Sublessee shall pay to Sublessor a late payment charge equal to five percent
(5%) of the amount of such delinquent payment of Rent, in addition to the
installment of Rent then owing. This Section 5 shall not relieve Sublessee of
Sublessee's obligation to pay any amount owing hereunder at the time and in the
manner provided.
6. SECURITY DEPOSIT. Upon execution hereof, Sublessee shall deposit
----------------
fifty percent (50%) of the Security Deposit with Sublessor. No later than
February 15, 1998, Sublessee shall deliver to Sublessor the remaining fifty
percent (50%) of the Security Deposit. In no event shall Sublessee take
possession of the Sublet Space prior to Sublessee's delivery to Sublessor of
one-hundred percent (100%) of the Security Deposit. The Security Deposit shall
secure Sublessee's obligations under this Sublease to pay Base Rent and other
monetary amounts, to maintain the Sublet Space and repair damages thereto, to
surrender the Sublet Space to Sublessor in clean condition and repair upon
termination of this Sublease and to discharge Sublessee's other obligations
hereunder. Sublessor may use and commingle the Security Deposit with other
funds of Sublessor. If Sublessee fails to perform Sublessee's obligations
hereunder, Sublessor may, but without any obligation to do so, apply all or any
portion of the Security Deposit towards fulfillment of
6.
<PAGE>
Sublessee's unperformed obligations. If Sublessor does so apply any portion of
the Security Deposit, Sublessee's failure to remit to Sublessor a sufficient
amount in cash to restore the Security Deposit to the original amount within
five (5) days after receipt of Sublessor's written demand to do so shall
constitute an event of default. Upon termination of this Sublease, if Sublessee
has then performed all of Sublessee's obligations hereunder, Sublessor shall
return the Security Deposit, or whatever amount remains of the Security Deposit
after Sublessor applied all or a portion of the Security Deposit to perform
Sublessee's obligations hereunder, to Sublessee without payment of interest.
7. USE. The Sublet Space is to be used for the Permitted Uses, and
---
for no other purpose or business without the prior written consent of Sublessor.
In no event shall the Sublet Space be used for a purpose or use prohibited by
the Master Lease.
8. ASSIGNMENT AND SUBLETTING. Sublessee shall not sell, assign,
-------------------------
encumber, sublease or otherwise transfer by operation of law or otherwise the
Sublet Space or this Sublease without Sublessor's consent, which consent shall
not be unreasonably withheld, and without Landlord's consent as required under
the terms of the Master Lease. Any such sale, assignment, encumbrance, sublease
or other transfer in violation of the terms of this Sublease shall be void and
shall be of no force or effect.
9. ALTERATIONS. Sublessee shall not make or suffer to be made any
-----------
alterations, additions or improvements (collectively "Alterations") in, on, or
to the Sublet Space without the prior written consent of Sublessor which consent
shall not be unreasonably withheld. Any Alterations Sublessee is permitted to
make shall be made by Sublessee at Sublessee's sole cost and expense, and
Sublessee shall notify Sublessor at least five (5) business days in advance of
the same so that Sublessor may post appropriate notices of nonresponsibility.
Upon the expiration or sooner termination of this Sublease, Sublessee shall,
upon demand by Sublessor, at Sublessee's sole cost and expense, forthwith and
with all due diligence, remove any Alterations made or paid for by Sublessee and
Sublessee shall forthwith and with all due diligence, at Sublessee's sole cost
and expense, repair and restore the Sublet Space to their original condition,
ordinary wear and tear excepted.
10. REPAIRS AND MAINTENANCE. Sublessee shall, at Sublessee's sole
-----------------------
expense, keep, maintain, repair and replace all improvements in or to the Sublet
Space, including, without limitation, all doors, subfloors and floor coverings,
all plumbing, electrical wiring, ceilings, interior walls, interior surfaces of
exterior walls, signs, all heating and air conditioning systems, all fire
sprinklers systems, all skylights, and other fixtures and equipment in good
repair and in a clean
7.
<PAGE>
and safe condition. Sublessee shall, at Sublessee's sole expense, repair any
area damaged by Sublessee, Sublessee's agents, employees and visitors. Sublessee
acknowledges that Sublessor is under no duty to make repairs or improvements to
the Sublet Space, and Sublessee hereby waives any right it may have at law or in
equity to enforce the same. Notwithstanding the foregoing, to the extent
Landlord is obligated under the Master Lease to make any repairs in or to the
Sublet Space, Sublessor, upon written notice by Sublessee, shall diligently
attempt to enforce such obligation of Landlord.
11. DAMAGE AND DESTRUCTION.
----------------------
a. TERMINATION OF MASTER LEASE. If the Sublet Space is damaged
---------------------------
or destroyed and Landlord or Sublessor exercises any option either may have to
terminate the Master Lease, if any, this Sublease shall terminate as of the date
of the termination of the Master Lease.
b. CONTINUATION OF SUBLEASE. If the Master Lease is not
------------------------
terminated following any damage or destruction as provided above, this Sublease
shall remain in full force and effect and Sublessee shall be entitled to any
reduction or abatement of Base Rent in an amount in proportion to the
corresponding reduction in base rent for the Sublet Space which Sublessor
receives under the Master Lease. Sublessor shall diligently enforce any
obligation of Landlord to rebuild the Sublet Space in accordance with the Master
Lease; and (ii) Sublessor shall make available to Sublessee any insurance
proceeds Sublessor receives as a result of such damage or destruction.
12. EMINENT DOMAIN.
--------------
a. TOTAL CONDEMNATION. If all of the Premises is condemned by
------------------
eminent domain, inversely condemned or sold in lieu of condemnation, for any
public or a quasi-public use or purpose ("Condemned" or "Condemnation"), this
Sublease shall terminate as of the date of title vesting in such proceeding, and
Base Rent shall be adjusted to the date of termination.
b. PARTIAL CONDEMNATION. If any portion of the Premises is
--------------------
Condemned, and Sublessor exercises any option to terminate the Master Lease,
this Sublease shall automatically terminate as of the date of the termination of
the Master Lease. If Sublessor has the option to terminate the Master Lease,
Sublessor shall promptly give Sublessee notice of such option and shall exercise
such option if so directed by Sublessee subject to the relevant provisions of
the Master Lease and further provided that such partial condemnation renders the
Premises unusable for Sublessee's business, as reasonably determined by
Sublessor. If this Sublease is not terminated following any such Condemnation,
8.
<PAGE>
this Sublease shall remain in full force and effect. Sublessor shall diligently
enforce any rights under the Master Lease to require Lessor to rebuild the
Premises. Base Rent shall be equitably adjusted to take into account
interference with Sublessee's ability to conduct its operations on the Premises
as a result of the Premises being Condemned. Sublessee hereby waives the
provisions of California Code of Civil Procedure Section 1265.130 permitting a
court of law to terminate this Sublease.
c. SUBLESSEE'S AWARD. Subject to the provisions of the Master
-----------------
Lease, Sublessee shall have the right to recover from the condemning authority,
but not from Sublessor, such compensation as may be separately awarded to
Sublessee in. connection with costs and removing Sublessee's merchandise,
furniture, fixtures, leasehold improvements and equipment to a new location.
13. INSURANCE. All insurance policies required to be carried by
---------
Sublessee, pursuant to the Master Lease, shall contain a provision whereby
Sublessor and Landlord are each named as additional insureds under such
policies.
14. BROKERAGE COMMISSION. Sublessor shall pay a brokerage commission
--------------------
to Broker for Sublessee's subletting of the Sublet Space as provided for in a
separate agreement between Sublessor and Broker. Sublessee warrants for the
benefit of Sublessor that its sole contact with Sublessor or the Sublet Space in
connection with this transaction has been directly with Sublessor and Broker.
Sublessee further warrants for the benefit of Sublessor that no other broker or
finder can properly claim a right to a commission or a finder's fee based upon
contacts between the claimant and Sublessee with respect to the other party or
the Sublet Space. Sublessee shall indemnify defend by counsel acceptable to
Sublessor and hold Sublessor harmless from and against any loss, cost or
expense, including, but not limited to, attorneys' fees and court costs,
resulting from any claim for a fee or commission by any broker or finder, other
than any claims by Broker, in connection with the Sublet Space and this
Sublease.
15. SUBLESSEE'S INDEMNITY. Sublessee shall defend, indemnify and hold
---------------------
harmless Sublessor, its partners, employees, and agents, and Landlord, from and
against any and all claims, liabilities, suits, judgments, awards, damages,
losses, fines, penalties, costs and expenses, including reasonable attorney's
fees, that Sublessor, its partners, employees and agents, and Landlord may
suffer, incur or be liable for by reason of or arising out of or related to the
breach by Sublessee of any of the duties, obligations, liabilities or covenants
applicable to Sublessee hereunder, Sublessee's occupancy or use of the Sublet
Space, any alterations, additions or modifications made to the
9.
<PAGE>
Premises by Sublessee or Sublessee's negligence or willful misconduct. This
indemnification shall survive termination of this Sublease.
16. RIGHT TO CURE SUBLESSEE'S DEFAULTS. If Sublessee shall at any
----------------------------------
time fail to make any payment or perform any other obligation of Sublessee
hereunder, then Sublessor shall have the right, but not the obligation, after
the lesser of five (5) days' notice to Sublessee or the time within which
Landlord may act on Sublessor's behalf under the Master Lease, or without notice
to Sublessee in the case of any emergency, and without waiving or releasing
Sublessee from any obligations of Sublessee hereunder, to make such payment or
perform such other obligation of Sublessee in such manner and to such extent as
Sublessor shall deem necessary, and in exercising any such right, to pay any
incidental costs and expenses, employ attorneys and other professionals, and
incur and pay attorneys' fees and other costs reasonably required in connection
therewith. Sublessee shall pay to Sublessor upon demand all sums so paid by
Sublessor and all incidental costs and expenses of Sublessor in connection
therewith, together with interest thereon at the Interest Rate.
17. NOTICES. Any and all notices which are required to be given by
-------
either party hereunder shall be in writing, sent by certified or registered
mail, postage prepaid, return receipt requested, and by express mail courier for
next day delivery (i.e., FedEx, DHL, etc.) and addressed to Lessor and Lessee at
the addresses first given above, or to such other addresses and to such other
persons as the parties may from time to time designate in writing by notice
aforesaid. The time of giving any such notice shall be deemed to be the date
upon which delivery is actually made (or attempted if said delivery is refused
or rejected). If notice is received on a Saturday or a Sunday or legal holiday,
it shall be deemed received on the next business day. Any notice or requirement
of service by any statute or law now or hereinafter in effect, including but not
limited to California Code of Civil Procedure Sections 1161, 1161.1 and 1162
(including any amendments, supplements or substitutions thereof) is hereby
waived by Lessee.
18. MISCELLANEOUS.
-------------
a. ENTIRE AGREEMENT. This Sublease contains all of the
----------------
covenants, conditions and agreements between the parties concerning the Sublet
Space, and shall supersede all prior correspondence, agreements and
understandings concerning the Sublet Space, both oral and written. No addition
or modification of any term or provision of this Sublease shall be effective
unless set forth in writing and signed by both Sublessor and Sublessee.
10.
<PAGE>
b. CAPTIONS. All captions and headings in this Sublease are for
--------
the purposes of reference and convenience and shall not limit or expand the
provisions of this Sublease.
c. LANDLORD'S CONSENT. This Sublease is conditioned upon
------------------
Landlord's written approval of this Sublease within forty-five (45) days after
the Effective Date If Landlord refuses to consent to this Sublease, or if the
forty-five (45) day consent period expires, this Sublease shall terminate and
neither party shall have any continuing obligation to the other with respect to
the Sublet Space; provided Sublessor shall return the Deposit, if previously
delivered to Sublessor, to Sublessee.
d. AUTHORITY. Each person executing this Sublease on behalf of
---------
a party hereto represents and warrants that he or she is authorized and
empowered to do so and to thereby bind the party on whose behalf he or she is
signing.
e. ATTORNEYS' FEES. In the event either party shall bring any
---------------
action or proceeding for damages or for an alleged breach of any provision of
this Sublease to recover rents, or to enforce, protect or establish any right or
remedy hereunder, the prevailing party shall be entitled to recover reasonable
attorneys' fees and court costs as part of such action or proceeding.
f. HOLDOVER. This Sublease shall terminate without further
--------
notice at the expiration of the Sublease Term. If Sublessee holds over at the
Sublet Space or any part thereof after the expiration or earlier termination of
the Term, such holding over shall constitute a month-to-month tenancy, at a rent
equal to two hundred percent (200%) of the base rent due under the Master Lease.
Nothing in the foregoing sentence shall be deemed Sublessor's permission for
Sublessee to hold over, and acceptance of Base Rent by Sublessor following
expiration of termination of the Sublease shall not constitute a renewal of this
Sublease. In addition to the foregoing, Sublessee shall indemnify, defend by
counsel satisfactory to Sublessor, protect and hold Sublessor harmless from any
and all liabilities, claims, causes of action, damages, costs or expenses
(including reasonable attorney's fees) directly or indirectly resulting from
Sublessee's holding over at the Sublet Space beyond the expiration or
termination of the Term.
g. ACCESS. Sublessor reserves the right to enter the Sublet
------
Space upon reasonable notice to Sublessee (except that in case of emergency no
notice shall be necessary)
11.
<PAGE>
in order to inspect the Sublet Space and/or the performance by Sublessee of the
terms of this Sublease.
h. Time. Time is of the essence of every provision of this
----
Sublease.
[THERE IS NO OTHER TEXT ON THIS PAGE]
12.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed one (1) or more
copies of this Sublease, dated as of the Effective Date.
"SUBLESSOR"
CISCO SYSTEMS, INC., a California corporation
By: /s/ Chris Hampton
------------------------------------------
Its: Chris Hampton
-------------------------------------
Director, Worldwide Real Estate
"SUBLESSEE"
ACTUATE SOFTWARE CORPORATION, a California
corporation
By: [SIGNATURE ILLEGIBLE]
------------------------------------------
Its: VP - FINANCE, CFO
--------------------------------------
By:__________________________________________
Its: _____________________________________
13.
<PAGE>
EXHIBIT 10.10
SHARE PURCHASE AGREEMENT
------------------------
THIS AGREEMENT is entered into as of March 28, 1996 between:
- - ACTUATE SOFTWARE CORPORATION, a corporation existing under the laws of the
State of California, having its principal office at 999 Baker Way, Suite 330,
San Mateo, California 94404, U.S.A. ("ACTUATE");
AND
- - SCHRODER VENTURES FRENCH ENTERPRISE FUND L.P.1, a limited partnership
organized under the laws of the State of Delaware (U.S.A.), having its principal
office at 787 Seventh Avenue, New York, N.Y. 10019 ("SVFEF US"),
- - SCHRODER VENTURES FRENCH ENTERPRISE FUND UKLP, a limited partnership organized
under the laws of England, having its principal office at 120 Cheapside, London
EC2V 6DS ("SVFEF UK"),
- - SUK VFIV NOMINEES LIMITED, as nominee for Schroder U.K. Venture Fund IV LP 1,
Schroder U.K. Venture Fund IV LP 2, and Schroder U.K. Venture Fund IV Trust, a
Guernsey limited liability company, having its principal office at P.O. Box 71,
Arnold House, St. Julians Avenue, St. Peter Port, Guernsey, Channel Islands
("SUK VFIV"),
- - Michael BERMAN, an English national, residing at 19 Moreton Place, Pimlico,
London SW1 V2 NL ("BERMAN"),
- - Pierre BRAUDE, an American national, residing at 37, rue Chauveau, 92200
Neuilly, France ("BRAUDE"),
- - Patrick CHANCERELLE, a French national, residing at 34 rue du Professeur
Guyon, 78430 Louveciennes, France ("CHANCERELLE"), and
<PAGE>
2
- - Gilles VLIEGEN, a French national, residing at 3, rue Eugene Labiche, 75116
Paris, France ("VLIEGEN"),
(SVFEF US, SVFEF UK, SUK VFIV, BERMAN, BRAUDE, CHANCERELLE and VLIEGEN are
collectively referred to as the "SHAREHOLDERS");
AND
- - TELEPHUS VASTGOED B.V., a Dutch Besloten Vennootschap, existing under the laws
of the Netherlands, having its principal office at De Boelelaan 7, 1083 HJ
Amsterdam, the Netherlands (the "B.V.").
