<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
OBJECTSPACE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 75-2441715
(State or other jurisdiction (Primary standard (I.R.S. employer
of industrial identification no.)
incorporation or organization) classification code number)
</TABLE>
--------------------------
OBJECTSPACE, INC.
14850 QUORUM DRIVE, SUITE 500
DALLAS, TEXAS 75240
TELEPHONE: (972) 726-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
DAVID NORRIS
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
OBJECTSPACE, INC.
14850 QUORUM DRIVE, SUITE 500
DALLAS, TEXAS 75240
TELEPHONE: (972) 726-4100
FACSIMILE: (972) 715-9000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
Copies of communications to:
<TABLE>
<S> <C>
GREGORY R. SAMUEL RONALD G. SKLOSS
GARRETT A. DEVRIES NATHAN T. DOOLEY
HAYNES AND BOONE, LLP BROBECK, PHLEGER & HARRISON LLP
901 MAIN STREET, SUITE 3100 301 CONGRESS AVENUE, SUITE 1200
DALLAS, TEXAS 75202 AUSTIN, TEXAS 78701
TELEPHONE: (214) 651-5000 TELEPHONE: (512) 477-5495
FACSIMILE: (214) 651-5940 FACSIMILE: (512) 477-5813
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value............................... $115,000,000(1) $30,360.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION -- APRIL 3, 2000
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY U.S. FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 2000
[LOGO]
SHARES OF COMMON STOCK
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
OBJECTSPACE, INC.: THE OFFERING:
- - We are a leading provider of - We are offering shares of
business-to-business infrastructure our common stock.
software products and services that - The underwriters have an option to
enable organizations to rapidly purchase up to additional
integrate business applications shares from us to cover
within and across organizations over over-allotments.
the Internet. - This is our initial public offering,
- - ObjectSpace, Inc. and no public market currently exists
14850 Quorum Drive, Suite 500 for our shares.
Dallas, Texas 75240 - We plan to use the net proceeds from
(972) 726-4100 this offering for working capital
and other general corporate purposes
PROPOSED SYMBOL & MARKET: and for the repayment of
- - OBSP/Nasdaq National Market approximately $3.0 million of
indebtedness.
- Closing: , 2000
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
<S> <C> <C>
Per Share Total
- ---------------------------------------------------------------------------------
Public offering price (Estimated): $ $
Underwriting fees:
Proceeds to ObjectSpace, Inc.:
- ---------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
WARBURG DILLON READ LLC
DLJDIRECT INC.
<PAGE>
[Description of Prospectus Artwork
1. INSIDE FRONT COVER PORTRAYS THE FOLLOWING:
Circle with a picture of a person walking away. Text on the right side reads
"In The New Economy, Standing Alone Means Falling Behind..." Logo of ObjectSpace
and slogan "The Power Between" appear at the bottom of the page.
2. GATEFOLD PORTRAYS THE FOLLOWING:
Title in upper left corner reads "OpenBusiness from ObjectSpace". Graphic
depicts the letter "B" inside each of the six differently-sized circles,
connected by straight lines. The background depicts a digitized cityscape. Text
on right side reads:
"ENABLING NEW BUSINESS MODELS
Escalating competitive pressures, shifting supplier relationships and
diverse customer demands are forcing organizations of all sizes to quickly
embrace a new B2B business model.
Through the use of XML and support for a broad range of additional
communications standards, our solution enables organizations to easily and
rapidly integrate business applications over the Internet.
OBJECTSPACE B2B INTEGRATION SOLUTIONS:
OpenBusiness Infrastructure Platform
OpenBusiness Gateway
OpenBusiness Portal
Professional Services"
Logo of ObjectSpace and slogan "The Power Between" appear at lower right
corner.]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 4
Special Note Regarding Forward-
Looking Statements; Market Data... 14
Use of Proceeds..................... 14
Dividend Policy..................... 14
Corporate Information............... 15
Capitalization...................... 16
Dilution............................ 17
Selected Financial Data............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 19
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Business............................ 27
Management.......................... 40
Certain Transactions................ 50
Principal Stockholders.............. 53
Description of Capital Stock........ 54
Shares Eligible for Future Sale..... 57
Underwriting........................ 60
Legal Matters....................... 62
Experts............................. 62
Where You Can Find More
Information....................... 62
Index to Financial Statements....... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED BY MORE DETAILED INFORMATION APPEARING IN OTHER
SECTIONS OF THE PROSPECTUS. THE OTHER INFORMATION IS IMPORTANT, SO PLEASE READ
THIS ENTIRE PROSPECTUS CAREFULLY.
OUR BUSINESS
We are a leading provider of business-to-business infrastructure software
products and services that enable organizations to easily and rapidly integrate
business applications within and across organizations over the Internet. Our
software allows organizations to link their business processes by sharing
services, conducting transactions and exchanging information in real-time, with
customers, suppliers and other trading partners. Our OpenBusiness solution
provides a robust, easy to configure integration platform that ensures reliable,
secure integration of complex, dynamic software applications and scales to
accommodate large numbers of business-to-business, or B2B, partners. We believe
our OpenBusiness solution allows our customers to integrate business processes
with their B2B partners with fewer alterations to their existing software
applications than current alternatives.
Escalating competitive pressures, shifting supplier relationships and
diverse customer demands are forcing organizations of all sizes to quickly
embrace a new Internet-based B2B business model. This new model requires a
higher level of business process integration in which customers, suppliers and
other trading partners transact business electronically over the Internet. With
improved B2B integration, or B2Bi, organizations can more effectively pursue new
revenue opportunities and significantly improve operating efficiencies. We
believe many organizations will not be able to successfully compete in today's
global markets without embracing this new B2B business model.
We have designed our solution to be rapidly deployed, permitting our
customers to reduce the time necessary to execute new Internet-based B2B
strategies. Through the use of eXtensible Markup Language, or XML, and support
for a broad range of additional communications standards, our solution provides
a high level of interoperability among disparate software applications. As a
result, our OpenBusiness solution, unlike other B2Bi solutions, allows
customers, suppliers and other trading partners to successfully integrate their
otherwise incompatible software applications without significant reprogramming
or adopting the same communications standards. In addition, to help our
customers adopt new B2B models and implement our OpenBusiness solution, we
provide a wide range of professional services, including strategic planning,
architectural design, project management and implementation services.