WHEREAS, the Shareholders will become the shareholders of the B.V., which will
hold all or virtually all of the shares of operating companies to be formed in
France and England (collectively, the "Operating Companies") for the purpose of
producing, marketing, selling and supporting ACTUATE software products under
license from ACTUATE; and
WHEREAS, the Shareholders agree that ACTUATE shall have a right of first
refusal to purchase the shares of the B.V. on the terms and conditions specified
herein.
NOW, THEREFORE, the parties hereto agree as follows:
A. ACTUATE B.V.
------------
1. ACTUATE B.V.
------------
The B.V. holding company shall be called "Actuate B.V." and it shall hold
all, or virtually all, of the shares of each Operating Company.
<PAGE>
3
2. THE SHAREHOLDERS
----------------
Each Shareholder signs this Agreement individually, and there shall be no
joint and several liability or entitlement among the Shareholders.
3. THE BASIC AGREEMENT
-------------------
ACTUATE and Actuate B.V. shall enter into a basic agreement, dated the same
date as this Agreement, relating to the formation and operations of the
Operating Companies, a copy of which is attached as ANNEX 1 (the "Basic
Agreement"). Unless otherwise defined herein, the terms used herein shall have
the same meaning as in the Basic Agreement, but the Basic Agreement shall not be
considered as a part of this Agreement.
B. THE SALE OF THE SHARES OF ACTUATE B.V.
-------------------------------------
1. GENERAL
-------
1.1 Except as otherwise provided herein, if the Shareholders desire to
sell any of the shares of Actuate B.V., then ACTUATE shall have the right of
first refusal with respect to such shares, as further provided in this Section
B; provided, however, that any transfer of shares of Actuate B.V. among the
Shareholders, to any entities advised, owned or managed by the Schroder group or
to any new manager which is added to the management group of BERMAN, BRAUDE,
CHANCERELLE and VLIEGEN shall be excluded from the scope of this Agreement
(collectively, "Internal Transfers").
1.2 The Shareholders agree that they shall consult with ACTUATE in
relation to any Internal Transfers of Shares, in order to try to take into
account the impact of pooling of interest accounting principles; provided,
however, that Shareholders shall be under no obligation to modify any Internal
Transfer.
1.3 The Shareholders agree that no one Shareholder shall hold at any time
more than 50% of the shares of Actuate B.V.
<PAGE>
4
1.4 The Shareholders may at any time notify ACTUATE of their decision to
sell all of the shares of Actuate B.V. (the "Shares" and the "Shareholders'
Notice"), and ACTUATE shall notify the Shareholders within five days of the
Shareholders' Notice whether it shall exercise its right of first refusal to
purchase the Shares, at a purchase price equal to the consolidated net asset
value of Actuate B.V. as of the end of the month preceding the Shareholders
Notice. If ACTUATE 'decides to purchase the Shares, it shall pay such purchase
price to the Shareholders in cash within 30 days of the Shareholders Notice.
However, if the conditions of either Sections B.2.1 or B.4.1 have occurred, then
any purchase of the Shares shall be made pursuant to the terms of those sections
(including but not limited to the determination of the Purchase Price), and this
Section B.1.3 shall become inapplicable to the sale.
2. ACTUATE BECOMES A PUBLICLY HELD COMPANY
---------------------------------------
2.1 If ACTUATE becomes a publicly held company, either through the
offering of the shares of common stock of ACTUATE on a recognized U.S. stock
exchange or through the acquisition of ACTUATE by, or its merger with, such a
publicly quoted company, then at any time after the expiration of six months
from the date of such event, the Shareholders may notify ACTUATE of their desire
to sell the Shares, and ACTUATE shall notify the Shareholders within five days
of the Shareholders' Notice whether it shall exercise its right of first refusal
to purchase the Shares.
2.2 If ACTUATE notifies its decision to purchase the Shares, then it
shall, within 30 days of Shareholders' Notice, either: (i) pay the full Purchase
Price for the Shares (as defined in Section B.2.3 below) in cash by wire
transfer of funds to the hank accounts indicated by the Shareholders; or (ii)
deliver a written irrevocable commitment to pay the Purchase Price by the
delivery of shares of common stock of ACTUATE or its successor in accordance
with Section B.2.5 below, and to carry out all formalities necessary for such
delivery as expeditiously as possible, but in no event to exceed three months
from the Shareholders' Notice. The date of payment in cash, or the date of the
delivery of the share certificates is referred to as the "Purchase Completion
Date".
2.3 The "Purchase Price" for the Shares is to be determined the basis of
on the last full month prior to the date of the Shareholders' Notice. The
"Purchase Price" is defined as the sum of:
<PAGE>
5
(i) the consolidated revenues of Actuate B.V. during the 12-month period
ending with the last full month prior to the Shareholders' Notice,
which revenues shall include service revenues, of each Operating
Company; provided, however, that service revenues, other than
support, hotline and maintenance revenues, which exceed 15% of the
total revenues of any Operating Company shall be excluded;
(ii) the consolidated net assets of Actuate B.V. as of the end of such
month;
(iii) in the event that ACTUATE has signed software license agreements
with any party other than value-added resellers (as defined in the
license agreement to be entered into between ACTUATE and each
Operating Company (the "License Agreement")) for the sale of software
products in the Territory of any Operating Company, then one of the
following amounts:
- If ACTUATE's remuneration from such an agreement is on a lump sum
basis, the amount equal to that portion of such lump sum which is
allocated or allocable to operations in the Territory of any
Operating Company for the period of twelve full calendar months
immediately preceding the Shareholders' Notice; or
--
- If ACTUATE's remuneration is on a unit sale basis, 50% of the
revenues received by ACTUATE from sales of the software products in
the Territory of any Operating Company during the period of twelve
full calendar months immediately preceding the Shareholders' Notice;
and
(iv) an amount equal to the outstanding balances of the Shareholders'
loans which amount shall be used to reimburse such loans so that at
the Purchase Completion Date there will be no outstanding
Shareholders' loans.
2.4 The Purchase Price shall be calculated and paid by ACTUATE in U.S.
dollars at the exchange rates between the currencies of the Operating Companies,
<PAGE>
6
Actuate B.V. and the U.S. dollar quoted in the Wall Street Journal in Paris for
-------------------
the last business day of the month preceding the Shareholders' Notice.
2.5 If ACTUATE is publicly held at the date of the Shareholders' Notice,
then ACTUATE, at its sole option, may indicate in its notice to purchase the
Shares that it will pay the Purchase Price by delivery of registered shares of
common stock of ACTUATE (or of the public company which acquires or merges with
it). The parties agree that such shares of stock will be subject to the minimum
restrictions on transferability allowable in accordance with applicable U.S. and
state securities laws and pooling of interest accounting principles, and Actuate
agrees to keep current the registration of its shares. The number of shares of
stock so delivered to the Shareholders shall be determined on the basis of the
average closing price of such shares over the five consecutive trading days
immediately preceding the Shareholders' Notice.
3. NON-EXERCISE OF ACTUATE'S RIGHT OF FIRST REFUSAL
------------------------------------------------
If at any time ACTUATE elects not to exercise its right of first refusal
following Shareholders' Notice given under Section 2.1, 4.1 or 5.2 hereof, or it
does not respond to the Shareholders' Notice within the contractual periods
specified therein, or it fails to pay the full Purchase Price for the Shares
within the time period specified therein, then the following shall occur
automatically, without the need for further notice, as of the expiration of the
applicable period:
(i) The Royalty Rate (as defined in Section 3.g of the Basic Agreement
and as further detailed in each License Agreement) applicable to the
sale of the ACTUATE software products by each Operating Company shall
be reduced to zero;
(ii) The license granted pursuant to each License Agreement between
ACTUATE and an Operating Company to produce, market, sell and support
the Products shall be converted to an exclusive, perpetual license;
(iii) Any requirements in the License Agreements which relate to minimum
staffing levels for the Operating Companies shall terminate;
<PAGE>
7
(iv) The Shareholders shall have the right to sell any or all of the
Shares of Actuate B.V. to a third party, and Actuate B.V. shall have
the right to sell any or all of the shares which it holds in any
Operating Company to a third party;
(v) ACTUATE shall no longer have the right of first refusal for the
purchase of the Shares as defined in Section B.1.1, nor the right to
increase the Royalty Rate as specified in Section B.5 below;
(vi) Each Operating Company shall have the right to deal in and distribute
products other than those produced by ACTUATE, without obtaining the
latter's written approval, and shall not be obligated to continue to
sell ACTUATE software products.
(vii) ACTUATE shall pay to Actuate B.V. 100% of any revenues received by it
from the sales of any of its software products installed in the
Territory of any Operating Company, and ACTUATE shall not enter into
any new agreements or arrangements for the sale of any of its
software products in such Territories.
The parties agree that the provisions of this Section B.3 which pertain to the
License Agreement shall be included as specific provisions in each License
Agreement.
4. ACTUATE IS NOT PUBLICLY HELD
----------------------------
4.1 Upon the occurrence of one of the following:
(i) 1 January 2001;
(ii) A change in the shareholding of ACTUATE, with the result that more
than 50% of the shares of common stock of ACTUATE, on a fully
converted basis, are held by shareholders who are not shareholders of
ACTUATE on the date hereof;
then the Shareholders may at any time notify ACTUATE of their decision to sell
the Shares, and ACTUATE shall notify the Shareholders within five days of the
Shareholders' Notice whether it shall exercise its right of first refusal to
purchase all
<PAGE>
8
of the Shares. If ACTUATE decides to purchase the Shares, it shall pay the
Purchase Price as defined in Sections B.2.3 and B.2.4 above in cash pursuant to
-------
one of the following procedures, at its sole election: (i) payment of the full
Purchase Price within 30 days of Shareholders' Notice; or (ii) partial monthly
payments out of the royalty revenues received by it from the Operating Companies
as provided in Section B.4.2 below, provided, however, that all such amounts
which are not paid within 30 days of the Shareholders' Notice shall be subject
to interest at the rate of 20% per annum (to the extent permitted by law). The
parties agree that ACTUATE may pay the totality of any unpaid balance of the
Purchase Price at any time.
4.2 Payment of the Purchase Price in partial monthly payments shall be
made as follows: On a monthly basis one-half of the royalties due to ACTUATE
pursuant to Section 3.g of the Basic Agreement, less one-half of the revenues
received by ACTUATE from the sales of any of its products in the respective
Territory of any Operating Company, shall be paid to ACTUATE. The remainder of
the royalties not paid to Actuate shall be paid into an escrow account and
disbursed on ACTUATE's behalf to the Shareholders as part of the Purchase Price.
In no event shall the total of the payments received by the Shareholders in any
one month exceed 100% of the royalties for such month. ACTUATE hereby gives an
irrevocable delegation and authorization to each of the Operating Companies to
pay such royalties as indicated in this paragraph.
4.3 If ACTUATE elects not to purchase the Shares, then the provisions of
Section B.3 shall apply.
5. ACTUATE'S RIGHT TO INCREASE THE ROYALTY RATE
--------------------------------------------
5.1 ACTUATE shall have the right to increase the Royalty Rate as defined
in Section 3.g of the Basic Agreement from 50% to 100% and to terminate the
exclusivity provisions related to the sale of ACTUATE software products as
described in Section 3.a of the Basic Agreement, upon notice to the
Shareholders.
5.2 Within five days of ACTUATE's notice to the Shareholders of the
exercise of its rights under Section B.5.1, the Shareholders may give written
notice to ACTUATE of their intention to sell all of the Shares of Actuate B.V.,
and within five days of Shareholders' Notice, ACTUATE shall notify Shareholders
whether it shall exercise its right of first refusal to purchase all of the
Shares at the Purchase Price
<PAGE>
9
specified in Section B.5.3 below. If ACTUATE elects to purchase the Shares, then
the provisions of Section B.2.4 and B.2.5 shall apply thereto. If ACTUATE elects
not to purchase the Shares, then the provisions of Section B.3 above shall
apply, and the right to increase the Royalty Rate and to terminate the
exclusivity provisions under Section B.5.1 shall terminate, without the
implementation of the terms thereof.
5.3 If ACTUATE elects to purchase the Shares, then the Purchase Price of
the Shares shall be determined as follows:
(i) Until 1 July 1999, and provided that the provisions of Section
B.5.3.(iii) are not applicable, the Purchase Price shall be equal to
the greater of: (i) the Purchase Price as calculated in Section B.2.3
above; or (ii) the amount equal to five times the "Investment" in the
Actuate project. Such "Investment" is defined as the total of (I) the
equity capital of Actuate B.V.; and (II) the consolidated shareholder
loans made to the Operating Companies and Actuate B.V. by the
Shareholders.
(ii) After 1 July 1999, and provided that the provisions of Section
B.5.3.(iii) are not applicable, then the Purchase Price shall be
calculated in accordance with Section B.2.3 above.
(iii) If any royalties due under Section 3.g of the Basic Agreement have
ever remained unpaid for more than three consecutive months, then the
Purchase Price shall be equal to 80% of the Purchase Price as defined
in Section B.2.3 above. In return, ACTUATE agrees not to put the
Operating Company which has defaulted on the royalty payments into
bankruptcy, receivership or other similar proceedings.
C. MISCELLANEOUS
-------------
1. TERM
----
This Agreement shall continue in full force and effect until December 31,
2002, unless automatically terminated upon the occurrence of any of the
following events: (i) ACTUATE has purchased all of the shares of Actuate B.V.,
or (ii) ACTUATE or Actuate B.V. files, or has filed against it, any bankruptcy,
reorganization or other
<PAGE>
10
similar proceedings; provided however that Sections B.2.2, B.2.3, B.2.5, B.3 and
B.4 hereof shall survive the termination of this Agreement.
2. DISSOLUTION OF ACTUATE B.V.
--------------------------
Unless such procedure would violate the provisions of applicable law, the
Shareholders, if they desire to dissolve Actuate B.V., shall first notify their
intention to ACTUATE, which may within five days of the receipt of such notice,
notify the Shareholders of its decision to purchase all the shares of Actuate
B.V. for $1.00, payment to be made within ten days thereafter. Failing such
notice from ACTUATE or payment of the purchase price within the specified
periods, then the Shareholders shall be entitled to dissolve Actuate B.V. as
they choose.
3. CONFIDENTIALITY
---------------
Except as otherwise required by applicable law, each party shall keep
strictly confidential all documents, data and information obtained during the
term of this Agreement.
4. ENTIRE AGREEMENT; MODIFICATIONS
-------------------------------
4.1. This Agreement constitutes the entire agreement of the parties and
supersedes and annuls all prior agreements or understandings with respect to the
subject matter hereof, whether written or oral, including but not limited to
drafts of the letter of intent; provided, however, that the Basic Agreement
shall not be affected hereby.
4.2. No part of this Agreement may be modified, amended or waived except in
writing signed by all parties.
5. SEVERABILITY
------------
If any provision of this Agreement proves to be invalid or otherwise
unenforceable, the remainder of this Agreement shall not be affected thereby and
shall be valid and enforceable to the fullest extent permitted by law.
<PAGE>
11
6. ASSIGNMENT
----------
Neither this Agreement nor any right or obligation hereunder may be
assigned or delegated, except that any of the Shareholders may assign this
Agreement to any of the other Shareholders, to any other entity advised, managed
or owned by the Schroder group, or to any new "manager". This Agreement shall be
binding on, and inure to the benefit of, any permitted successors and assigns of
any party, provided that any new "manager" signs this Agreement.
7. NOTICES
-------
Any notice or other communication hereunder shall be deemed given when sent
by registered mail, return receipt requested, by courier or by telefax to the
other parties as the address indicated above or as otherwise notified. All
parties agree to send a copy of any notice hereunder, for information purposes
only, to Schroder Venture Advisors, 20 Southampton Street, London W2CE 7QG
(attn: partnership secretary).
8. DISPUTES; GOVERNING LAW
-----------------------
8.1 Any disputes arising between the parties concerning the determination
of the amount of the royalties or of the Purchase Price shall be referred to and
finally settled by one of the major international accounting firms, which is not
the customary accountant or auditor of any of the parties, to be mutually
determined by the parties within five days of notice sent by any of them. The
accounting firm selected shall have the right to audit accounts, if necessary,
and shall present its written report to the parties within 45 days of receipt of
its mission. During such period the obligation to pay the disputed royalty or
Purchase Price shall be suspended. The expenses of such expert shall be shared
equally between ACTUATE and the Shareholders.
8.2 This Agreement shall be governed by, construed and enforced in
accordance with the laws of the Netherlands, and Amsterdam district courts shall
<PAGE>
12
have exclusive jurisdiction over any disputes arising in connection with this
Agreement, other than disputes covered by Section 8.1.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date written above.