Our OpenBusiness product line is comprised of our:
- OPENBUSINESS INFRASTRUCTURE PLATFORM that provides the critical foundation
for integrating an organization's disparate business applications,
allowing them to be easily extended to their external B2B partners;
- OPENBUSINESS GATEWAY, a recently released product that builds upon the
functionality of the Infrastructure Platform by extending an
organization's internally integrated applications to its B2B partners over
the Internet; and
- OPENBUSINESS PORTAL, a recently released product that can leverage the
integration and access capabilities of the Infrastructure Platform and
Gateway, allowing organizations to rapidly create a website to catalog
business applications they choose to make available to their community of
B2B partners.
We market our products and services globally primarily through our direct
sales force, complemented by the selling and support efforts of value-added
resellers and system integrators. As of March 15, 2000, we had licensed our
OpenBusiness products or provided professional services to over 300 customers,
including Caterpillar, General Motors, Intel, Merrill Lynch, Nokia, Sprint and
Unisys.
1
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered......................... Shares
Common stock to be outstanding after this
offering................................... Shares
Use of proceeds.............................. We plan to use the net proceeds from this
offering for working capital and other
general corporate purposes and for the
repayment of approximately $3.0 million of
indebtedness.
Proposed Nasdaq National Market symbol....... OBSP
</TABLE>
Unless otherwise indicated, all information contained in this prospectus:
- assumes no exercise of the underwriters' option to purchase an
over-allotment of up to additional shares;
- gives effect to a 100% stock dividend effected in January 2000 and a 40%
stock dividend effected in March 2000; and
- gives effect to the conversion of each outstanding share of preferred
stock into 2.8 shares of common stock upon the closing of this offering.
The number of shares of our common stock to be outstanding after this
offering includes:
- 21,090,901 shares of our common stock outstanding as of March 30, 2000;
and
- 9,167,567 shares of our common stock to be issued upon the conversion of
all shares of our preferred stock upon the closing of this offering.
The number of shares of our common stock to be outstanding after this
offering excludes:
- 4,828,671 shares issuable upon exercise of options outstanding as of
March 30, 2000 with a weighted-average exercise price of $2.48;
- 5,209,657 shares available for future issuance under our stock option
plans as of March 30, 2000; and
- 434,795 shares plus that number of shares equal to $2.5 million divided by
the offering price of the common stock in this offering, in each case
issuable upon the exercise of warrants outstanding as of March 30, 2000.
2
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Below is summary financial data of our company. We derived the summary
financial data as of December 31, 1999 and for the years ended December 31,
1997, 1998 and 1999 from our audited financial statements included elsewhere in
this prospectus. We derived the statement of operations data for the years ended
December 31, 1995 and 1996 from our financial statements for the years then
ended. When reading this summary financial data, please refer to "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited financial statements and accompanying
notes for additional information. The pro forma information in the table below
gives effect to the automatic conversion of all outstanding shares of preferred
stock into shares of common stock, as if the shares had converted immediately
upon issuance, and elimination of common stock redemption rights.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License........................................... $ 588 $ 1,097 $ 1,547 $ 908 $ 5,250
Service........................................... 3,972 8,757 10,070 10,897 14,896
------- ------- ------- ------- -------
Total revenue................................... 4,560 9,854 11,617 11,805 20,146
Gross profit.......................................... 1,908 4,557 3,841 3,670 8,774
Operating loss from continuing operations............. (755) (1,578) (3,789) (4,661) (6,262)
Net income (loss)..................................... 179 5 (2,292) (4,362) (4,153)
Basic and diluted net income (loss) per common
share............................................... $ 0.01 -- $ (0.12) $ (0.23) $ (0.49)
Weighted average number of common shares
outstanding......................................... 16,800 17,611 19,624 19,632 19,640
Pro forma basic and diluted net income (loss) per
common share........................................ $ 0.01 -- $ (0.11) $ (0.20) $ (0.14)
Shares used in computing pro forma basic and basic and
diluted net income (loss) per common share.......... 16,800 18,117 21,024 21,534 30,076
</TABLE>
The pro forma column of the table below gives effect to the automatic:
- conversion of all outstanding shares of our preferred stock into shares of
common stock upon the closing of this offering; and
- elimination of redemption rights on 1,195,236 shares of our common stock
upon the closing of this offering.
The pro forma as adjusted column of the table below gives effect to:
- our sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by us; and
- our repayment of approximately $3.0 million of outstanding indebtedness
from the net proceeds of this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA PRO FORMA
ACTUAL (UNAUDITED) AS ADJUSTED
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $1,670 $1,670
Working capital........................................... 4,871 4,871
Total assets.............................................. 17,543 17,543
Long-term obligations, net of current portion............. 177 177
Mandatorily redeemable convertible preferred stock, common
stock and warrants...................................... 17,969 --
Stockholders' equity (deficit)............................ (11,778) 6,191
</TABLE>
3
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED
NOTES, BEFORE INVESTING IN OUR COMMON STOCK. ANY OF THE FOLLOWING RISKS COULD
SERIOUSLY HARM OUR BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION AND CAUSE
THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE. AS A RESULT, YOU COULD LOSE
ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE EXPECT TO INCUR LOSSES IN THE FUTURE AND MAY NOT ACHIEVE OR MAINTAIN
PROFITABILITY.
We have incurred net losses in each of the last three fiscal years as we
spent heavily, particularly during 1999, to develop our products and expand our
sales and marketing organization. Our net loss was $2.3 million in 1997,
$4.4 million in 1998 and $4.2 million in 1999. We expect to make significant
investments in our sales and marketing programs and research and development,
resulting in a substantial increase in our operating expense. Consequently, we
will need to generate significant additional revenue to achieve and maintain
profitability in the future. We may not be able to generate sufficient revenue
from sales of our products and related professional services to become
profitable. Even if we do achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis. We cannot predict when we will
operate profitably, if at all. If we fail to achieve or maintain profitability,
our stock price may decline.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO FLUCTUATIONS AND SEASONALITY
BECAUSE OF MANY FACTORS, WHICH COULD HARM OUR BUSINESS PROSPECTS AND LOWER OUR
STOCK PRICE.
Our quarterly revenue and results of operations are difficult to predict. We
have experienced fluctuations in revenue and operating results from
quarter-to-quarter and anticipate that these fluctuations will continue. These
fluctuations are due to a variety of factors, some of which are outside of our
control, including:
- our ability to attract new customers and retain existing customers;
- the length and variability of our sales cycle, which makes it difficult to
forecast the quarter in which our sales will occur;
- the fact that a few customers typically provide a large portion of our
revenue in any particular quarter;
- the amount and timing of operating expense relating to the expansion of
our business and operations;
- our mix of license and service revenue;
- the utilization rate for our professional services personnel and the need
to staff customer projects with third party contractors;
- changes in our pricing policies or our competitors' pricing policies;
- the development of new products or product enhancements by us or our
competitors;
- our mix of domestic and international sales;
- the market for B2Bi solutions and other general economic factors; and
- changes to generally accepted accounting principles, especially those
related to the recognition of software revenue.
4
<PAGE>
In addition, we have also experienced and expect to continue to experience
seasonality in the sales of our OpenBusiness products. For example, we
anticipate that sales may be lower in our first fiscal quarter each year due to
patterns in the capital budgeting and purchasing cycles of our current and
prospective customers. These seasonal variations in our sales may lead to
fluctuations in our quarterly operating results.
We also typically realize a significant portion of our license revenue in
the last few weeks of a quarter because of our customers' purchasing patterns.
As a result, we are subject to significant variations in license revenue and
results of operations if we incur a delay in a large customer's order. If we
fail to close one or more significant license agreements that we have targeted
to close in a given quarter, this failure could seriously harm our operating
results for that quarter. Failure to meet or exceed the expectation of
securities analysts or investors due to any of these or other factors may cause
our stock price to fall.
BECAUSE OUR B2BI PRODUCTS ARE RELATIVELY NEW, WE HAVE A LIMITED OPERATING
HISTORY WITH WHICH YOU CAN EVALUATE OUR CURRENT BUSINESS MODEL AND PROSPECTS.
We shipped the first commercial version of our OpenBusiness Integration
Platform in October 1997 and released our OpenBusiness Gateway and Portal
products to customers in late March 2000. We have sold only one license of our
OpenBusiness Gateway product and no licenses of our OpenBusiness Portal product,
and, to date, our Gateway customer has not completely implemented this product.
We have engaged in very limited marketing of our Gateway and Portal products.
Accordingly, we have only a limited operating history with which you can
evaluate our current business model and our prospects.
We expect licenses of, and professional services related to, our
OpenBusiness products to account for substantially all of our total revenue for
the foreseeable future. We also expect revenue from licenses of our OpenBusiness
products to constitute an increasing portion of our total revenue. We intend to
continue to enhance our OpenBusiness products with the release of future
versions, upgrades and increased functionality.
Because our OpenBusiness products are at an early stage of
commercialization, it is difficult for us to forecast the level of market
acceptance that our OpenBusiness solution will attain. Some of the risks we face
include:
- internal information technology departments of potential customers may
choose to create their own B2Bi solutions internally or through
third-party, custom developers;
- competitors may develop products, technologies or capabilities that render
our OpenBusiness products and related professional services obsolete or
noncompetitive or that shorten the life cycles of these products;
- the market may not accept our OpenBusiness products;
- we may not be able to attract and retain a broad customer base; and
- we may not be able to negotiate and maintain favorable strategic
relationships.
Failure to successfully manage these risks could harm our business and cause
our stock price to fall.
Furthermore, to remain competitive, products like ours typically require
frequent updates that add new features. We may not succeed in creating and
licensing updated or new versions of our OpenBusiness products. A decline in
demand for, or in the average licensing price of, our OpenBusiness products
would have a direct negative effect on our business and our ability to increase
our mix of license revenue relative to service revenue and could cause our stock
price to fall.
5
<PAGE>
IF BROAD MARKET ACCEPTANCE FOR XML DOES NOT DEVELOP, SALES OF OUR OPENBUSINESS
PRODUCTS MAY SUFFER.
We have designed our OpenBusiness products to use eXtensible Markup
Language, or XML, an emerging standard for sharing data over the Internet.
Although we believe that XML will achieve broad market acceptance in the near
future, it is possible that the market will perceive a competing standard as
superior to XML. If a competing standard replaced XML, the market might not
accept XML-based products. In addition, our OpenBusiness products might not be
compatible with the new standard or we might not be able to develop a product
using this standard in a timely manner. Consequently, a failure of XML-based
products to achieve broad market acceptance or the introduction of a competing
standard that the market perceives as superior could adversely affect our sales
of our OpenBusiness products and could cause our stock price to decline.
IF WE CANNOT ATTRACT AND RETAIN THE TECHNICAL PERSONNEL NECESSARY TO CONTINUE
OUR RESEARCH AND DEVELOPMENT EFFORTS, OUR BUSINESS WILL SUFFER.
We cannot be certain that we can hire or retain a sufficient number of
highly qualified technical personnel. Our business depends on the continued
development and evolution of our OpenBusiness products. Competition for
qualified technical personnel is intense, particularly because we are in a new
area of software development and only a limited number of individuals have
acquired the skills they need to develop and maintain the products we offer. Our
competitors have attempted to hire our employees away from us, and we expect
that they will continue these attempts in the future. Failure to attract and
retain a sufficient number of qualified technical personnel will harm our
business and could cause our stock price to fall.
THE LOSS OF A MAJOR CUSTOMER COULD HARM OUR OPERATING RESULTS AND OUR BUSINESS.