SCHRODER VENTURES FRENCH ACTUATE SOFTWARE
ENTERPRISE FUND L.P.1 CORPORATION
By: /s/ Ivor O'Mahony By: /s/ Nico Nierenberg, CEO
----------------------- ------------------------
Ivor O'Mahony Nico Nierenberg, CEO
SCHRODER VENTURES FRENCH TELEPHUS VASTGOED B.V.
ENTERPRISE FUND UKLP
By: /s/ Ivor O'Mahony By: [SIGNATURE ILLEGIBLE]
----------------------- ------------------------
Ivor O'Mahony
SUK VFIV NOMINEES LIMITED
By: /s/ Ivor O'Mahony
-----------------------
Ivor O'Mahony
MICHAEL BERMAN
/s/ Michael Berman
- ---------------------------
PIERRE BRAUDE
/s/ Pierre Braude
- ---------------------------
PATRICK CHANCERELLE
/s/ Patrick Chancerelle
- ---------------------------
GILLES VLIEGEN
/s/ Gilles Vliegen
- ---------------------------
<PAGE>
13
LIST OF ANNEXES
---------------
ANNEX 1 - Basic Agreement between ACTUATE and Actuate B.V.
<PAGE>
AMENDMENT No 1
--------------
TO
--
SHARE PURCHASE AGREEMENT
-------------------------
THIS AMENDMENT to the Share Purchase Agreement is entered into as of 25
September 1997 among the following parties:
SCHRODER VENTURES FRENCH ENTERPRISE FUND L.P.1, a Delaware limited
partnership, having its principal office at 787 Seventh Avenue, new-York, N.U.
10019 ("SVFEF US");
SCHRODER VENTURES FRENCH ENTERPRISE FUND UKLP, and English limited
partnership, having its principal office at 120 Cheapside, London EC2V 6DS
("SVFEF UK"),
SUK VFIV NOMINEES LIMITED (as nominee for Schroder U.K. Venture Fund IV LP1,
Schroder U.K. Venture Fund IV LP2 and Schroder U.K. Venture Fund Trust), a
Guernsey limited liability company, having its principal office at P.O. Box
71, Arnold House, St. Julian's Avenue, St. Peter Port, Guernsey, Channel
island ("SUK VFIV"),
Michael BERMAN, an English national, residing at 14, Caroline Terrace, London
SW1W 8JS, United Kingdom ("BERMAN"),
Pierre BRAUDE, an American national, residing at 37, rue Chauveau, 92200
Neuilly Sur Seine, France ("BRAUDE "),
Patrick CHANCERELLE, a French national, residing at 34, rue du Professeur
Guyon, 78430 Louveciennes, France ("CHANCERELLE"), and
Gilles VLIEGEN, a French national, residing at 3, rue Eugene Labiche, 75116
Paris, France ("VLIEGEN"),
(SVFEF, SVFEF UK, SUK VFIV, Berman, Braude, Chancerelle and Vliegen are
collectively referred to as "SHAREHOLDERS);
AND
ACTUATE HOLDING B.V., a Dutch Besloten Vennootschap, having its principal
office De Boelelaan 7, 1983 HJ Amsterdam, The Netherlands ("Actuate B.V."),
AND
ACTUATE SOFTWARE CORPORATION, a California corporation, having its principal
office at 999 Baker Way, Suite 330, San Mateo, California 94404 ("Actuate").
(Shareholders, Actuate B.V., and Actuate are collectively referred to as the
"Parties");
WHEREAS, the Parties entered into the Share Purchase Agreement as of March 28,
1996 (the "AGREEMENT"), concerning the terms and conditions applicable to the
sale of the shares of Actuate B.V. to Actuate;
<PAGE>
Whereas, the Parties desire to make certain modifications to tile Agreement in
connection with the addition of a fifth member of the management group and the
formation of a German Operating Company.
NOW, THEREFORE, the Parties agrees as follows:
1. ADDITION OF FERRIER
-------------------
1.1 The Parties agree that Mr. Andrew Ferrier ("FERRIER") shall become a new
manager added to the management group of Berman, Braude, Chancerelle and
Vliegen within the terms of Section B.1.1. of the Agreement. As from the
effective date defined in Section 1.2, Ferrier shall become a Shareholder
and a Party to the Agreement and of this Amendment No l.
1.2 This Amendment No 1 shall come into effect upon the later to occur of (i)
Ferrier's signature of the acceptance letter substantially in the form of
Annex 1 hereto, and (ii) the registration of the four notarial deeds to
transfer four class B shares of Actuate B.V. to Ferrier.
2. GERMAN OPERATING COMPANY
------------------------
The Parties agree that Actuate B.V. shall form an operating company in Germany
(the "German Operating Company"). Due to the fact that the German Operating
Company will be formed significantly after the French and English operating
companies, the Parties agree that the valuation rules for purposes of
determining the Purchase Price of the Shares of Actuate B.V. (as those terms are
defined in the Agreement) shall be modified. The following shall therefore be
added as sections B.2.3 (v), B.2.3(vi), B.2.3(vii) to the section B.2.3. of the
Agreement.
B.2.3 (v). in the event that the Shareholders' Notice of their decision to
sell all the shares of ACTUATE B.V. is given pursuant to section B.5.2,
between 1 July 1999 and 31 December 1999, an amount equal to the "German
Investment". The German Investment is defined as the total of (i) the
equity capital of the German Operating Company; and (ii) the outstanding
loans made by ACTUATE B.V. to the German Operating Company, provided that
Shareholders will limit their investment in Germany to what is needed for
working capital purposes. It is agreed between Actuate and Actuate B.V.
that should the German investment exceed U.S $1.500.000, Actuate in no
event shall be required to pay more than U.S $ 1.500.000 under this section
B.2.3(v).
B.2.3 (vi). in the event that the Shareholders' Notice of their decision to
sell all the shares of ACTUATE B.V. is given because of the acquisition of
ACTUATE by, or its merger with, a publicly quoted company, pursuant to
sections B.2.1 and B.2.2 between 1 July 1999 and 17 July 1999, an amount
equal to the "German Investment", as defined in section B.2.3 (v), provided
that Shareholders will limit their investment in Germany to what is needed
for working capital purposes. It is agreed between Actuate and Actuate B.V.
that should the German investment exceed U.S $1.500.000, Actuate in no
event shall be required to pay more than U.S $1.500.000 under this section
B.2.3(vi).
B.2.3 (vii). in the event that the Shareholders' Notice of their decision
to sell all the shares of ACTUATE B.V. is given because of the acquisition
of ACTUATE by, or its merger with, a
<PAGE>
publicly quoted company, pursuant to sections B.2.1 and B.2.2, between 1
October 1999 and 16 October 1999, an amount equal to 2/3 (two thirds) of the
"German Investment", as defined in section B.2.3 (v), provided that
Shareholders will limit their investment in Germany to what is needed for
working capital purposes. It is agreed between Actuate and Actuate B.V. that
should the German investment exceed U.S $ 1.500.000, Actuate in no event shall
be required to pay . more than U.S $1.000.000 under this section B.2.3(vii).
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed as of
the date written above.
SCHRODER VENTURES FRENCH MICHAEL BERMAN
ENTERPRISE FUND LP1
By: /s/ Schroder Ventures Managers Inc /s/ J.M. Berman
---------------------------------- -----------------------
SCHRODER VENTURES FRENCH PIERRE BRAUDE
ENTERPRISE FUND UKLP
By: /s/ Schroder Ventures Holdings Limited /s/ Pierre Braude
------------------------------------- -----------------------
SUK VFIV NOMINEES LTD PATRICK CHANCERELLE
By:[SIGNATURE ILLEGIBLE] /s/ Patrick Chancerelle
------------------- -----------------------
ACTUATE HOLDING B.V. GILLES VLIEGEN
By: /s/ J.M. Berman /s/ Giles Vliegen
------------------- -----------------------
<PAGE>
ACTUATE SOFTWARE CORPORATION
By: /s/ Nico Nierenberg
------------------------
Nico Nierenberg, CEO
<PAGE>
BASIC AGREEMENT
---------------
THIS AGREEMENT is entered into as of March 28, 1996 between:
- ACTUATE SOFTWARE CORPORATION, a corporation existing under the laws of the
State of California, having its principal office at 999 Baker Way, Suite 330,
San Mateo, California 94404, U.S.A. ("ACTUATE");
AND
- TELEPHUS VASTGOED B.V., a Dutch Besloten Vennootschap, existing under the
laws of the Netherlands, having its principal office at De Boelelaan 7, 1083
HJ Amsterdam, the Netherlands (the "B.V.").
WHEREAS, the B.V. intends to form operating companies in France and England
(collectively, the "Operating Companies") for the purpose of producing,
marketing, selling and supporting ACTUATE software products; and
WHEREAS, ACTUATE agrees to grant to each Operating Company a license to
produce, commercialize, sell and support ACTUATE products;
NOW, THEREFORE, the parties hereto agree as follows:
1. THE FRENCH OPERATING COMPANY
----------------------------
A. The B.V. shall cause to be formed and managed a French societe anonyme
(a limited liability company) called Actuate France (the "Company"), all of
whose shares shall be held by the B.V., except as otherwise required by French
law and except for a maximum of up to 10% of the shares which may be reserved
for the local manager of the Company: The purpose of the Company shall be the
<PAGE>
2
production, marketing, sales and support of the ACTUATE software products (the
"Products") in France, Belgium and the French-speaking part of Switzerland
(collectively, the ,Territory"). The Company shall handle only ACTUATE products
except as otherwise authorized by ACTUATE in writing, or as otherwise provided
herein.
B. The B.V. shall provide access to up to U.S. $ 700,000 of funding to the
extent required by the Company. The B.V. may provide additional funding at its
discretion.
2. FORMATION OF OTHER EUROPEAN OPERATING COMPANIES
-----------------------------------------------
A. ACTUATE grants to the B.V. an exclusive option, which shall be valid
for a period of six months from the date hereof, to form an Operating Company in
the U.K. to produce, market, sell and support the Products in the U.K.
B. In the case of formation of any Operating Company pursuant to the terms
of Section 2.a., all of the terms and conditions of this Agreement shall apply
to each such Operating Company, mutatis mutandis.
3. LICENSE AGREEMENT AND ROYALTY PAYMENTS
--------------------------------------
A. Within 60 days of the signature hereof, ACTUATE and the Company shall
enter into a license agreement on terms and conditions to be mutually agreed
(the "License Agreement"), pursuant to which ACTUATE shall grant to the Company
an exclusive license to produce, market, sell and support the Products under the
name and trademark "ACTUATE" in the Territory, except for existing distribution
contracts of ACTUATE which permit sales of the Products in the Territory. A list
of such existing ACTUATE contracts is included in Annex 1. After the date
hereof, ACTUATE shall not authorize or license any other parties to make sales
of the Products in the Territory, except for other Operating Companies owned by
the B.V. and except for world-wide software licensing agreements with parties
headquartered outside the Territory, which shall have been notified to the B.V.
before their entry into effect. ACTUATE agrees not to open any local offices or
to name distributors in the Territory nor to enter into any contracts or
arrangements with general purpose distributors covering the Territory.
<PAGE>
3
B. The License Agreement shall contain provisions requiring the Company to
have minimum staffing levels, with penalties for non-compliance. In addition
ACTUATE shall have the right to terminate the License Agreement if the shares of
the B.V. are sold, unless such sale is made pursuant to the terms of the Share
Purchase Agreement between ACTUATE and the shareholders of the B.V.
C. ACTUATE shall furnish to the Company the source code and supporting
documents for each Product, in order to enable the Company to carry out its
rights under the License Agreement, subject to suitable confidentiality
restrictions.
D. ACTUATE agrees to provide to the Company all materials, processes and
supports, including but not limited to software, documentation, all Product
updates and bug fixes, on the terms described in the License Agreement.
E. The Company shall translate the Products, any subsequent releases and
updates and any related documents into French and make other "localization"
adaptations as may be necessary for the French-speaking market.
F. The Company shall furnish ACTUATE within 15 days of the end of each
calendar month, a report indicating for such month (the "Monthly Report"), the
sales of the Products and the calculation of the amount of royalty due, and
within 30 days of the end of each quarter, quarterly financial statements
presented according to U.S. GAAP and ACTUATE revenue recognition policy.
G. Within 90 days from the date of each Monthly Report, the Company shall
pay ACTUATE a royalty equal to 50% (the "Royalty Rate") of its revenues accrued
during such month from sales of the Products and associated update portion of
maintenance revenues, exclusive of VAT and other taxes, transport, and packaging
and net of refunds.
H. All royalties shall be paid in U.S. dollars, at the exchange rate
between the French franc and U.S. dollar quoted in the Wall Street Journal in
-------------------
Paris for the last business day of the month for which such royalty is due. The
Company shall be responsible for the payment of any withholding taxes imposed on
the royalties under applicable law, and the amount of such withholding tax shall
be deducted from the amount of the royalty payable to ACTUATE.
<PAGE>
4
I. Any royalty amounts which are not paid by the Company within such 90-
day period shall be subject to finance charges at a rate (to the extent
permitted by law) of 20% per annum.
4. MUTUAL INFORMATION; OPERATIONAL PLAN; BOARD OBSERVERS
-----------------------------------------------------
A. Within 30 days of the end of each calendar quarter, ACTUATE and the
Company shall each provide the other with copies of (i) their income statement,
(ii) their balance sheet, and (iii) their cash flow statement for such quarter.
B. During the last quarter of each year, ACTUATE and the Company shall
meet to discuss an operational plan for the Company, which will include revenue
and cost projections on a quarterly basis.
C. ACTUATE and the Company shall each have the right to name an observer
who may attend, but not vote at, meetings of the board of directors of the
other. Adequate notice of board meetings shall be provided to such observer.
D. ACTUATE shall notify the B.V. of any change in its shareholders, which
occurs prior to the initial public offering of the shares of ACTUATE, or its
acquisition by, or merger with, a publicly held company.
5. THE MANAGERS OF THE COMPANY
---------------------------
ACTUATE shall have a veto right over the hiring of the manager of the
Company.
6. SERVICES TO THE COMPANY
-----------------------
As further detailed in the License Agreement, ACTUATE shall furnish to the
Company the following services free of charge and shall treat the employees of
the Company on the same terms as its own employees with respect to (i) training
for the Company's employees; and (ii) marketing support. Unless otherwise
agreed, each party shall pay its own travel and lodging costs.
<PAGE>
5
7. TERM
----
A. This Agreement shall continue in full force and effect until December
31, 2002, unless automatically terminated upon the occurrence of any of the
following events: (i) ACTUATE has purchased all of the shares of the B.V., or
(ii) ACTUATE or the B.V. files, or has filed against it, any bankruptcy,
reorganization or other similar proceedings.
B. Unless such procedure would violate the provisions of applicable law,
the B.V., if it desires to dissolve any of the Operating Companies, shall first
notify its intention to ACTUATE, which may within five days of the receipt of
such notice, notify the B.V. of its decision to purchase all of the shares of
such Operating Company for $1.00, payment to be made within ten days thereafter.
Failing such notice from ACTUATE or payment of such purchase price within the
specified periods, then the B.V. shall be entitled to dissolve such Operating
Company as it chooses.
8. CONFIDENTIALITY
---------------
Except as otherwise required by applicable law, each party shall keep
strictly confidential all documents, data and information obtained during the
term of this Agreement.
9. ENTIRE AGREEMENT; MODIFICATIONS
-------------------------------
A. This Agreement constitutes the entire agreement of the parties and
supersedes and annuls all prior agreements or understandings with respect to the
subject matter hereof, whether written or oral, including but not limited to
drafts of the letter of intent. However, the parties acknowledge that ACTUATE
and the Company are currently negotiating the License Agreement, which, when
signed, shall supersede the provisions of this Agreement related thereto.
B. No part of this Agreement may be modified, amended or waived except in
writing signed by all parties.
<PAGE>
6
10. SEVERABILITY
------------
If any provision of this Agreement proves to be invalid or otherwise
unenforceable, the remainder of this Agreement shall not be affected thereby and
shall be valid and enforceable to the fullest extent permitted by law.
11. ASSIGNMENT
----------
Neither this Agreement nor any right or obligation hereunder may be
assigned or delegated, without the written consent of the other party.