We generally derive a significant portion of our revenue from a small number
of relatively large sales, and our business generally depends on a limited
number of customers. For example, in 1999, two customers accounted for an
aggregate of approximately 46% of our total revenue, ClubCorp for approximately
26% and General Motors for approximately 20%. In addition, our top ten customers
in each of the last three fiscal years accounted for more than 70% of our total
revenue in each of those fiscal years. We may continue to derive a significant
portion of our revenue from a relatively small number of customers in the
future. A major customer's decision not to use our products or our professional
services could harm our business, operating results and financial condition and
cause our stock price to fall.
THE MARKET FOR B2BI SOLUTIONS IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY.
The market for B2Bi solutions is rapidly changing and intensely competitive.
We expect competition to intensify as the number of entrants increases and as
other software companies expand into this marketplace. Our current and potential
competitors include other B2Bi vendors, internal information technology
departments, enterprise application integration software vendors and other large
software vendors. Many of our existing and potential competitors have better
brand recognition, longer operating histories, larger customer bases and greater
financial, technical, marketing and other resources than us. As a result, they
may be able to leverage these advantages to gain market share from us. In
addition, they may be able to respond more effectively than we can to changing
technologies, conditions or customer demands, especially during economic
downturns. Increased competition could significantly reduce our future revenue
and increase our operating losses due to price reductions, lower gross margins
or lost market share, which could harm our business and cause our stock price to
decline.
6
<PAGE>
WE INTEND TO EXPAND OUR INTERNATIONAL SALES EFFORTS, AND FAILURE TO GROW OUR
INTERNATIONAL OPERATIONS SUCCESSFULLY COULD HARM OUR BUSINESS AND CAUSE OUR
STOCK PRICE TO DECLINE.
We intend to expand our international sales efforts, particularly in Europe
and Asia, but we have very limited experience in selling, marketing, licensing
and supporting our products and professional services abroad. Expansion of our
international operations will require a significant amount of attention from our
management and substantial financial resources. In addition, doing business
internationally involves additional risks, particularly:
- unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;
- restrictions on repatriation of earnings;
- fluctuations in currency exchange rates;
- less protective intellectual property rights;
- differing labor regulations;
- changes in a country's or region's political or economic conditions; and
- greater difficulty in staffing and managing foreign operations.
Because of these risks, we may not achieve an acceptable return on our
investment or be able to compete effectively in international markets. Failure
to grow our international operations successfully and in a timely manner could
harm our business and cause our stock price to fall.
A FAILURE TO EXPAND OUR SALES FORCE AND DISTRIBUTION CHANNELS WILL ADVERSELY
AFFECT OUR BUSINESS.
To increase market awareness and sales of our OpenBusiness products and
related professional services, we plan to expand our direct and indirect sales
and distribution efforts, both domestically and internationally. Distribution of
our software and professional services offerings requires a sophisticated sales
effort targeted at multiple departments within an organization. Competition for
qualified sales and marketing personnel is intense, and we may not be able to
attract and retain adequate numbers of these personnel to maintain our growth.
Even if we can attract qualified personnel, these personnel require training and
will take time to achieve full productivity. Our competitors have attempted to
hire our employees away from us, and we expect that they will continue these
attempts in the future. Failure to attract and retain qualified sales and
marketing personnel could harm sales of our products and professional services
and cause our stock price to decline.
In addition to expanding our sales force, we also plan to expand our
relationships with system integrators and other technology leaders to further
develop our indirect sales channel. However, we may be unable to expand these
relationships or develop new relationships in a timely manner. As we continue to
develop our indirect sales channel, we will need to manage potential conflicts
between our direct sales force and third party reselling efforts. Failure to
expand and develop these relationships or successfully manage these conflicts
could harm our business and cause our stock price to decline.
IF WE CANNOT MEET OUR FUTURE CAPITAL REQUIREMENTS, OUR BUSINESS WILL SUFFER.
We believe that the net proceeds from this offering, together with our
existing working capital immediately prior to this offering, will be sufficient
to meet our anticipated working capital and capital expenditure requirements
through at least the next twelve months. The time period for which we believe
our capital is sufficient is an estimate. The actual time period may differ
materially as a result of a number of factors, risks and uncertainties. We may
need to raise additional funds in the future through public or private debt or
equity financings in order to:
7
<PAGE>
- fund operating losses;
- take advantage of opportunities, including more rapid expansion or
acquisitions of complementary businesses or technologies;
- hire, train and retain employees;
- develop new products or professional services; or
- respond to economic and competitive pressures.
Future additional financing may not be available on terms favorable to us,
if at all. If adequate funds are not available or are not available on
acceptable terms, our operating results and financial condition may suffer, and
our stock price may decline.
OUR BUSINESS WILL SUFFER IF WE DO NOT EXPAND OUR PROFESSIONAL SERVICES
ORGANIZATION.
We cannot be certain that we can attract or retain a sufficient number of
highly qualified professional services personnel. Customers that license our
software may engage our professional services staff to assist with support,
training, consulting and implementation. We believe that growth in our product
licenses depends on our ability to provide our customers with these services. As
a result, we plan to increase the number of our professional services personnel
to meet these needs. Competition for qualified personnel is intense,
particularly because we are in a new market and only a limited number of
individuals have acquired the skills they need to provide the services our
customers require. New professional services personnel will require training and
education and take time to reach full productivity. We also intend to use more
costly third party consultants to supplement our own professional services
staff. Our business may suffer and our stock price may fall, if we are unable to
expand our professional services organization.
FAILURE TO MANAGE OUR PLANNED GROWTH COULD HARM OUR BUSINESS.
Our ability to successfully license products, sell professional services and
implement our business plan in a rapidly evolving market requires an effective
plan for managing our future growth. We plan to increase the scope of our
operations at a rapid rate. Future expansion efforts will be expensive and may
strain our managerial and other resources. To manage future growth effectively,
we must maintain and enhance our financial and accounting systems and controls,
integrate new personnel and manage expanded operations. If we do not manage
growth properly, it could harm our operating results and financial condition and
cause our stock price to fall.
IF WE CANNOT DEVELOP ENHANCEMENTS TO, AND NEW VERSIONS OF, OUR OPENBUSINESS
PRODUCTS IN A TIMELY AND EFFECTIVE MANNER, OUR OPERATING RESULTS COULD SUFFER.