12. NOTICES
-------
Any notice or other communication hereunder shall be deemed given when sent
by registered mail, return receipt requested, by courier or by telefax to the
other party as the address indicated above or as otherwise notified.
13. GOVERNING LAW
-------------
This Agreement shall be governed by, construed and enforced in accordance
with the laws of the Netherlands, and the Amsterdam district courts shall have
exclusive jurisdiction over any disputes arising in connection with this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date written above.
ACTUATE SOFTWARE TELEPHUS VASTGOED B.V.
CORPORATION
By: /s/ Nico Nierenberg By: [SIGNATURE ILLEGIBLE]
------------------------------- -------------------------
Nico Nierenberg, CEO
<PAGE>
7
LIST OF ANNEXES
---------------
ANNEX 1 List of existing ACTUATE contracts for sales of the Products in
the Territory
<PAGE>
AMENDMENT NO. 1
---------------
TO
--
BASIC AGREEMENT
---------------
THIS AMENDMENT to the Basic Agreement is entered into as of 25 September 1997
among the following parties:
ACTUATE HOLDING B.V., a Dutch Besloten Vennootschap, having: its principal
office De Boelelaan 7, 1983 HJ Amsterdam, The Netherlands ("ACTUATE B.V."),
AND
ACTUATE SOFTWARE CORPORATION, a California corporation, having its principal
office at 999 Baker Way, Suite 330, San Mateo, California 94404 ("ACTUATE").
Actuate B.V. and Actuate are collectively referred to as the "PARTIES".
WHEREAS, the Parties entered into the Basic Agreement as of March 28, 1996 (the
"AGREEMENT"), concerning the establishment of French and English operating
companies by Actuate B.V. for the purpose of commercialising Actuate Software
products (the "PRODUCTS").
WHEREAS, the Parties desire that Actuate B.V. form a new operating company in
Germany, and also desire to make other modifications to the Agreement.
NOW, THEREFORE, the Parties agrees as follows:
1. GERMAN OPERATING COMPANY
------------------------
The Parties agree that Actuate B.V. shall form an operating company in Germany
("GERMAN OPERATING COMPANY"), to produce, market, sell and support the Products
in Germany and Austria. The German Operating Company shall be subject to all of
the terms and conditions of the Agreement, mutatis mudandi.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed as of
the date written above.
ACTUATE HOLDING B.V. ACTUATE SOFTWARE CORPORATION
By: /s/ Peter Baines By: /s/ Nico Nierenberg
------------------------- -----------------------------
Peter Baines Nico Nierenberg, CEO
<PAGE>
EXHIBIT 10.11
SHAREHOLDERS AGREEMENT
THIS AGREEMENT, made and entered into this 29th day of, March 1996, by and among
AIR CO., LTD., a corporation duly organized and existing under the laws of Japan
and having its principal place of business at 5-31-20, Senriyama-Nishi, Suita-
Shi, Osaka 565, Japan (hereinafter referred to as "AIR"), ACTUATE SOFTWARE
CORPORATION, a corporation duly organized and existing under the laws of the
State of California and having its principal place of business at 999 Baker Way,
Suite 330, San Mateo, California 94404, U.S.A. (hereinafter referred to as
"ASC"), TOSHIBA INFORMATION SYSTEMS (JAPAN) CORPORATION, a corporation duly
organized and existing under the laws of Japan and having its principal place of
business at 2-1, Nissin-Cho, Kawasaki-Ku, Kawasaki-Shi, Kanagawa 210 , Japan
(hereinafter referred to as "TOSHIBA"), COMPUTER INSTITUTE OF JAPAN, LTD., a
corporation duly organized and existing under the laws of Japan and having its
principal place of business at Yokohama NT Bldg., 1-2-24, Hiranuma, Nishi-Ku,
Yokohama, Kanagawa 220, Japan (hereinafter referred to as "CIJ"), SUMITOMO METAL
INDUSTRIES, LTD., a corporation duly organized and existing under the laws of
Japan and having its principal place of business at 7-28, 4-Chome, Kitahama,
Chuo-Ku, Osaka 541, Japan (hereinafter referred to as "SUMITOMO"), SOME 21 CO.,
LTD., a corporation duly organized and existing under the laws of Japan and
having its principal place of business at 1-18-11-520, Uchikanda, Chiyoda-Ku,
Tokyo 101, Japan (hereinafter referred to as "SOME 21"), and MASANORI HARADA, an
individual residing at 3-9, 2-Chome, Yariya-Cho, Chuo-ku, Osaka-Shi, Osaka 540,
Japan (hereinafter referred to as "HARADA");
WITNESSETH:
WHEREAS, AIR, ASC, TOSHIBA, CIJ, SUMITOMO, SOME 21 and HARADA (collectively
referred to as the "Parties") are desirous of establishing a joint venture
company in Japan in the field of computer software business; and
WHEREAS, all the Parties desire to have such a company develop and sell computer
software with the license granted from ASC;
NOW, THEREFORE, having mutual reliance and taking a long-term view of the
business, the Parties covenant and agree as follows:
<PAGE>
ARTICLE 1. DEFINITIONS
1.1 "Party" shall mean either AIR, ASC, TOSHIBA, CIJ, SUMITOMO, SOME 21 or
-----
HARADA, as the case may be
1.2 "Closing" shall mean the completion of subscription and payment for the
-------
shares of the COMPANY by the Parties.
1.3 "Contribution Date" shall be , or such other date as the Parties agree on
-----------------
which the Parties shall subscribe and pay for the Shares.
1.4 "Yen" shall mean the lawful currency of Japan.
---
1.5 "Products" shall mean the computer software system and all versions thereof
--------
which is presently manufactured by ASC together with any improvements or
modifications thereof, as well as other goods as agreed upon by the Parties
from time to time.
1.6 "Purchase Price" shall mean the price in which the Parties will pay for the
--------------
COMPANY's shares.
1.7 "Shares" shall mean the shares of common stock of the COMPANY, specified in
------
Article 3 hereof, subscribed by each of the Parties.
1.8 "Investor Distributors" shall mean investors in the COMPANY who will also
---------------------
act as distributors of the Products.
1.9 "General Investors" shall mean investors in the COMPANY who will not be
-----------------
distributors of the Products.
ARTICLE 2. ESTABLISHMENT OF THE COMPANY
2.1 Incorporation of the New Corporation
------------------------------------
The Parties hereto shall, within thirty (30) days after this Agreement takes
effect, incorporate or cause to be incorporated in Tokyo, Japan a corporation
(hereinafter referred to as "COMPANY") under the laws of Japan and AIR, as a
promoter, shall take all necessary steps, including, but not limited to, the
execution of all documents and registration of the COMPANY. The name of the
COMPANY will be [Japanese characters] (Actuate Japan Company Ltd.), or, if such
name is unavailable, any other name which the Parties may agree upon. The
registered
2
<PAGE>
office of the COMPANY shall be situated in Tokyo, Japan.
2.2 Objects of the COMPANY
----------------------
The principal objects of the COMPANY shall be to manufacture, develop, market,
distribute and sell the Products in Japan with the license granted under a
master license agreement to be separately entered into by the COMPANY and ASC
(the "Master License Agreement"), and to do all business transactions incidental
or conducive thereto.
ARTICLE 3. INITIAL CAPITALIZATION AND SHARE OWNERSHIP
3.1. Capital of the COMPANY
----------------------
The COMPANY shall have the authority to issue an aggregate of nine thousand six
hundred (9,600) shares of common stock with par value of fifty thousand (50,000)
Yen. The COMPANY shall issue two thousand four hundred (2,400) shares at the
time of its incorporation.
3.2 Subscription of Shares
----------------------
The Parties shall subscribe immediately upon issuance to shares of the COMPANY
as follows:
Shares
------
AIR 400
ASC 200
TOSHIBA 400
CIJ 400
SUMITOMO 400
SOME 21 400
HARADA 200
-------------------------------
Total 2400
In the event that any third party desires to subscribe shares in the COMPANY
after the initial subscription as mentioned above, the value of the shares shall
be one hundred ten percent (110%) of the initial value if such shares are
subscribed within twelve (12) months after the execution of this Agreement. The
price of Shares purchased after the above mentioned period shall be determined
by the Parties to this Agreement.
3
<PAGE>
3.3. Payment of Shares Subscribed
----------------------------
The Parties shall, upon allotment, pay in full in cash for shares subscribed
pursuant to Article 3 hereof as follows:
AIR 20,000,000 Yen
ASC 10,000,000 Yen
TOSHIBA 20,000,000 Yen
CIJ 20,000,000 Yen
SUMITOMO 20,000,000 Yen
SOME 21 20,000,000 Yen
HARADA 10,000,000 Yen
---------------------------------------
Total 120,000,000 Yen
3.4 Pre-emptive Right
-----------------
Holders of any shares of the COMPANY shall have the pre-emptive right to any
type of shares or any securities convertible to or exercisable for any type of
shares to be issued by the COMPANY in proportion to the number of voting rights
which the shares held by the holders at the time of issuance thereof represent.
If one of the Parties does not wish, in whole or in part, to subscribe to such
shares, the pre-emptive right of such Party shall pass to ASC who shall have the
right to acquire all or any part of the shares not so subscribed by such Party
or elect a third party to subscribe such shares. Shares not subscribed by ASC,
ASC's elected third party or any other Parties to this Agreement may be issued
to any third party which the Board of Directors of the COMPANY designates.
The Parties to this Agreement shall make sure that any third parties subscribing
shares in the COMPANY after the initial subscription as mentioned above in
Article 3.1 adopt the contents of and be made a party to this Agreement.
Further, upon the subscription of shares of the COMPANY, such third parties
shall not be entitled to elect its own directors.
3.5. Restrictions on Transfer of Shares
----------------------------------
None of the Parties shall, without the prior unanimous approval of the members
of the Board of Directors, sell, transfer, pledge, mortgage or otherwise dispose
of all or any part of its shares (including its right to subscribe to new
shares) in the COMPANY to any other person, firm or corporation.
ARTICLE 4. BUSINESS ACTIVITIES OF THE COMPANY
4
<PAGE>
4.1 The business activities of the COMPANY shall be as follows:
(1) The COMPANY shall market and sell all versions of the Products
(including the Japanese and English versions) in Japan.
(2) The COMPANY shall create a Japanese version of the Products.
ARTICLE 5. SHAREHOLDERS' RIGHTS AND OBLIGATIONS
5.1 Matters that fall within the competence of the general meeting of the
shareholders shall be set forth in the Articles of Incorporation or, if not
so set forth, shall be determined in accordance with Japanese law. Voting
rights, quorum requirements and notices and other procedures for calling a
general meeting of shareholders shall be as provided for in the Articles of
Incorporation or, if not provided therein, as otherwise determined pursuant
to Japanese law.
5.2 Each Party hereto shall have one vote for each share and may be present at
any general meeting of shareholders in person or by proxy.
5.3 Unless otherwise required by the Articles of Incorporation or the laws of
Japan, any resolution at a general meeting of shareholders of the COMPANY
shall be decided by a simple majority of the votes of shareholders then
present in person or by proxy.
ARTICLE 6. INCENTIVES TO SHAREHOLDERS
6.1 Incentives
(A) ASC
In return for granting the exclusive right to develop, manufacture, market,
distribute and sell the Products in Japan, ASC will receive a ten million
(10,000,000) Yen fee after the COMPANY begins operations. In addition, ASC
will receive a call option for all the shares issued to the other investors
in the COMPANY as stated in section 6.2 of this Article.
(B) AIR
5
<PAGE>
In return for supporting the COMPANY with the development of the Japanese
version of the Products, the COMPANY shall pay AIR for the expenses incurred in
the development support of the Japanese Version. Further, AIR shall obtain the
status of Class (B) distributor, attached hereto as Exhibit B, contained within
the distributorship agreement to be entered into between the COMPANY and the
various distributors immediately after the COMPANY's incorporation (hereinafter
referred to as the "Distributorship Agreement").
In addition, AIR shall have the right to purchase shares of the COMPANY if AIR
achieves the minimum target set in the management agreement to be separately
entered into by the COMPANY and AIR immediately after the COMPANY's
incorporation (hereinafter referred to as the "Management Agreement") on the
following scale:
(1) If AIR exceeds the average of the minimum and the maximum target set
forth in the Management Agreement for each of the first three (3)
years, AIR shall have the right to purchase one hundred (100) shares
of the COMPANY within two (2) months after the end of the third (3)
year;
(2) If AIR exceeds the average of the minimum and the maximum target set
forth in the Management Agreement for each of the first five (5)
years, AIR shall have the right to purchase two hundred (200) shares
of the COMPANY within two (2) months after the end of the fifth (5)
year;
(3) Upon the fulfillment of the requirements set in (1) and (2) above, the
maximum amount of the COMPANY's shares which AIR may purchase is three
hundred (300) shares at fifty thousand (50,000) Yen per share; and
(4) When the COMPANY's shares are purchased pursuant to (1) and/or (2)
above by AIR, AIR shall retain and not be permitted to transfer such
shares for a period of at least two (2) years from the date of
purchase.
Pre-emptive rights shall not attach to the above mentioned shares of the COMPANY
which may be purchased by AIR.
(C) Investor Distributors
6
<PAGE>
As an additional incentive to their investment, Investor Distributors shall
be granted distribution rights under the Distributorship Agreement and
obtain the status of Class (A) distributor contained therein without making
prepayment. In addition, they can obtain the status of Class (B)
distributor contained within the Distributorship Agreement by making a
prepayment of thirty million (30,000,000) Yen to the COMPANY as set forth
therein.
6.2 ASC'S Call Option
ASC can purchase from the other investors up to one hundred percent (100%) of
their shares. ASC must purchase the same percentage from each of the other
investors whenever a purchase is made under this option. When ASC request
repurchase, the price shall be determined by the type of investor. ASC shall
provide compensation, and the investors shall provide the shares within sixty
(60) days of ASC's request for purchase. If ASC is a public company at the time
of the repurchase, then ASC may exchange its common stock for the shares in the
COMPANY. The value of the ASC common stock shall be determined by the closing
price on the date that ASC requests repurchase. If ASC is not a public company
then the repurchase shall be made in cash.
ASC's repurchase price per share shall be determined by the following table.
<TABLE>
<CAPTION>
Fourth Year Fifth Year Sixth Year
<S> <C> <C> <C>
General
Investors 100,000 Yen 150,000 Yen 200,000 Yen
Investor
Distributors 75,000 Yen 100,000 Yen 150,000 Yen
</TABLE>
In the event that ASC exercises its right to repurchase the shares of the
COMPANY within four (4) years from the commencement of this Agreement, the price
of the shares shall be equal to that of the fourth (4) year as listed above.
After the sixth (6) year, ASC's repurchase price shall increase each year by the
amount of two percent (2%) over the then prevailing long term prime rate in Yen
per annum listed on Mitsubishi Bank for the period on the first (1) day of the
seventh (7) year.
However, in the event that ASC purchases shares from third party
7
<PAGE>
investors who acquired shares of the COMPANY under Article 3.1 and 3.4 above,
and such shares were issued by the COMPANY with the dissenting vote of ASC's
director, the shares shall be purchased by ASC from the third party investors at
five hundred 500) Yen per share.
6.3 Investor's Put Option
(A) ASC Becomes a Public Company
Nine (9) months after ASC becomes a public company, or more than fifty
percent (50%) of ASC's stock is. purchased by another public company which
is not an investment company ("acquiring company/") /then the Investor
Distributors can request that ASC repurchase one hundred percent (100%) of
their shares. They may not request a partial repurchase. Within sixty (60)
days of this request, ASC shall deliver to the Investor Distributor ASC's
common shares, the acquiring company's common shares, or cash to repurchase
the shares in the COMPANY owned by the Investor Distributor. ASC's or the
acquiring company's stock value shall be determined by its closing price on
the date of the request for repurchase. After the third anniversary of the
COMPANY, the price per share shall be the same as ASC's call price as
provided in Article 6.2. Prior to the third (3) anniversary the price per
share shall be equal to the initial purchase price.