We have recently released the first version of our OpenBusiness Gateway and
OpenBusiness Portal and plan to release enhancements to, and new versions of,
this line of products. Because of the complexity of our OpenBusiness products,
our internal testing and customer testing may reveal desirable feature
enhancements that could lead us to postpone the release of new versions. In
addition, the reallocation of resources associated with any postponement could
cause delays in the development and release of future enhancements to, and new
versions of, our currently available OpenBusiness products. We may not be able
to successfully complete the development of currently planned or future
enhancements or new versions in a timely and efficient manner. Any failed or
delayed development efforts could harm our operating results and lower our stock
price.
IF OUR OPENBUSINESS PRODUCTS CONTAIN DEFECTS, WE COULD LOSE CUSTOMERS AND
REVENUE.
Products as complex as ours often contain known errors, undetected errors
and performance problems. Software developers frequently find many serious
defects during the period immediately following introduction of new software or
enhancements to existing software. These defects may be present in the recent
release of our OpenBusiness products or our planned releases of enhancements to
our OpenBusiness products. Although we attempt to resolve all errors that we
believe our customers
8
<PAGE>
would consider to be serious, our software is not error-free. Our customers may
consider as serious those known errors that we consider to be minor. We or our
customers may discover undetected errors and performance problems in the future.
Defects in our software could lead to the following:
- delays in customer acceptance of our product;
- loss of existing customers;
- harm to our reputation; and
- liability to our customers or third parties.
Accordingly, any defects could result in lost revenue and could harm our
business and lower our stock price.
OUR EXECUTIVE OFFICERS ARE CRITICAL TO OUR BUSINESS, BUT MAY NOT REMAIN WITH US
IN THE FUTURE.
Our future success depends upon the continued service of our executive
officers, and none of our executive officers are bound by an employment
agreement for any specific term. The loss of services of one or more of our
executive officers, or their decision to join a competitor or otherwise compete
directly or indirectly with us, could harm our business and lower our stock
price. In particular, David Norris, our Chairman of the Board, Chief Executive
Officer and President, would be especially difficult to replace and his
departure could harm our business and lower our stock price.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS AND
COMPETITIVE POSITION MAY SUFFER.
Our success depends heavily upon our proprietary technology and other
intellectual property rights. To date, we have relied primarily on a combination
of employment agreements, contractual provisions and copyright, trade secret,
trademark and patent laws to protect our proprietary technology. We have 17
pending patent applications for technology related to our OpenBusiness products,
but we cannot assure you that these applications will be successfully issued. In
addition, others may infringe on our patent or other intellectual property
rights. A few of our agreements would allow others to obtain the source code for
our products in the event of bankruptcy and similar circumstances, which may
limit our ability to protect our intellectual property rights in the future.
Litigation to enforce our intellectual property rights or protect our trade
secrets could result in substantial costs and may not be successful. In
addition, the laws of some foreign countries may not protect our intellectual
property rights to the same extent as do the laws of the United States. Our
means of protecting our intellectual property rights in the United States or
abroad may not be adequate to fully protect our intellectual property rights.
Any inability to protect our intellectual property rights could seriously harm
our business, stock price and ability to compete in the B2Bi solutions market.
OTHERS MAY CLAIM THAT WE INFRINGE UPON THEIR INTELLECTUAL PROPERTY RIGHTS.
Litigation regarding intellectual property rights is common in the software
industry. We expect that B2Bi products and services may be increasingly subject
to infringement claims as the number of competitors in our industry segment
grows and the functionality of products in different industry segments overlaps.
Although we believe that our intellectual property rights are sufficient to
allow us to market our OpenBusiness products without incurring liability, others
may still bring claims of infringement against us. These claims may be with or
without merit. Any litigation to defend against claims of infringement or
invalidity could result in substantial costs and diversion of resources.
Furthermore, a party making such a claim could secure a judgment that requires
us to pay substantial damages or that prevents us from licensing our products.
Any of these events could harm our business, and lower our stock price.
In addition, we have agreed, and may agree in the future, to indemnify some
of our customers against claims that our software infringes upon the
intellectual property rights of others. We could incur substantial costs in
defending ourselves and our customers against infringement claims. In the event
of
9
<PAGE>
a claim of infringement, we and our customers may need to obtain one or more
licenses from others. We, or our customers, may be unable to obtain necessary
licenses from others at a reasonable cost, or at all. Defense of any lawsuit or
failure to obtain any required licenses could harm our business and result in
decline in our stock price.
ACQUISITIONS OF COMPANIES OR TECHNOLOGIES OR JOINT VENTURE INVESTMENTS MAY
DISRUPT OUR BUSINESS OR DILUTE STOCKHOLDER VALUE.
We may acquire companies, products or technologies or enter into joint
ventures. If we are unable to integrate these acquisitions with our existing
operations, we may not receive the intended benefits of the acquisitions. In
addition, acquisitions may subject us to unanticipated liabilities or risks. Any
acquisition or joint venture may temporarily disrupt our operations and divert
management's attention from day-to-day operations.
If we make future acquisitions, we may incur debt or issue equity securities
in order to finance the acquisitions. The issuance of equity securities for any
acquisition could cause our stockholders to suffer significant dilution. In
addition, our profitability may suffer due to acquisition-related expenses,
additional interest expense or amortization costs for acquired goodwill and
other intangible assets and operating losses generated by the acquired entity or
joint venture. Acquisitions and joint ventures that do not successfully
complement our existing operations may harm our business and cause our stock
price to decrease.
IF OUR STRATEGIC RELATIONSHIPS TERMINATE, OUR BUSINESS COULD SUFFER.
We rely upon strategic relationships with system integrators and other
technology leaders. These relationships expose our products to many potential
customers to which we may not otherwise have access. In addition, these
relationships provide us with insights into new technology and with third-party
service providers that our customers can use for implementation assistance.
Maintaining and expanding these relationships is a part of our business
strategy. However, some of our current and potential strategic partners are
actual or potential competitors, which may impair the viability of these
relationships. Termination of, or failure to expand, any of these relationships
with these organizations could cause us to lose important opportunities,
including sales and marketing opportunities, and our business may suffer and our
stock price may decline.
WE MUST MEET THE CHANGING NEEDS OF OUR CUSTOMERS IN THE MARKET FOR B2BI
SOLUTIONS IN ORDER TO SUCCEED.
The characteristics of the market for B2Bi solutions include rapidly
changing technology, evolving industry standards and frequent new product
announcements. In order to succeed, we must adapt to market changes by
continually improving the performance, features and reliability of our
OpenBusiness products. We could incur substantial costs to modify our products
and professional services in order to adapt to these changes. Our incurring
significant costs without adequate results or inability to adapt rapidly to
these changes could harm our business and cause our stock price to fall.
In addition, our customers and their B2B partners use a wide variety of
constantly changing hardware, applications and server platforms. If our products
are unable to support a variety of these or are unable to adapt to the rapidly
changing B2Bi market, our products may fail to gain and maintain broad market
acceptance, causing our operating results and stock price to decline.
IF THE MARKET FOR INTERNET-BASED B2BI SOLUTIONS DOES NOT EXPAND, OUR BUSINESS
WILL SUFFER.
The Internet-based B2Bi solutions market is relatively new and may not grow
as fast as we expect. Our potential customers are just beginning to seek
solutions for managing interactions with their trading partners, and concerns
about the security, reliability and quality of the services delivered over the
Internet may inhibit the growth of our market. If Internet-based B2Bi solutions
fail to achieve market acceptance, our business may suffer and our stock price
may fall.
10
<PAGE>
RISKS RELATED TO OUR INDUSTRY
CONTINUED GROWTH OF THE INTERNET AS A METHOD OF CONDUCTING BUSINESS IS NECESSARY
FOR OUR SUCCESSFUL GROWTH.
Our future success depends upon the widespread acceptance and use of the
Internet as an effective medium for B2B commerce. The failure of the Internet to
continue to develop as a commercial or business medium could harm our business
and stock price. A number of factors could limit the acceptance and use of the
Internet for B2B commerce. These factors include the growth and use of the
Internet in general, the relative ease of conducting business on the Internet
and the efficiencies and improvements that conducting commerce on the Internet
provides.
THE SUCCESS OF OUR BUSINESS DEPENDS UPON THE SPEED AND RELIABILITY OF THE
INTERNET AND OUR CUSTOMERS' INTERNAL NETWORKS.
The recent growth in Internet traffic has caused frequent periods of
decreased operating performance of systems and applications accessed over the
Internet. If Internet usage continues to grow rapidly, the underlying
infrastructure may not be able to support these demands, and performance and
reliability may decline. If outages or delays on the Internet occur frequently
or increase in frequency, B2B commerce could grow more slowly or decline, which
may reduce the demand for our OpenBusiness solution. The speed and reliability
of both the Internet and our customers' internal networks limit the ability of
our products to satisfy our customers' needs. Consequently, improvements made to
the entire Internet, as well as to our individual customers' networking
infrastructures, to alleviate overloading and congestion will accelerate the
emergence and growth of the market for our software. Failure to make these
improvements will hinder the ability of our customers to utilize our solution,
and our business may suffer, and our stock price may decline.
INTERNET COMMERCE INVOLVES INCREASED SECURITY RISKS AND MAY DETER FUTURE USE OF
OUR PRODUCTS AND SERVICES.
Internet-based B2B commerce depends upon the secure transmission of
confidential information over public networks. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
may result in a compromise or breach of the security features contained in our
software or the algorithms that our customers and their B2B partners use to
protect content and transactions over the Internet or proprietary information in
our customers' and their partners' databases. Anyone who is able to circumvent
security measures could misappropriate proprietary, confidential customer
information or cause interruptions in our customers' and their partners'
operations. Our customers and their business partners may need to incur
significant costs to protect against security breaches or to alleviate problems
caused by breaches, reducing their demand for our products and services.
Further, a well-publicized compromise of security could deter businesses from
using the Internet to conduct transactions that involve transmitting
confidential information. The failure of the security features of our products
to prevent security breaches, or well publicized security breaches affecting the
Internet in general, could significantly harm our business and our stock price.
CHANGES IN THE LAWS RELATING TO THE INTERNET COULD ADVERSELY AFFECT OUR
BUSINESS.
Regulation of the Internet is largely unsettled. The adoption of laws or
regulations that increase the costs or administrative burdens of doing business
using the Internet could cause companies to seek an alternative means of
transacting business. If the adoption of new Internet laws or regulations causes
companies to seek alternative methods for conducting business, the demand for
our products and services could decrease, harming our business and our stock
price.
11
<PAGE>
RISKS RELATED TO THIS OFFERING
BECAUSE A FEW EXISTING STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK,
OTHER STOCKHOLDERS WILL HAVE LIMITED VOTING POWER.
Following consummation of this offering, our officers, directors and their
affiliates will beneficially own or control approximately % of our common
stock. In combination with our 5% stockholders, this group controls % of the
outstanding shares of our stock. As a result, if these persons act together,
they will have the ability to control all matters submitted to our stockholders
for approval, including the election and removal of directors and the approval
of any merger, consolidation or sale of all or substantially all of our assets.
These stockholders may make decisions that are adverse to your interests.
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a significant number of shares of our common stock after this
offering could cause the market price of our common stock to decline or could
adversely affect our ability to raise money through the sale of additional
equity securities. Our directors, executive officers and 5% stockholders
collectively will beneficially own 26,188,731 shares of common stock following
this offering, not including shares they have the right to acquire through the
exercise of options. Each of these persons and entities has entered into a
lock-up agreement, prohibiting them from selling or otherwise disposing of any
shares for 180 days after the date of this prospectus without the approval of
Donaldson, Lufkin & Jenrette. However, holders who have not been officers,
directors or affiliates of our company on or since the date of this prospectus
may be eligible to sell their shares 90 days after the date of this prospectus.