(B) After Three Years and ASC is Not a Public Company
After the third (3) anniversary of the COMPANY the investors shall have a
put option even if ASC has not become a public company. If they exercise
this option then the investors must sell one hundred percent (100%) of
their shares to ASC. In this case, ASC shall have sixty (60) days to
deliver cash in exchange for the COMPANY shares or ASC can elect to
repurchase the shares out of the COMPANY's royalty stream to ASC. If ASC
elects to repurchase out of the royalty stream then the repurchase price
shall be divided into thirty (30) equal monthly payments which shall reduce
the payment from the COMPANY to ASC and instead be paid to the investor on
ASC's behalf. The funds available in the royalty stream shall be fifty
percent (50%) of each of the royalty payment to be made by the COMPANY to
ASC under the Master License Agreement. In the event such fifty percent
(50%) of the royalty stream is too small to pay all of the investors who
have requested repurchase, such fifty percent (50%) of the royalty stream
shall be
8
<PAGE>
divided on a pro rata basis among the selling investors each month. In this
event, ASC shall pay all remainder of the purchase price at the thirtieth
(30) payment.
The price per share of this put option depends on whether the investor is a
General Investor or not In the Case of a General Investor the price shall
be as follows:
<TABLE>
<CAPTION>
Fourth Year Fifth Year Sixth Year
<S> <C> <C> <C>
General
Investor 75,000 Yen 100,000 Yen 125,000 Yen
</TABLE>
After the sixth (6) year the put option price shall be equal to the sixth
(6) year price.
For the other investors the price depends on the results of the COMPANY
relative to the five (5) year plan which is part of the Management
Agreement. If the COMPANY's profits and revenue for the prior twelve (12)
month were each above the average of the minimum and maximum plan for that
period then the price shall be the same as for the General Investor.
Otherwise the price shall be equal to the initial purchase price.
ARTICLE 7. BOARD OF DIRECTORS
7.1 Number and Function of Directors.
The Board of Directors of the COMPANY shall be composed of nine (9)
members, of which two (2) shall be designated by AIR, two (2) by ASC, one
(1) by CIJ, one (1) by SOME 21, one (1) by TOSHIBA, one (1) by SUMITOMO and
one (1) shall be Mr. George Hara of ACCEL Japan, The representative
director/chairman shall be nominated by ASC and the representative
director/president shall be nominated by AIR.
If a director vacates his/her position during the term of this Agreement,
the Party which the vacating director represented shall have the right to
elect and fill the vacant director seat. However, in the event that Mr.
George Hara of ACCEL Japan vacates his position as director of the COMPANY,
the Board of Directors shall have the right to elect a director in his
place.
9
<PAGE>
The quorum necessary for holding a meeting of the Board of Directors shall
be five (5) directors. Unless otherwise required by the laws of Japan, this
Agreement or the Articles of Incorporation, all actions taken by the
COMPANY through the Board of Directors shall require approval by a simple
majority of all directors
The management of the COMPANY shall rest with the Board of Directors to the
extent the Commercial Law of Japan requires.
7.2 Election of Directors
The directors shall be elected at the shareholders meeting.
The Parties hereto hereby mutually covenant and agree to vote their
respective shares of the COMPANY to cause the election of the persons so
nominated as provided in Article 7.1 herein.
7.3 Meeting of the Board
(a) A notice of the convocation of a meeting of the Board of Directors
shall be dispatched to each director at least fourteen (14) days prior
to the date of such meeting.
(b) The above mentioned notice may be waived or the above mentioned period
of notice may be shortened for a particular meeting of the Board of
Directors with the unanimous consent of the directors.
ARTICLE 8. RESPONSIBILITIES OF THE CHAIRMAN AND THE PRESIDENT
8.1 Responsibility of the Chairman
The Chairman shall approve the quarterly business plan, the conclusion of
major OEM contracts and the selection of primary distributors.
8.2 Responsibility of the President
The President shall make and submit the mid-term and annual business plans
to the Chairman and then to the Board of Directors for approval and, upon
approval, shall operate the COMPANY according to those plans. The President
shall also make and submit the quarterly business plan on the
10
<PAGE>
basis of the annual business plan approved by the Board of Directors to the
Chairman and upon approval shall operate the COMPANY according to those
plans. If and when the personnel and general administrative expenses exceed
by a significant amount set forth in each such item of the annual business
plan, the President shall seek the approval of the Chairman and the Board
of Directors
The President shall have the power to order to outside engineers the
development of the Japanese versions of the Products.
ARTICLE 9. OPERATION OF THE COMPANY
(1) Consignment of Management
(a) After incorporation of the COMPANY, at least for the first three
(3) years with the option of extending the term for an additional
two (2) years upon mutual agreement, AIR shall be responsible for
managing the COMPANY under the Management Agreement and shall
make its best efforts to lead the COMPANY to do business by
itself after five (5) years. When the COMPANY agrees to the
extension, the decision of the Board of Directors shall be
required.
(b) After expiration of the Management Agreement, the COMPANY may
manage by itself or continue to defer management responsibilities
to AIR.
(c) Upon the termination of the Management Agreement for whatever
reasons, AIR shall still have the right to remain as a primary
distributor for the COMPANY unless AIR itself breaches the
Management Agreement or becomes insolvent.
(2) Development of the Japanese versions of the Products
(a) As the first priority objective, the COMPANY shall develop the
Japanese versions of the Products and translate the related
documents into Japanese and commercialize them with the support
of ASC.
(3) Porting, Maintenance and Support
(a) In addition to marketing the Japanese versions
11
<PAGE>
of the Products, the COMPANY shall port them to a strategic
machine and commence the maintenance of the source code and the
operation of user support.
(b) Such work as stated in paragraph (a) above can be ordered to a
third party subject to approval of the Board of Directors.
(4) Support from ASC
(a) ASC shall receive engineers from the COMPANY for training
purposes during the period of development of the Japanese
versions of the Products.
(b) ASC shall assist the support department of the COMPANY through
fully making its on-line services accessible.
ARTICLE 10. ACCOUNTING
The COMPANY shall, based upon generally accepted accounting principles, maintain
accurate and faithful accounts of all business and shall prepare various reports
thereof. In particular, the COMPANY shall follow ASC's then current revenue
recognition policies. Each Party shall, at its own expense, be entitled to use
its appointed representative or public accountant to examine the ledgers of the
COMPANY at any reasonable time. The financial year shall begin on January 1 and
end on December 31.
ARTICLE 11. DIVIDEND POLICY
The Parties agree that it is their intention that the dividend Policy of the
COMPANY strengthen and develop the COMPANY, and that the COMPANY shall allow for
the retention of profits to provide operating capital and other financial
capital investment in order to establish the COMPANY on a sound financial
standing.
ARTICLE 12. THE CLOSING
Contribution date
(a) At the Contribution Date the Parties shall subscribe and pay fully in
cash for such shares as stipulated in
12
<PAGE>
Article 3 hereof; and
(b) The Parties shall take all of the actions required by them as the
shareholders of the COMPANY in order for the COMPANY to perform the
actions required on its part by this Article 12.
ARTICLE 13. CONDITIONS TO THE CLOSING
The obligation of the Parties under this Agreement shall be subject to the
satisfaction of each of the following conditions prior to or at the time of the
Closing:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Parties contained in this Agreement being true in all material
respects, as of the date of this Agreement and up to and including the
date of Closing;
(b) Performance of Obligations of the Parties. All obligations of each of
-----------------------------------------
the Parties to be performed prior to or at the time of the Closing
pursuant to the provisions of this Agreement shall have been duly
performed;
(c) All Proceedings to be Satisfactory. All corporate and other
----------------------------------
proceedings to be taken by the Parties in connection with the
transactions contemplated hereby and all documents incident thereto
shall be satisfactory in form and substance to the Parties, and the
Parties shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably
request; and
(d) Governmental Approvals. All approvals of the Government of Japan and
----------------------
the Government of the United States, if any, necessary for the
performance of this Agreement shall have been obtained, and such
approvals shall be in full force and effect on the date of Closing.
ARTICLE 14. REPRESENTATIONS AND WARRANTIES
Each Party represents and warrants to the other Parties as follows:
(a) Organization and Authority. Each Party is a
--------------------------
13
<PAGE>
corporation duly organized, validly existing and in good standing
under the laws of its respective countries; is duly qualified to
transact business in and is in good standing under the laws of all
other jurisdictions where it now transacts business; has all requisite
corporate power and authority to own, lease or operate its properties
and to transact its business as now being transacted; and has all
licenses, permits or other authorizations, and has taken all actions,
required by applicable laws or governmental regulations in connection
with its business as now transacted.
(b) Validity of this Agreement. Each Party has the right and power to
--------------------------
enter into and perform its obligations under this Agreement; has taken
all necessary corporate action required to enter into and perform
their obligations under this Agreement and this Agreement constitutes
the legal, valid and binding obligation of each of the Parties,
enforceable in accordance with its terms.
(c) Adequate Financing. Each Party has funds sufficient to pay the
------------------
Purchase Price and there is no litigation, legal action, arbitration,
proceeding, demand, claim or investigation pending or to the knowledge
of each of the Parties threatened, planned or contemplated against
such Parties which might adversely affect the ability of such Parties
to consummate the transactions contemplated hereby.
(d) Full Disclosure. The disclosures of each of the
---------------
Parties contained in this Agreement or any Exhibit
hereto contain no untrue or misleading statement
of any material fact and do not omit to state a
material fact required to be stated therein or
necessary to make the statements therein, in the
light of the circumstances under which they were
made, accurate.
ARTICLE 15. INDEMNIFICATION
Indemnification by the Parties. Each Party shall indemnify and hold the other
- ------------------------------
Parties and the COMPANY harmless against, and shall reimburse the other Parties
or the COMPANY, as the case may be, for any loss or damage including without
limitation attorney's fees reasonably incurred arising out of any
14
<PAGE>
misrepresentation, breach or nonfulfillment of the conditions specified in
Article 13 and 14 of this Agreement.
ARTICLE 16. EFFECTIVE DATE
This Agreement shall come into effect upon the date first above written.
ARTICLE 17. TERMINATION FOR CAUSE
17.1 After the Closing, in the event that i) any of the Parties fails to
perform any material obligation or undertaking to be performed by it under
this Agreement and such failure shall not be cured within ninety (90) days
after written notice thereof from such a Party ("Causing Party") or ii)
any of the Parties are dissolved, liquidated, unable to pay its debts as
they become due as a consequence of bankruptcy, or voluntarily or through
compulsion assigns all or a major portion of its assets to a third party
("Causing Party"), any of the other Parties shall have the right to
terminate this Agreement forthwith by giving written notice of termination
to the Causing Party.
17.2 In the event that this Agreement was terminated in any event described in
Article 17.1, upon termination of this Agreement, the other Parties or its
designee shall have a priority right (but not obligation) to purchase all
shares owned by the Causing Party at a twenty percent (20%) off price per
share the value of which is calculated on the basis of the Net Book Value
as determined by a qualified appraiser appointed by mutual agreement of
the Parties or, failing such agreement, by a reputable accounting firm of
international standing having a branch in Japan, to be appointed by the
President of the International Chamber of Commerce in Tokyo.
17.3 The Net Book Value of the COMPANY, as used herein, shall mean the
aggregate amount of assets shown on the books of the COMPANY as of the
date (the "Determination Date") which shall be the last day of the month
preceding the date of the purchase option mentioned above in Article 17.2,
less the aggregate amount of liabilities shown thereon at such date. Fixed
assets, land, buildings, machine tools and machinery shall be evaluated on
the basis of replacement cost after deduction of an equitable amount for
wear and tear, and the resulting adjusted value shall replace the
15
<PAGE>
corresponding book value. Inventories shall be evaluated at the import
price of goods and components thereof. Leased goods shall be evaluated at
replacement cost after deduction of both (i) an equitable amount for wear
and tear, and (ii) outstanding rents payable on or after the Determination
Date.
ARTICLE 18. TERMINATION FOR BUSINESS REASONS
In the event that the COMPANY shall have an accumulated loss in retained
earnings of the amount no less than its capital as of its audited balance sheet
for any fiscal year, the Parties shall consult the possibility of dissolution of
the COMPANY.
ARTICLE 19. SECRECY OBLIGATION
All of the Parties shall maintain the secrecy of and not disclose to any third
party any technical, economic, financial and/or marketing information obtained
from the other Parties and the COMPANY. However, this shall not apply to
disclosures of information clearly required by this Agreement, related
agreements or law.
The secrecy obligations of the Parties arising from this Agreement shall not
apply to information obtained from the other Parties or from the COMPANY which,
with the exception of a Party's intentional or negligent disclosure, becomes
published or otherwise public knowledge, or which was known to the Parties
receiving disclosure at the time of such disclosure. The above mentioned
obligations, as limited, shall continue in effect after the termination of this
Agreement for a period of five (5) years.
ARTICLE 20. FORCE MAJEURE
None of the Parties shall be responsible for failure to observe or perform its
obligations under this Agreement if such failure is due to Act of God, war,
warlike hostility, civil commotion, riots, strikes, governmental acts, sabotage,
labor troubles or any other causes which are beyond reasonable control of the
Party so affected. In no event shall lack of finances be considered as a cause
beyond reasonable control of a Party. The Party so affected shall promptly give
the other Parties reasonably detailed written notice of the Cause of such
failure and probable extent of continuance of such cause and use its best
efforts to avoid or remove such cause. Whenever such cause
16
<PAGE>
is removed, such Party shall resume and complete performance as soon as
practicable.
ARTICLE 21. ARTICLES OF INCORPORATION
21.1 The Articles of Incorporation of the COMPANY attached hereto as Exhibit
(A) shall constitute a part hereof.
21.2 In the event of any discrepancy between the provisions of this Agreement
and the provisions of the Articles of Incorporation, the provisions of
this Agreement shall prevail.
ARTICLE 22. NOTICES
All notices required or permitted by this Agreement shall be dispatched in
writing to the intended recipient at the addresses listed above for each of the
Parties.
Any of the Parties may change its above address by notice dispatched in
accordance with the provisions hereof.
Notices as well as other written messages may be delivered by hand, facsimile or
registered airmail; provided, however, facsimiles shall be confirmed by
registered airmail within seven (7) days. All notices so dispatched shall be
deemed effective upon delivery.
ARTICLE 23. MISCELLANEOUS PROVISIONS
23.1 GOVERNING LAW
The drafting, legal validity, interpretation and enforcement of this
Agreement shall be governed by the laws of Japan.
23.2 ARBITRATION
All disputes, conflicts and differences between the Parties arising out of
or in connection with this Agreement shall be finally resolved in Tokyo,
Japan, under the Commercial Arbitration Rules of the Japan Commercial
Arbitration Association, with English language to be used. The award shall
be final and binding upon the Parties hereto.
23.3 COMMON LANGUAGE
17
<PAGE>
All communications between the Parties, whether oral or written, with
respect to or in connection with this Agreement and the COMPANY, shall be
conducted in English.
23.4 CONTROLLING VERSION
The English language version of this Agreement shall be deemed
controlling.
23.5 ASSIGNMENT
This Agreement may not, either through the act of any Party or through
application of law, be assigned without the prior written consent of the
Parties.
23.6 PUBLIC ANNOUNCEMENT
All public announcements relating to this Agreement or the transactions
contemplated hereby, including announcements to employees, shall be made
only as may be agreed upon jointly by the Parties hereto.
23.7 HEADINGS
All headings of the articles of this Agreement are for convenience of
reference only and shall neither be deemed a part of this Agreement nor be
permitted to influence the interpretation hereof.
23.8 ENTIRE AGREEMENT; AMENDMENT
This Agreement and the Exhibits attached hereto constitute the entire
agreement of the Parties hereto and supersede any and all prior
negotiation, correspondence, understanding and agreements among the
Parties respecting the subject matter hereof. This Agreement may only be
amended through a written agreement signed by the Parties.
23.9 SEVERABILITY
Any articles or provisions of this Agreement which are invalid or
unenforceable shall have no influence upon the validity or enforceability
of the remaining articles or provisions of this Agreement. However, this
shall not apply if said invalid or unenforceable provisions are
fundamental to this Agreement or cannot legally be severed herefrom.
Moreover, the Parties shall attempt to negotiate
18
<PAGE>
substitute provisions which achieve the objectives of this Agreement and
the intent of the Parties.
23.10 WAIVER
The failure of a Party to exercise any right provided by this Agreement or
to protest any breach of this Agreement by the other Party shall not be
deemed a waiver of said Party's right to exercise said right or to protest
said breach at any other time.
23.11 ACKNOWLEDGEMENT
The Parties hereto acknowledge the terms and conditions of this Agreement
and hereby undertake to ensure that the COMPANY shall carry out its
management and administration and its business in accordance with the
terms and conditions of this Agreement and shall perform all obligations
intended under this Agreement to be undertaken or performed by the
COMPANY.