In addition, Donaldson, Lufkin & Jenrette has approved pledges of up to
3,609,446 shares of common stock to secure loans. If a default occurs under a
loan, the lender may foreclose upon and sell any pledged shares. When the
lock-up agreements expire, all of the shares held by our directors, executive
officers and 5% stockholders will become eligible for sale, subject to
limitations provided by applicable law.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS, AND THE INVESTMENT OF
THESE PROCEEDS MAY NOT YIELD RETURNS THAT YOU WILL CONSIDER SUFFICIENT.
We have not allocated most of the net proceeds of this offering for specific
purposes. Thus, our management has broad discretion over how we use these
proceeds and could spend most of these proceeds in ways with which our
stockholders may not agree. Our management may invest the proceeds in ways that
do not yield returns that you will consider sufficient.
THERE MAY NOT BE AN ACTIVE TRADING MARKET FOR OUR STOCK AFTER THE OFFERING,
CAUSING YOU TO LOSE ALL OR PART OF YOUR INVESTMENT.
Prior to this offering, there has not been a public market for our common
stock. An active public market for our common stock may not develop or continue
after this offering. We have negotiated with representatives of the underwriters
to determine the initial public offering price. The trading prices of many
technology companies' stocks are at or near historical highs and reflect
financial ratios substantially above historic levels. We cannot be certain that
these trading prices or ratios will continue. As a result, the trading market
price of our common stock may decline below our initial public offering price.
THE PRICE VOLATILITY OF INTERNET-RELATED STOCKS MAY CAUSE OUR STOCK PRICE TO
DECLINE.
The stock market, and specifically the stock prices of Internet-related
companies, has been very volatile. This volatility is often not related to the
operating performance of the companies. This broad market volatility and
industry volatility may substantially reduce the price of our common stock,
without
12
<PAGE>
regard to our operating performance. Fluctuations in the price of our common
stock may affect our visibility and credibility in the market for B2Bi
solutions. If broad fluctuations occur in the market price of our common stock,
you may be unable to resell your shares if at or above the offering price.
Plaintiffs have often brought securities class action litigation against
companies that experience volatility in the market price of their securities.
Litigation brought against us could result in substantial costs to us in
defending against a lawsuit and could divert management's attention from our
business.
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE
BOOK VALUE OF YOUR INVESTMENT.
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value. This
dilution is due in large part to the fact that our earlier investors paid
substantially less than the public offering price when they purchased their
shares. If the holders of outstanding options and warrants exercise those
options and warrants, you will incur further dilution.
A CUSTOMER CONTRACT, OUR CORPORATE GOVERNANCE DOCUMENTS AND DELAWARE LAW CONTAIN
CERTAIN ANTI-TAKEOVER PROVISIONS.
We have granted one of our licensees a right of first refusal to acquire a
significant portion of our OpenBusiness Infrastructure Platform if we sell our
company or those portions containing the licensed technology. This right of
first refusal, along with provisions of our certificate of incorporation, our
bylaws and Delaware law, could make it more difficult to acquire us, even if
doing so would be beneficial to our stockholders.
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. These statements relate to future events or other future financial
performance, and are identified by terminology such as "may," "will," "should,"
"expects," "scheduled," "plans," "intends," "anticipates," "believes,"
"estimates," "aims," "potential" or "continue" or the negative of such terms and
other comparable terminology. These statements are only predictions. In
evaluating these statements, you should specifically consider various factors,
including the risks outlined under "Risk Factors." These factors may cause our
actual results to differ materially from any forward-looking statement.
This prospectus contains market data related to our business, the Internet
and e-commerce. This market data includes projections that are based on a number
of assumptions. If these assumptions turn out to be incorrect, actual results
may differ from the projections based on these assumptions. As a result, our
markets may not grow at the rates projected by these data, or at all. The
failure of these markets to grow at these projected rates may have a material
adverse effect on our business, results of operations, financial condition and
stock price.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot assure you that our future results, levels
of activity, performance or goals will be achieved. We undertake no obligation
to update any of the forward-looking statements after the date of this
prospectus to conform these statements to reflect the occurrence of
unanticipated events.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares of
common stock we are selling in this offering will be approximately $ million,
at an assumed initial public offering price of $ per share, after deducting
estimated offering expenses of approximately $ million and underwriters'
discounts and commissions payable by us. If the underwriters exercise their
over-allotment option in full, we estimate that the net proceeds to us will be
approximately $ million.
We intend to use the net proceeds we receive from this offering primarily
for working capital and other general corporate purposes, including funding
operating losses. We also intend to use approximately $3.0 million of the net
proceeds of this offering to repay outstanding indebtedness. Of this amount,
approximately $2.2 million bears interest at an effective rate of approximately
15.2% and matures in June 2001 and approximately $800,000 bears interest at a
variable interest rate that at March 15, 2000 was approximately 9.8% and matures
in April 2000. Other than the repayment of this indebtedness, we have not
identified specific uses for the net proceeds of this offering, and management
will have broad discretion over their use and investment. Pending their use, we
plan to invest the net proceeds in interest-bearing, investment grade
securities. We may use a portion of the net proceeds to acquire or invest in
technology or businesses that are complementary to our business, although we
have no current plans in this regard.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not intend
to pay any cash dividends on our common stock in the foreseeable future. We
currently intend to retain any earnings for use in the operation of our
business. Payment of any future dividends will be at the discretion of our board
of directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and plans for
expansion. In addition, the terms of our revolving line of credit prohibit us
from paying dividends without the lender's consent.
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<PAGE>
CORPORATE INFORMATION
We were initially incorporated in Texas in August 1992 and reincorporated in
Delaware in December 1997. Our principal executive offices are located at 14850
Quorum Drive, Suite 500, Dallas, Texas 75240, and our telephone number is
(972) 726-4100. Our website address is WWW.OBJECTSPACE.COM. THE INFORMATION
CONTAINED ON OUR WEBSITE DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS. We have
registered the trademark "ObjectSpace-Registered Trademark-" in the United
States and have applied for the trademark "OpenBusiness-TM-" in the United
States. All other trademarks or tradenames referred to in this prospectus are
the property of their respective owners.
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<PAGE>
CAPITALIZATION
The following table sets forth our cash position, current portion of
long-term obligations and total capitalization as of December 31, 1999.