IN WITNESS WHEREOF, the Parties have caused their duly authorized
representatives to execute this Agreement in seven (7) originals as of the
day and year first appearing hereinabove. Each Party shall retain one
signed original.
AIR CO., LTD.
By: /s/ Yoichi Kitayama
--------------------
Name: YOICHI KITAYAMA
Title: President
ACTUATE SOFTWARE CORPORATION
By:/s/ Nicolas Nierenberg
------------------------
Name: NICOLAS NIERENBERG
Title: President
19
<PAGE>
TOSHIBA INFORMATION SYSTEMS (JAPAN) CORPORATION
By: /s/ Hiromu Ogawa
------------------
Name: HIROMU OGAWA
Title: GENERAL MANAGER
TOKYO SOFTWARE DEVELOPMENT CENTER
COMPUTER INSTITUTE OF JAPAN, LTD.
By: /s/ Marashiko Oshika
---------------------
Name: Marashiko Oshika
Title: Director Manager
SUMITOMO METAL INDUSTRIES, LTD.
By: /s/ Eiichi Ueda
----------------
Name: EIICHI UEDA
Title: DIRECTOR/GENERAL MANAGER
SOME 21 CO., LTD.
By:/s/ Osamu Yamamoto
------------------
Name: OSAMU YAMAMOTO
Title: President
MASANORI HARADA
By: /s/ Masanori Harada
--------------------
Name:
Title:
20
<PAGE>
EXHIBIT A
---------
ARTICLES OF INCORPORATION OF ACTUATE JAPAN COMPANY LTD.
CHAPTER I. GENERAL PROVISIONS
Article 1. Corporate Name
- --------- --------------
The name of the Company shall be [Japanese characters]. In English, the Company
shall be called Actuate Japan Company Ltd.
Article 2. Objects and Purposes
- ---------- --------------------
The objects and purposes of the Company shall be as follows:
1. The import, development, manufacture, training, marketing and sales of
computer software and program systems;
2. Any other business related to or connected with the activities described
above.
Article 3. Location of Head Office
- ---------- -----------------------
The Company shall have its head office in Minato-Ku, Tokyo, Japan.
Article 4. Method of Public Notice
- ---------- -----------------------
All public notices by the Company shall be published in the Japanese Official
Gazette (Kampo).
<PAGE>
CHAPTER II. SHARES
Article 5. Number of Shares Authorized to be Issued
- ---------- ----------------------------------------
The total number of shares authorized to be issued by the Company shall be nine
thousand six hundred (9,600) shares.
Article 6. Type and Par Value of Shares
- ---------- ----------------------------
All shares of the Company shall be voting shares of common stock with a par
value of fifty thousand (50,000) Japanese Yen per share.
Article 7. Right to New Shares
- ---------- -------------------
Holders of any shares of the Company shall have the pre-emptive right to any
type of shares or any securities convertible to or exercisable for any type of
shares to be issued by the Company in proportion to the number of voting rights
which the shares held by the holders at the time of issuance thereof represent.
Article 8. Types of Share Certificates
- ---------- ---------------------------
1. Share certificates to be issued by the Company shall be in denominations of
one (1), ten (10), one hundred (100) and one thousand (1,000) shares, or in
such other denominations as shall be determined by the Board of Directors.
2. In the event that a shareholder does not wish to possess the share
certificates in his/her custody, the shareholder shall make a written
proposal to that effect to the Company and at the same time submit the
share certificates if they have already been issued.
Article 9. Restriction on Transfer of Shares
- ---------- ---------------------------------
1. The unanimous approval of the Board of Directors shall be required for the
transfer of shares.
2. The foregoing restriction shall be imprinted on the share certificates.
2
<PAGE>
Article 10. Registration of Shareholders
- ----------- ----------------------------
1. Request for the registration of transfer of the shares of the Company shall
be made in the form specified by the Company and shall be submitted to the
Company together with the share certificates.
2. In case of the transfer of shares by the operation of law including
inheritance or merger, the documents to prove the cause of transfer shall
also be submitted to the Company.
Article 11. Registration of Pledge or Trust
- ----------- -------------------------------
1. Request for the registration of pledge of shares shall be made in the form
specified by the Company and shall be submitted to the Company together
with the share certificates; provided that Article 9 and 10 shall apply to
the transfer of the shares by foreclosure of the pledge.
2. In case a shareholder shall wish to place shares into trust, the provisions
of Article 9 through 11 shall apply mutatis mutandis.
3. Cancellation of the registration of the pledge or trust shall be subject to
the same procedure set forth in this Article
Article 12. Reissuance of Share Certificates
- ----------- --------------------------------
1. To request reissuance of share certificates which have been defaced or
split, or which are to be aggregated into a larger denomination, or any
reasons other than the loss or theft thereof, a written request in the form
prescribed by the Company and the share certificates shall be submitted to
the Company.
2. To request reissuance of share certificates which have been lost or are
otherwise not in the possession of the shareholder, a written request in
the form prescribed by the Company and the original copy or the certified
photocopy of the judgment of nullification of such lost share certificates
shall be submitted to the Company.
Article 13. Fees
- ----------- ----
3
<PAGE>
The fees prescribed by the Company shall be paid by the shareholder in the event
of the request set forth in Articles 10, 11, or 12.
Article 14. Closing of the Shareholders' Register, etc.
- ----------- -------------------------------------------
1. Entries in the Shareholders' Register shall be suspended from the day
following the last day of each fiscal year of the Company until the close
of the ordinary general meeting of shareholders pertaining to the said
fiscal year.
2. In addition to the preceding paragraph, the Shareholders' Register may be
closed, if necessary, at any other time for a period not exceeding three
(3) months by giving at least two (2) weeks prior public notice thereof.
Article 15. Notification of Address, etc.
- ----------- -----------------------------
1. Each shareholder and registered pledges or their legal representative or
authorized representative shall notify the Company of his name, address and
seal impression by a written notification in the form prescribed by the
Company.
2. The Company shall likewise be notified of any changes in the matters
prescribed in the preceding paragraph.
3. Foreign nationals who are not accustomed to using seal impressions may
utilize their signatures for the purposes of the preceding two (2)
paragraphs.
CHAPTER III. GENERAL MEETINGS OF SHAREHOLDERS
Article 16. Convening of General Meetings of Shareholders
- ----------- ---------------------------------------------
An ordinary general meeting of shareholders of the Company shall be convened
during the month of March of each year. An extraordinary general meeting of
shareholders may be convened whenever necessary.
Article 17. Authority to Convene General Meetings of Shareholders
- ----------- -----------------------------------------------------
Except as otherwise provided by laws, general meetings of shareholders shall be
convened by the Chairman of the Board
4
<PAGE>
(Kaicho) pursuant to a resolution of the Board of Directors. If the Chairman of
the Board is unable or unwilling to convene a general meeting of shareholders,
another director, in accordance with the order previously determined by the
Board of Directors, may convene the meeting.
Article 18. Location of General Meetings of Shareholders
- ----------- --------------------------------------------
General meetings of shareholder of the Company shall be held at the head office
of the Company or at such other place as the shareholders of record unanimously
agree.
Article 19. Notice of General Meetings of Shareholders
- ----------- ------------------------------------------
1. A notice of the convocation of a general meeting of shareholders shall be
dispatched in writing to each shareholder of record at least two (2) weeks
prior to the date of such meeting.
2. The above mentioned notice may be waived or the above mentioned period of
notice may be shortened for a particular general meeting with the unanimous
consent of the shareholders of record.
3. The notice of a general meeting of shareholders shall state the agenda of
the meeting.
Article 20. Person to Preside at General Meetings of Shareholders
- ----------- -----------------------------------------------------
The Chairman of the Board shall preside as chairman at all general meetings of
shareholders. If the Chairman of the Board is absent or unable to preside,
another director of the Company, in accordance with the order previously
determined by the Board of Directors, shall preside at the meeting.
Article 21. Resolutions of General Meetings of Shareholders
- ----------- -----------------------------------------------
1. Except as otherwise provided by laws or these Articles of Incorporation,
resolutions of a general meeting of shareholders shall be adopted by the
affirmative vote of a majority of the voting shares present or represented
by proxy at such meeting at which a majority of the issued and outstanding
shares are present or represented by proxy.
5
<PAGE>
2. The following items shall be adopted by two thirds (2/3) vote of the voting
shares present or represented at a general meeting of shareholders at which
two thirds (2/3) of the issued and outstanding shares are present or
represented.
(i) Any amendments or other changes to the Articles of
Incorporation;
(ii) Changes to the composition of the Board of Directors;
(iii) Election or appointment, change or removal of any Director or
statutory auditor;
(iv) Early wind-up, liquidation or dissolution of the Company;
(v) Merger, reorganization, consolidation or other form of business
combination;
(vi) Dividends (including stock dividends) or similar payments to
shareholders or any stock split, combination or
reclassification of any securities;
(vii) Any other matters with respect to which Japanese law requires
the approval of more than a simple majority vote of the
shareholders; and
CHAPTER IV. DIRECTORS, BOARD OF DIRECTORS AND AUDITORS
Article 22. Number of Directors and Auditors
- ----------- --------------------------------
The Company shall have nine (9) directors and one (1) statutory auditor;
Directors and statutory auditors are not required to be shareholders of the
Company.
Article 23. Election of Directors and Statutory Auditors
- ----------- --------------------------------------------
1. All directors and statutory auditors shall be elected at a general meeting
of shareholders.
2. In case of election of directors, cumulative voting shall not be permitted.
6
<PAGE>
Article 24. Term of Office Directors and Statutory Auditors
- ----------- -----------------------------------------------
1. All directors and statutory auditors shall hold office for a period
commencing upon the close of the ordinary general meeting of shareholders
at which they were elected and ending upon the close of the second and
third ordinary general meeting of shareholders respectively for directors
and statutory auditors following such election.
2. The term of office of a director or a statutory auditor elected to fill a
vacancy or elected due to an increase in number of directors shall be,
respectively, concurrent with the term of each office of the director or
the statutory auditor to whom he succeeds or the directors or the statutory
auditor in office at the time of his election.
3. A director or a statutory auditor may be re-elected for one or more terms
of office.
Article 25. Authority to Convene Meetings of Board of Directors
- ----------- ---------------------------------------------------
Meetings of the Board of Directors shall be convened upon the request of any one
(1) director of the Company.
Article 26. Notice of Meetings of Board of Directors
- ----------- ----------------------------------------
1. A notice of the convocation of a meeting of the Board of Directors shall be
dispatched in writing to each director and statutory auditor at least
fourteen (14) days prior to the date of such meeting.
2. The above mentioned notice may be waived or the above mentioned period of
notice may be shortened for a particular meeting of the Board of Directors
with the unanimous consent of the directors and statutory auditors.
Article 27. Person to Preside at Meetings of Board of Directors
- ----------- ---------------------------------------------------
The Chairman of the Board shall preside as chairman at meetings of the Board of
Directors; provided, however, that if the Chairman of the Board is unable or
unwilling to preside at a meeting, another director, in accordance with the
order previously determined by the Board of Directors, may preside at
7
<PAGE>
the meeting.
Article 28. Quorum and Resolution of Board of Directors
- ----------- -------------------------------------------
1. The quorum for a meeting of the Board of Directors shall be five (5)
directors in office.
2. A resolution of the Board of Directors shall be made by the majority of
directors in office except for the transfer of shares in which the
unanimous vote of the Board of Directors will be required.
Article 29. Representative Directors, etc
- ----------- -----------------------------
1. The Board of Directors shall elect two (2) representative directors from
among the directors.
2. The Board of Directors shall elect the Chairman of the Board and the
President from among the representative directors.
Article 30. Remuneration and Retirement Allowances
- ----------- --------------------------------------
The directors and the statutory auditors will not receive compensation for their
services as such members.
CHAPTER V. ACCOUNTING
Article 31. Fiscal Year
- ----------- -----------
The fiscal year of the Company shall begin on January 1 of each year and end on
December 31 of the same year.
Article 32. Payment Dividends etc
- ----------- ---------------------
1. Dividends shall be paid to shareholders of record (including registered
pledgees) as of the last day of the business term for which the dividends
are declared. Dividends shall not yield interest.
2. The Company may, through a resolution of the Board of
8
<PAGE>
Directors, make a distribution of each (interim dividends) to the
shareholders of record (including registered pledgees) as of the 30th day
of June each year pursuant to the provision of Article 293-5 of the
Commercial Code of Japan. Interim dividends shall not yield interest.
3. In the event that a shareholder has not received dividends or interim
dividends within three (3) years after the date on which the payment of
such dividends Or interim dividends was offered, the Company shall be
released from its obligation to make such payment.
CHAPTER VI. SUPPLEMENTARY PROVISIONS
Article 33. Share to be issued at Time of Incorporation
- ----------- -------------------------------------------
The number of the shares to be issued at the time of Incorporation of the
Company shall be two thousand four hundred (2,400) shares, with a par value of
fifty thousand (50,000) Japanese Yen, of common stock, which shall be issued at
the issue price of fifty thousand (50,000) Japanese Yen per share.
Article 34. Initial term of Office
- ----------- ----------------------
Notwithstanding the provisions of Article 24, the terms of office of the initial
directors and statutory auditors shall expire at the close of the first ordinary
general meeting of shareholders following their assumption of office.
Article 35. First fiscal year
- ----------- -----------------
The first fiscal year of the Company shall be from the date of incorporation of
the Company to December 31, 1996.
Article 36. Name and addresses of promoters and numbers of Shares to be
- ----------- -----------------------------------------------------------
subscribed
----------
The name and address of the promoter of the Company and the number of shares
subscribed are as follows:
Address Name the number of
- ------- ---- -------------
shares subscribed
-----------------
9
<PAGE>
5-31-20 Senriyama-Nishi AIR CO., LTD 400
Suita-Shi
Osaka 565
Japan
IN WITNESS WHEREOF, for the incorporation of Actuate Japan Company Ltd. the
following promoter prepared these Articles of Incorporation and affixed its name
and seal below.
March _____, 1996
_______________________
10
<PAGE>
EXHIBIT B
---------
I. The DISTRIBUTOR's Advance Payment and Invoice Rate
[Class A]
1. Advance Payment: 30,000,000 Japanese Yen
2. Invoice Rate:
The following invoice rate shall be applied to the standard price
(including the various volume discounts) determined by the
COMPANY.
All versions of the PRODUCTS 50%
[Class B]
1. Advance Payment: 60,000,000 Japanese Yen
2. Invoice Rate:
The following invoice rate shall be applied to the standard price
(including the various volume discounts) determined by the
COMPANY.
All versions of the PRODUCTS 45%
II. Invoice rates for manuals, user support, training courses and other
services shall be determined separately.
III. The DISTRIBUTOR making the initial advance payment in accordance with the
above mentioned classifications shall have the right to the corresponding
invoice rate for the first two (2) years provided always that such payment
be made within the first (1) year of the COMPANY's operations. The second
and following advance payment shall be effective respectively for one (1)
year in order to enjoy the rights of the corresponding invoice rate.
IV. Any advance payment of the royalty which will not be utilized by the
DISTRIBUTOR for the period mentioned above may, at the option of the
DISTRIBUTOR, be added to the advance payment of royalty for the subsequent
period. However, in the event that the DISTRIBUTOR does not pay the advance
payment of royalty for the subsequent period, such DISTRIBUTOR will be
classified as [A Class] distributor.
<PAGE>
V. Designated Bank:
Name of Bank
Current Account No.
Actuate Japan Company Ltd.
2
<PAGE>
EXHIBIT 10.12
LOAN AND SECURITY AGREEMENT
ACTUATE SOFTWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS.............................................................. 4
--------------------------
2 LOAN AND TERMS OF PAYMENT............................................................... 4
-------------------------
2.1 Credit Extensions............................................................ 4
2.2 Overadvances................................................................. 6
2.3 Interest Rate, Payments...................................................... 6
2.4 Fees......................................................................... 6
3 CONDITIONS OF LOANS..................................................................... 6
-------------------
3.1 Conditions Precedent to Initial Credit Extension............................. 6
3.2 Conditions Precedent to all Credit Extensions................................ 6
4 CREATION OF SECURITY INTEREST........................................................... 7
-----------------------------
4.1 Grant of Security Interest................................................... 7
5 REPRESENTATIONS AND WARRANTIES.......................................................... 7
------------------------------
5.1 Due Organization and Authorization........................................... 7
5.2 Collateral................................................................... 7
5.3 Litigation................................................................... 7
5.4 No Material Adverse Change in Financial Statements........................... 7
5.5 Solvency..................................................................... 8
5.6 Regulatory Compliance........................................................ 8
5.7 Subsidiaries................................................................. 8
5.8 Full Disclosure.............................................................. 8
6 AFFIRMATIVE COVENANTS................................................................... 8
---------------------
6.1 Government Compliance........................................................ 8
6.2 Financial Statements, Reports, Certificates.................................. 8
6.3 Inventory; Returns........................................................... 9
6.4 Taxes........................................................................ 9
6.5 Insurance.................................................................... 9
6.6 Primary Accounts............................................................. 9
6.7 Financial Covenants.......................................................... 9
6.8 Registration of Intellectual Property Rights................................. 10
6.9 Further Assurances........................................................... 10
7 NEGATIVE COVENANTS...................................................................... 10
------------------
7.1 Dispositions................................................................. 10
7.2 Changes in Business, Ownership, Management or Business Locations............. 11
7.3 Mergers or Acquisitions...................................................... 11
7.4 Indebtedness................................................................. 11
7.5 Encumbrance.................................................................. 11
7.6 Distributions; Investments................................................... 11
7.7 Transactions with Affiliates................................................. 11
7.8 Subordinated Debt............................................................ 11
7.9 Compliance................................................................... 11
8 EVENTS OF DEFAULT....................................................................... 12
-----------------
8.1 Payment Default.............................................................. 12
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.2 Covenant Default............................................ 12
8.3 Material Adverse Change..................................... 12
8.4 Attachment.................................................. 12
8.5 Insolvency.................................................. 12
8.6 Other Agreements............................................ 12
8.7 Judgments................................................... 13
8.8 Misrepresentations.......................................... 13
9 BANK'S RIGHTS AND REMEDIES............................................. 13
--------------------------
9.1 Rights and Remedies......................................... 13
9.2 Power of Attorney........................................... 13
9.3 Accounts Collection......................................... 14
9.4 Bank Expenses............................................... 14
9.5 Bank's Liability for Collateral............................. 14
9.6 Remedies Cumulative......................................... 14
9.7 Demand Waiver............................................... 14
10 NOTICES............................................................... 14
-------
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER............................ 15
-------------------------------------------
12 GENERAL PROVISIONS.................................................... 15
------------------
12.1 Successors and Assigns..................................... 15
12.2 Indemnification............................................ 15
12.3 Time of Essence............................................ 15
12.4 Severability of Provision.................................. 15
12.5 Amendments in Writing, Integration......................... 15
12.6 Counterparts............................................... 15
12.7 Survival................................................... 16
12.8 Confidentiality............................................ 16
12.9 Attorneys' Fees, Costs and Expenses........................ 16
13 DEFINITIONS........................................................... 16
-----------
13.1 Definitions................................................ 16
</TABLE>
<PAGE>
This LOAN AND SECURITY AGREEMENT dated May 26, 1998, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 with a loan production office located at 1731 Embarcadero, Ste.
220, Palo Alto, California 94303 and ACTUATE SOFTWARE CORPORATION ("Borrower"),
whose address is 999 Baker Way, Suite 330, San Mateo, California 94404 provides
the terms on which Bank will lend to Borrower and Borrower will repay Bank. The
parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
--------------------------
Accounting terms not defined in this Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
-------------------------
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding (i) the lesser of (A) the
Committed Revolving Line minus the Cash Management Services Sublimit or (B) the
Borrowing Base, whichever is less, minus (ii) the amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit), and
minus (iii) the Foreign Exchange Reserve. Amounts borrowed under this Section
may be repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.
2.1.2 LETTERS OF CREDIT.
Bank will issue or have issued Letters of Credit for Borrowers account
not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing
Base minus (ii) the outstanding principal balance of the Advances minus the Cash
Management Sublimit, minus the Foreign Exchange Reserve; however, the face
amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) may not exceed $1,000,000.
Each Letter of Credit will have an expiry date of no later than 180 days after
the Revolving Maturity Date, but Borrowers reimbursement obligation will be
secured by cash on terms acceptable to Bank at any time after the Revolving
Maturity Date if the term of this Agreement is not extended by Bank.
<PAGE>
2.1.3 FOREIGN EXCHANGE CONTRACT; FOREIGN EXCHANGE SETTLEMENTS.
Borrower may enter foreign exchange contracts (the Exchange Contracts)
not exceeding an aggregate amount of $1,000,000 (the Contract Limit), under
which Bank will sell to or purchase from Borrower foreign currency on a spot or
future basis. Borrower may not request any Exchange Contracts if it is out of
compliance with any provision of this Agreement. Exchange Contracts must provide
for delivery of settlement on or before the Revolving Maturity Date. The amount
available under the Committed Revolving Line is reduced by the following (the
Foreign Exchange Reserve) on any given day (the Determination Date): (i) on all
outstanding Exchange Contracts on which delivery is to be effected or settlement
allowed more than two business days after the Determination Date, 10% of the
gross amount of the Exchange Contracts; plus (ii) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement allowed within two
business days after the Determination Date, 100% of the gross amount of the
Exchange Contracts.
Bank may terminate the Exchange Contracts if (a) an Event of Default
occurs or (b) there is not sufficient availability under the Committed Revolving
Line and Borrower does not have available funds in its deposit account for the
Foreign Exchange Reserve. If Bank terminates the Exchange Contracts, Borrower
will reimburse Bank for all fees, costs and expenses in connection with the
Exchange Contracts.
Borrower may not permit the total of all Exchange Contracts on which
delivery is to be effected and settlement allowed in any two business day period
to be more than $1,000,000 (the Settlement Limit) nor may Borrower permit the
total of all Exchange Contracts outstanding at any one time, to exceed the
Contract Limit. However, the amount which may be settled in any 2 business day
period may be increased above the Settlement Limit up to, but not above the
Contract Limit if:
(i) there is sufficient availability under the Committed Revolving Line
in the amount of the Foreign Exchange Reserve for each Determination
Date, provided that Bank in advance shall reserve the full amount of the
Foreign Exchange Reserve against the Committed Revolving Line; or
(ii) there is insufficient availability under the Committed Revolving
Line for settlements within any 2 business day period, but Bank: (A)
verifies good funds overseas before crediting Borrowers deposit account
(if Borrower sells foreign currency); or (B) debits Borrowers deposit
account before delivering foreign currency overseas (if Borrower
purchases foreign currency).
If Borrower purchases foreign currency, Borrower in advance must instruct
Bank either to treat the settlement as an advance under the Committed Revolving
Line, or to debit Borrowers account for the amount settled.
Borrower will execute all Banks standard applications and agreements in
connection with the Exchange Contracts and pay all Banks standard fees and
charges.
Borrower will indemnify Bank and hold it harmless from all claims,
liabilities, demands, obligations, actions, costs and expenses (including
reasonable attorneys fees) which it incurs arising out of or in any way relating
to any of the Exchange Contracts or any contemplated transactions.
2.1.4 CASH MANAGEMENT SERVICES SUBLIMIT.
Borrower may use up to $1,000,000 for Banks Cash Management Services,
which may include merchant services, direct deposit of payroll, business credit
card, and check cashing services identified in various cash management services
agreements related to such services (the Cash Management Services). All amounts
Bank pays for any Cash Management Services will be treated as Advances under the
Committed Revolving Line.
<PAGE>
2.2 OVERADVANCES.
If Borrowers Obligations under Section 2.1.1, 2.1.2 and 2.1.3 exceed the
Borrowing Base or if Borrower's Obligations under Section 2.1.1, 2.1.2, 2.1.3
and 2.1.4 exceed the Committed Revolving Line, Borrower must immediately pay
Bank the excess. At no time shall the sum of (a) the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) plus (b) the Foreign Exchange Reserve plus (c) Cash
Management Sublimit exceed $1,000,000.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate at Borrower's election of either a rate equal to the
Prime Rate or the LIBOR Rate described in the LIBOR Supplement to Loan and
Security Agreement attached hereto. After an Event of Default, Obligations
accrue interest at 5 percent above the rate effective immediately before the
Event of Default. The interest rate increases or decreases when the Prime Rate
changes. Interest is computed on a 360 day year for the actual number of days
elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable on
the 25th of each month. Bank may debit any of Borrowers deposit accounts
including Account Number __________________________ for principal and interest
payments or any amounts Borrower owes Bank. Bank will notify Borrower when it
debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
2.4 FEES.
Borrower will pay:
(a) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses and audit expenses) incurred through and after the date of
this Agreement, are payable when due, provided, however, such expenses shall be
capped at $2,500.
3 CONDITIONS OF LOANS
-------------------
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Banks obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Banks obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrowers
representation and warranty on that date that the representations and warranties
of Section 5 remain true.
<PAGE>
4 CREATION OF SECURITY INTEREST
-----------------------------
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrowers duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5 REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it
is bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are an Eligible Account in any Borrowing Base
Certificate. All Inventory is in all material respects of good and marketable
quality, free from material defects. Borrower is the sole owner of the
Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business. Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrowers
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
<PAGE>
5.5 SOLVENCY.
The fair salable 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 in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
---------------------
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrowers business or operations. Borrower will comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrowers business or operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month (or 50 days after the last day of
each fiscal quarter if Borrower completes its Initial Public Offering on or
before September 30, 1998), a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during the period,
in a form and certified by a Responsible Officer acceptable to Bank; (ii) as
soon as available, but no later than 90 days (or 95 days at such time as
Borrower completes its Initial Public Offering) after the last day of Borrower's
fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with
<PAGE>
an unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank; (iii) within 5 days of filing, copies
of all statements, reports and notices made available to Borrowers security
holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-
Q and 8-K filed with the Securities and Exchange Commission; (iv) a prompt
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 $100,000 or more; (v) budgets, sales projections, operating plans or other
financial information Bank requests; and (vi) prompt notice of any material
change in the composition of the Intellectual Property, including any subsequent
ownership right of Borrower in or to any Copyright, Patent or Trademark not
shown in any intellectual property security agreement between Borrower and Bank
or knowledge of an event that materially adversely affects the value of the
Intellectual Property.
(b) Within 20 days after the last day of each month, Borrower will
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
the form of Exhibit C, with aged listings of accounts receivable and accounts
payable.
(c) Borrower will deliver to Bank with the financial statements described
in Section 6.2(a), a Compliance Certificate signed by a Responsible Officer in
the form of Exhibit D.
(d) Bank has the right to audit Borrower's Accounts at Borrower's
expense, but the audits will be conducted no more often than every 6 months
unless an Event of Default has occurred and is continuing.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrowers customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Banks option, be payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts with
Bank. At such time as Borrower completes its Initial Public Offering, and for
no less than 1 year thereafter or until the Revolving Maturity Date, whichever
is earlier, Borrower shall maintain an amount not less than $3,000,000 in daily
balances in its primary depository and operating accounts with Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each quarter, unless
otherwise stated:
<PAGE>
(i) QUICK RATIO [ADJUSTED]. A ratio of Quick Assets to Current
Liabilities minus Deferred Maintenance Revenue of at least 1.25 to 1.00 (to be
tested monthly).
(ii) LIQUIDITY COVERAGE. A ratio of unrestricted cash (and
equivalents) plus net availability under the Committed Revolving Line divided by
outstanding Advances of not less than 2.00 to 1.00.
(iii) PROFITABILITY. Borrower will be profitable each quarter, except
that Borrower may suffer a loss not to exceed $1,700,000 for the fiscal quarter
ending June 30, 1998 and $300,000 for the fiscal quarter ending September 30,
1998.
In the event that Borrower completes its Initial Public Offering on or
before September 30, 1998, the above covenants shall be replaced with the
following:
Borrower will maintain as of the last day of each quarter:
(i) QUICK RATIO. A ratio of Quick Assets to Current Liabilities of
at least 2.00 to 1.00.
(ii) LIQUIDITY COVERAGE. A ratio of unrestricted cash (and
equivalents) plus net availability under the Committed Revolving Line divided by
outstanding Advances of not less than 2.00 to 1.00.
(iii) TANGIBLE NET WORTH. A Tangible Net Worth of at least
$10,000,000.
6.8 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Borrower will register with the United States Patent and Trademark Office
or the United States Copyright Office Intellectual Property rights on Exhibits
A, B, C, and D to the Intellectual Property Security Agreement within 30 days of
the date of this Agreement, and additional Intellectual Property rights
developed or acquired including revisions or additions with any product before
the sale or licensing of the product to any third party.
Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Banks written consent.
6.9 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
------------------
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
<PAGE>
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at least
30 days prior written notice, relocate its chief executive office or add any new
offices or business locations.
7.3 MERGERS OR ACQUISITIONS.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, if no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement or
result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that 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 other law or regulation, if the violation could have a
material adverse effect on Borrowers business or operations or cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
<PAGE>
8 EVENTS OF DEFAULT
-----------------
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrowers attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Credit Extensions
will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority
of the Banks security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;
<PAGE>
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrowers benefit 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, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a non-
exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property 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, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's
name on any checks or other forms of payment or security; (ii) sign Borrower's
name on any invoice or bill of lading for any Account or drafts against
<PAGE>
account debtors, (iii) make, settle, and adjust all claims under Borrower's
insurance policies; (iv) settle and adjust disputes and claims about the
Accounts directly with account debtors, for amounts and on terms Bank determines
reasonable; and (v) transfer the Collateral into the name of Bank or a third
party as the Code permits. Bank may exercise the power of attorney to sign
Borrowers name on any documents necessary to perfect or continue the perfection
of any security interest regardless of whether an Event of Default has occurred.
Banks appointment as Borrower's attorney in fact, and all of Bank's rights and
powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Bank's obligation to provide Credit
Extensions terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Banks waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Banks exercise of one right or remedy is
not an election, and Banks waiver of any Event of Default is not a continuing
waiver. Banks delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, 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 held by Bank on which Borrower is
liable.
10 NOTICES
-------
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
<PAGE>
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
-------------------------------------------
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
------------------
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has 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
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including 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 in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge 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, are an original, and all taken together, constitute one Agreement.
<PAGE>
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Banks subsidiaries or affiliates in
connection with their business with Borrower, (ii) to prospective transferees or
purchasers of any interest in the Loans, (iii) as required by law, regulation,
subpoena, or other order, (iv) as required in connection with Banks examination
or audit and (v) as Bank considers appropriate exercising remedies under this
Agreement. Confidential information does not include information that either:
(a) is in the public domain or in Banks possession when disclosed to Bank, or
becomes part of the public domain after disclosure to Bank; or (b) is disclosed
to Bank by a third party, if Bank does not know that the third party is
prohibited from disclosing the information.
12.9 ATTORNEYS FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.
13 DEFINITIONS
-----------
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Persons managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BORROWING BASE" is 80% of Eligible Accounts as determined by Bank from
Borrowers most recent Borrowing Base Certificate.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
<PAGE>
"CASH MANAGEMENT SERVICES" are defined in Section 2.1.4.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
----------
"COMMITTED REVOLVING LINE" is an Advance of up to $5,000,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"COPYRIGHTS" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CREDIT EXTENSION" is each Advance, Letter of Credit, Exchange Contract,
or any other extension of credit by Bank for Borrowers benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrowers Total
Liabilities which mature within one (1) year.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower notice. Unless
- ---
Bank agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that
exceed that percentage, unless the Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
<PAGE>
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if account debtors payment may be
conditional;
(i) Accounts for which the account debtor is Borrowers Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to
an Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"EXCHANGE CONTRACT" is defined in Section 2.1.3.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INITIAL PUBLIC OFFERING" means a sale of Borrower of its equity
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, in which Borrower receives net proceeds of not less than
$10,000,000.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including amendments,
renewals, extensions, and all licenses or other rights to use and all license
fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
<PAGE>
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"INVENTORY" is 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 later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"LETTER OF CREDIT" is defined in Section 2.
"LIBOR RATE" is defined in the LIBOR Supplement to Loan and Security
Agreement attached hereto.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"PATENTS" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrowers indebtedness to Bank under this Agreement or any other Loan
Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" ARE:
(a) Investments shown on the Schedule and existing on the Closing Date; and
<PAGE>
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., and (iii) Banks certificates of deposit
issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or arising
under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
--
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
--
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the ordinary
course of Borrower's business and any interest or title of a lessor, licensor or
under any lease or license, if the leases, subleases, licenses and sublicenses
--
permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Banks most recently announced "prime rate," even if it is
not Banks lowest rate.
"QUICK ASSETS" is, on any date, the Borrowers consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of fewer than 12 months determined according to GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is May 25, 1999.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrowers debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) 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
<PAGE>
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
"TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
BORROWER:
Actuate Software Corporation
By:___________________________
Title:________________________
BANK:
SILICON VALLEY BANK
By:___________________________
Title:________________________
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrowers right, title and interest in
and to the following:
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;
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;
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;
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;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
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
All Borrower's Books relating to the foregoing and 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: Actuate Software Corporation
------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY: _________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: _________________________________________________________
PHONE NUMBER: _________________________________________________________________
FROM ACCCOUNT # _________________ TO ACCOUNT # ______________________________
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $_____________________________________
PRINCIPAL PAYMENT (ONLY) $_____________________________________
INTEREST PAYMENT (ONLY) $_____________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_____________________________________
OTHER INSTRUCTIONS:____________________________________________________________
- -------------------------------------------------------------------------------
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that 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
<TABLE>
<S> <C> <C>
Borrower: Actuate Software Corporation Lender: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $5,000,000
ACCOUNTS RECEIVABLE
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 90 days due $____________
5. Balance of 50% over 90 day accounts $____________
6. Credit balances $____________
7. Concentration Limits $____________
8. Foreign Accounts $____________
9. Governmental Accounts $____________
10 Contra Accounts $____________
11 Promotion or Demo Accounts $____________
12 Intercompany/Employee Accounts $____________
13 Other (please explain on reverse) $____________
14 TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $____________
15 Eligible Accounts (#3 minus #14) $____________
16 LOAN VALUE OF ACCOUNTS (80% of #15) $____________
BALANCES
17. Maximum Loan Amount minus Cash Management Sublimit $____________
18. Total Funds Available [Lesser of #17 or #16] $____________
19. Present balance owing on Line of Credit $____________
20. Outstanding under Sublimits (LC or FX) $____________
21. RESERVE POSITION (#18 minus #19 and #20) $____________
</TABLE>
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS:
Actuate Software Corporation
By:_______________________________
Authorized Signer
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: ACTUATE SOFTWARE CORPORATION
The undersigned authorized officer of Actuate Software Corporation
("Borrower") certifies that under 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 in
the Agreement are true and correct in all material respects on this date.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.
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* Yes No
+Comp. Cert
Annual (Audited) FYE within 90 days** Yes No
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
A/R & A/P Agings Monthly within 20 days Yes No
A/R Audit Initial and Semi-Annual Yes No
Borrowing Base Certificate Monthly within 20 days Yes No
*Quarterly within 50 days if Borrower's Initial Public Offering is completed on or before September 30, 1998.
**FYE within 95 days at such time as Borrower completes its Initial Public Offering.
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Quarterly Basis, unless otherwise noted:
Minimum Adjusted Quick Ratio (monthly) 1.25 : 1.00 _____: 1.00 Yes No
Minimum Liquidity Ratio 2.00 : 1.00 _____: 1.00 Yes No
Profitability: Quarterly $__________ Yes No
Losses not to exceed: $1,700,000 for the fiscal quarter ending June 30, Yes No
1998 and $300,000 for the fiscal quarter ending
September 30, 1998
In the event Borrower completes its Initial Public Offering prior to September 30, 1998, the above Covenants shall be
replaced with:
Maintain on a Quarterly Basis:
Minimum Tangible Net Worth $10,000,000 $ ___________ Yes No
Minimum Liquidity Ratio 2.00 : 1.00 _____: 1.00 Yes No
Minimum Quick Ratio 2.00 : 1.00 _____: 1.00 Yes No
</TABLE>
<PAGE>
---------------------------------
BANK USE ONLY
COMMENTS REGARDING EXCEPTIONS: See Attached.
Received by:___________________
AUTHORIZED SIGNER
Sincerely,
Date:__________________________
Actuate Software Corporation
Verified:______________________
AUTHORIZED SIGNER
____________________________
SIGNATURE
Date:__________________________
____________________________
TITLE Compliance Status: Yes No
---------------------------------
____________________________
DATE
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: ACTUATE SOFTWARE CORPORATION
LOAN OFFICER: HEATHER HAMILTON
DATE: MAY 26, 1998
<TABLE>
<S> <C>
CREDIT REPORT 35.00
UCC SEARCH FEE 150.00
UCC FILING FEE 20.00
INTELLECTUAL PROPERTY FILING FEES 550.00
DOCUMENTATION FEE 350.00
TOTAL FEE DUE $1,105.00
------------- =========
</TABLE>
PLEASE INDICATE THE METHOD OF PAYMENT:
{ } A CHECK FOR THE TOTAL AMOUNT IS ATTACHED.
{ } DEBIT DDA # __________________ FOR THE TOTAL AMOUNT.
{ } LOAN PROCEEDS
BORROWER:
BY:
- ------------------------------------
(AUTHORIZED SIGNER)
____________________________________
SILICON VALLEY BANK (DATE)
ACCOUNT OFFICER'S SIGNATURE
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of May 26,
1998 by and between SILICON VALLEY BANK ("Bank") and Actuate Software
Corporation ("Grantor").
RECITALS
--------
A. Bank has agreed to make certain advances of money and to extend certain
financial accommodation to Grantor (the "Loans") in the amounts and manner set
forth in that certain Loan and Security Agreement by and between Bank and
Grantor dated May 26, 1998 (as the same may be amended, modified or supplemented
from time to time, the "Loan Agreement"; capitalized terms used herein are used
as defined in the Loan Agreement). Bank is willing to make the Loans to
Grantor, but only upon the condition, among others, that Grantor shall grant to
Bank a security interest in certain Copyrights, Trademarks, Patents, and Mask
Works to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
---------
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents, Trademarks and Mask Works listed
on Schedules A, B, C, and D hereto), and including without limitation all
proceeds thereof (such as, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits), the right to sue for
past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions continuations, renewals,
extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security interest
granted to Bank under the Loan Agreement. The rights and remedies of Bank with
respect to the security interest granted hereby are in addition to those set
forth in the Loan Agreement and the other Loan Documents, and those which are
now or hereafter available to Bank as a matter of law or equity. Each right,
power and remedy of Bank provided for herein or in the Loan Agreement or any of
the Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in addition to every right, power or
remedy provided for herein and the exercise by Bank of any one or more of the
rights, powers or remedies provided for in this Intellectual Property Security
Agreement, the Loan Agreement or any of the other Loan Documents, or now or
hereafter existing at law or in equity, shall not preclude the simultaneous or
later exercise by any person, including Bank, of any or all other rights, powers
or remedies.
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
<PAGE>
GRANTOR:
Address of Grantor: Actuate Software Corporation
999 Baker Way, Suite 330 By:______________________________
- --------------------------
San Mateo, CA 94404 Title:___________________________
- --------------------------
Attn:_____________________
BANK:
Address of Bank: SILICON VALLEY BANK
1731 Embarcadero, Ste. 220 By:______________________________
Palo Alto, CA 94303
Title:___________________________
Attn:_____________________
<PAGE>
EXHIBIT A
---------
Copyrights
Description Registration/ Registration/
- ------------ Application Application
Number Date
------ ----
<PAGE>
EXHIBIT B
---------
Patents
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<PAGE>
EXHIBIT C
---------
Trademarks
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<PAGE>
EXHIBIT D
---------
Mask Works
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<PAGE>
CORPORATE BORROWING RESOLUTION
<TABLE>
<S> <C>
BORROWER: ACTUATE SOFTWARE CORPORATION BANK: SILICON VALLEY BANK
999 BAKER WAY, SUITE 330 1731 EMBARCADERO, STE. 220
SAN MATEO, CA 94404 PALO ALTO, CA 94303
</TABLE>
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF ACTUATE SOFTWARE
CORPORATION ("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly
organized and existing under and by virtue of the laws of the State of
California.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of Borrower, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
_____________________ _____________________ _____________________
_____________________ _____________________ _____________________
_____________________ _____________________ _____________________
_____________________ _____________________ _____________________
acting for and on behalf of Borrower 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 of
Borrower and Bank, such sum or sums of money as in their judgment should be
borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan documents
of Borrower, on Bank'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 Borrower to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the loan documents, or
any portion of the loan documents.
GRANT SECURITY. To grant a security interest to Bank in any of Borrowers
assets, which security interest shall secure all of Borrower's obligations
to Bank
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 Borrower or in which Borrower may have an
interest, and either to receive cash for the same or to cause such proceeds
to be credited to the account of Borrower with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
<PAGE>
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as, in
the judgment of the officer or officers herein authorized.
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock,
for such class, series and number, and on such terms, as an officer of
Borrower shall deem appropriate.
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, including agreements waiving the right to a trial by jury, 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 Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Borrower and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Borrower; and that
they 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 May 26, 1998 and attest that
the signatures set opposite the names listed above are their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X ______________________________________________
*Secretary or Assistant Secretary
X ______________________________________________
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
2
<PAGE>
Exhibit 10.13
ACTUATE SOFTWARE CORP. 999 Baker Way
Suite 330, San Mateo CA 94010
May 7,1997
Dear Dan:
I am very pleased to offer you the position of Vice President of Finance and
Administration and CFO at Actuate. In this position you will report to me and be
responsible for financial management and reporting, personnel, infrastructure,
and manufacturing functions at the company.
You will receive a base salary of $170,000 per year and participate in the
company executive bonus plan which is paid on a quarterly basis. For 1996 year
you will receive a minimum of $7,500 per quarter in bonuses (pro rated in the
first quarter for your actual service time).
Subject to board approval you will also receive 125,000 in incentive stock
options to purchase Actuate stock. These options will vest over a four year
period according to the Actuate stock option plan. The option agreement will
also include a provision which will automatically vest 50% of the remaining
option, in the event of a merger or acquisition.
We will also make provisions for you to participate in the next round of
financing on an equal basis with our current investors. I understand that you
will want to purchase a minimum of 25,000 shares at that time.
Actuate also has a very complete benefits package including Medical and Dental
coverage. This is described in the new employee kit.
All of us at Actuate are very pleased that you will be joining the company, and
we are looking forward to years of success together.
Sincerely,
Nicolas Nierenberg
President and CEO
<PAGE>
Exhibit 10.14
[LOGO APPEARS HERE] ACTUATE
May 20, 1998
Hamid Bahadori
340 Brannan Street, Ste. 102
San Francisco, CA 94107
Dear Mr. Bahadori:
I am pleased to offer you the opportunity to join Actuate Software Corporation.
The position will be Vice President of Engineering. In this capacity you will
report directly to me. Your starting gross salary will be $8,333.33 for each
semi-monthly period during which you are actively employed full time by Actuate.
(The Company's current payroll is semi-monthly payable on the 15th and the last
working day of the month.)
I am pleased to inform you that I will recommend to the Board of Directors that
an option to purchase 150,000 shares of Actuate Common Stock be granted to you.
Your stock option will vest over a five-year period at a rate of 20% one year
after your employment date and 1.667% of such shares at the end of each month
after the first anniversary of your employment date. The exercise price will be
equal to the fair market value on the date of grant as determined by the Board
of Directors.
In addition, you will be eligible for our Executive Bonus Plan. At plan the
annual bonus target is 30% of your base salary, paid quarterly, based on
achievement of the Company's quarterly bookings, and your specific objectives.
An annual bonus target of up to 20% of your pro-rated based salary, paid after
the close of our fiscal year, will be available based on achievement of annual
bookings.
Finally, you will receive a hire-on bonus of $50,000. If you voluntarily leave
the company prior to one year of employment, a pro-rated amount of the hire-on
bonus will be paid back to the company.
You will also be eligible for enrollment in our benefits program.
THIS OFFER OF EMPLOYMENT IS NOT INTENDED TO BE AND IS NOT A CONTRACT. EMPLOYMENT
AT ACTUATE IS AT ALL TIME "EMPLOYMENT-AT-WILL AND MAY BE TERMINATED AT ANY TIME
BY EITHER PARTY, WITH OR WITHOUT ADVANCE NOTICE OR CAUSE. THIS AT-WILL
RELATIONSHIP MAY NOT BE MODIFIED BY ANY ORAL OR IMPLIED AGREEMENT. IN THE EVENT
OF ANY DISPUTE OR CLAIM RELATING TO OR ARISING OUT OF OUR EMPLOYMENT
RELATIONSHIP (INCLUDING BUT NOT LIMITED TO, ANY CLAIMS OF
<PAGE>
WRONGFUL TERMINATION OR AGE, SEX RACE OR OTHER DISCRIMINATION), YOU AND ACTUATE
AGREE THAT ALL SUCH DISPUTES WILL BE FINALLY RESOLVED BY BINDING ARBITRATION
CONDUCTED BY THE AMERICAN ARBITRATION ASSOCIATION IN SAN MATEO COUNTY,
CALIFORNIA. HOWEVER, WE AGREE THAT THIS ARBITRATION PROVISION WILL NOT APPLY TO
ANY DISPUTES OR CLAIMS RELATING OR ARISING OUT OF THE MISUSE OF MISAPPROPRIATION
OF ACTUATE TRADE SECRETS OR PROPRIETARY INFORMATION.
In the event that the Company terminates your employment within the first 24
months following your date of hire other than for cause, death or disability,
you shall be entitled to accelerated vesting of your unvested options in an
amount which would bring your total vested options to 60,000. You shall be
entitled to no other compensation or benefits other than those earned through
the date of your termination.
If your employment is terminated by the Company for cause as defined below, or
as a result of your death or disability, you shall be entitled to no accelerated
vesting of your stock options. For purposes of this agreement, a termination for
"cause" occurs if you are terminated for any of the following reasons and an
arbitrator mutually agreed upon from the American Arbitration Association in San
Mateo County determines that you committed one of the acts in a through d below.
a. gross misconduct or falsification of any employment or Company records;
b. improper disclosure of the Company's confidential or proprietary
information;
c. any intentional act by you which has a material effect on the Company's
reputation or business; or,
d. your conviction of any criminal act that impairs your ability to perform
your duties for the Company.
Any employment at Actuate Software Corporation is contingent upon your ability
to comply with the Immigration Reform and Control Act which requires employees
to establish both identity and employment eligibility as requested by the
federal government.
You will also be required to sign the Company's Proprietary Inventions Agreement
as a condition of employment. It will require the witnessing signature of an
Actuate representative.
This letter embodies the complete agreement and understanding of the parties
related to your employment with Actuate. This supersedes any and all other prior
or contemporaneous oral or written agreements between the parties hereto with
respect to employment. This agreement may be amended only be an agreement in
writing signed by you and Actuate.
Harnid, I look forward to you joining our exciting and growing team. If you
should have any questions regarding benefits, please feel free to contact Linda
Kato at
<PAGE>
(650) 425-2107. Please indicate your acceptance of this offer by signing the
acknowledgment below and returning it to the Human Resources Department by May
22, 1998 at which time this offer expires unless we have mutually agreed on an
extension.
Regards,
/s/ Nicolas Nierenberg
Nicolas Nierenberg
President and CEO
I accept the offer of employment stated in this letter and expect to commence
employment on May 28, 1998.
Agreed to and accepted: /s/ Hamid Bahadori
---------------------------
Signature
Date: 5/22/98
---------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts' and to
the use of our report dated April 17, 1998 (except for Note 10, as to which the
date is , 1998), in the Registration Statement on Form S-1 and related
Prospectus of Actuate Software Corporation for the registration of shares
of its common stock.
Palo Alto, California Ernst & Young LLP
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the
consummation of the Delaware reincorporation described in Note 10 to the
financial statements.
Palo Alto, California /s/ Ernst & Young LLP
June 1, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 2,901 2,386
<SECURITIES> 290 0
<RECEIVABLES> 3,557 3,531
<ALLOWANCES> 573 573
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,241 5,484
<PP&E> 1,732 1,908
<DEPRECIATION> 636 785
<TOTAL-ASSETS> 7,481 6,785
<CURRENT-LIABILITIES> 9,665 10,817
<BONDS> 0 0
0 0
6 6
<COMMON> 4 4
<OTHER-SE> (2,318) (4,144)
<TOTAL-LIABILITY-AND-EQUITY> 7,481 6,785
<SALES> 9,518 4,063
<TOTAL-REVENUES> 9,518 4,063
<CGS> 1,910 1,010
<TOTAL-COSTS> 16,806 5,955
<OTHER-EXPENSES> (60) 22
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (7,348) (1,870)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,348) (1,870)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,348) (1,870)
<EPS-PRIMARY> (2.52) (.57)
<EPS-DILUTED> (2.52) (.57)
</TABLE>