The pro forma column of the table gives effect to:
- increases in our authorized common stock from 20,000,000 shares to
95,000,000 shares subsequent to December 31, 1999;
- the automatic conversion of all outstanding shares of our preferred stock
into shares of common stock upon the closing of this offering; and
- the automatic elimination of redemption rights on 1,195,236 shares of our
common stock upon the closing of this offering.
The pro forma as adjusted column of the table gives effect to the sale in
this offering of shares of common stock at an assumed price of $ per
share, less estimated underwriting discounts and estimated offering expenses
payable by us, and the application of the net proceeds from this offering as
described in "Use of Proceeds."
This table should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash........................................................ $ 1,670 $ 1,670
======== ======== ========
Current portion of long-term obligations.................... $ 3,482 $ 3,482
======== ======== ========
Long-term obligations, net of current portion............... $ 177 $ 177
Redeemable stock and warrants:
Common stock and warrants................................. 1,901 --
Series A convertible preferred stock...................... 2,738 --
Series B convertible preferred stock...................... 13,330 --
-------- -------- --------
Total redeemable stock and warrants....................... 17,969 --
Stockholders' equity (deficit):
Preferred stock, $1.00 par value, 1,725,868 shares
authorized and no shares outstanding, actual; 5,000,000
shares authorized and no shares outstanding, pro forma
and pro forma as adjusted............................... -- --
Common stock, $0.01 par value, 20,000,000 shares
authorized and 19,685,032 shares outstanding, actual;
95,000,000 shares authorized and 30,047,835 shares
outstanding, pro forma; 95,000,000 shares authorized and
shares outstanding, pro forma as adjusted......... 197 300
Additional paid-in capital................................ 5,927 23,793
Deferred stock compensation............................... (1,700) (1,700)
Accumulated deficit....................................... (16,195) (16,195)
Unrealized losses on marketable securities................ (7) (7)
-------- -------- --------
Total stockholders' equity (deficit)...................... (11,778) 6,191
-------- -------- --------
Total capitalization........................................ $ 6,368 $ 6,368 $
======== ======== ========
</TABLE>
This table excludes:
- 4,860,928 shares issuable upon exercise of options outstanding as of
December 31, 1999;
- 3,244,040 shares available for future issuance under our stock option
plans as of December 31, 1999; and
- 430,595 shares plus that number of shares equal to $2.5 million divided by
the offering price of the common stock in this offering, in each case
issuable upon the exercise of warrants outstanding as of December 31,
1999.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, after giving
effect to the conversion of all outstanding shares of preferred stock into
9,167,567 shares of common stock at a ratio of 2.8 shares of common stock for
each share of preferred stock outstanding, upon the closing of this offering,
was approximately $6.0 million, or approximately $0.20 per share. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by 30,047,835 shares of common stock outstanding
after giving effect to the conversion of all outstanding shares of preferred
stock into shares of common stock and elimination of the redemption rights on
1,195,236 shares of common stock upon completion of this offering.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of our common stock in this offering and the
pro forma net tangible book value per share of common stock immediately after
completion of this offering. After giving effect to the sale by us of shares
of common stock in this offering at an assumed initial offering price of $
per share, and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value as of December 31, 1999, would have been $ , or $
per share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to purchasers of common stock in this
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Pro forma net tangible book value per share as of December
31, 1999................................................ $0.20
Increase per share attributable to this offering..........
-----
Pro forma net tangible book value per share after this
offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing stockholders and by new investors purchasing shares of common stock in
this offering, before deducting underwriting discounts and commissions and
estimated offering expenses payable by us, at an assumed initial public offering
price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 30,048 % $16,865 % $0.56
New investors
------ ----- ------- ----- -----
Total.................................... 100.0% $ 100.0% $
====== ===== ======= ===== =====
</TABLE>
To the extent that any shares are issued upon exercise of options or
warrants that were outstanding at December 31, 1999 or granted after that date,
there will be further dilution to new investors.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and the notes to the financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
are included elsewhere in this prospectus. We derived the statement of
operations data for the years ended December 31, 1997, 1998 and 1999 and the
balance sheet data as of December 31, 1998 and 1999 from our financial
statements, which have been audited by Ernst & Young LLP, independent auditors,
and are included elsewhere in this prospectus. The statement of operations data
from the years ended December 31, 1995 and 1996 and the balance sheet data as of
December 31, 1995, 1996 and 1997 are derived from our financial statements for
the years then ended. Historical results are not necessarily indicative of
future results. The pro forma information in the table below gives effect to the
automatic conversion of all outstanding shares of preferred stock into shares of
common stock, as if the shares had converted immediately upon issuance, and
elimination of common stock redemption rights.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License................................................... $ 588 $ 1,097 $ 1,547 $ 908 $ 5,250
Service................................................... 3,972 8,757 10,070 10,897 14,896
------- ------- ------- ------- -------
Total revenue........................................... 4,560 9,854 11,617 11,805 20,146
Cost of revenue:
License................................................... 74 97 968 714 924
Service................................................... 2,578 5,200 6,808 7,421 10,448
------- ------- ------- ------- -------
Total cost of revenue................................... 2,652 5,297 7,776 8,135 11,372
Gross profit................................................ 1,908 4,557 3,841 3,670 8,774
Operating expense:
Sales and marketing....................................... 562 1,276 2,863 3,712 6,773
Research and development.................................. 217 465 1,802 1,811 4,075
General and administrative................................ 1,884 4,394 2,965 2,808 3,956
Noncash stock compensation expense........................ -- -- -- -- 232
------- ------- ------- ------- -------
Total operating expense................................. 2,663 6,135 7,630 8,331 15,036
Operating loss from continuing operations................... (755) (1,578) (3,789) (4,661) (6,262)
Interest expense............................................ 179 161 56 249 642
Interest income and other, net.............................. -- -- (22) (56) (257)
------- ------- ------- ------- -------
Loss from continuing operations before income taxes......... (934) (1,739) (3,823) (4,854) (6,647)
Income tax expense (benefit)................................ 112 17 (214) -- --
------- ------- ------- ------- -------
Loss from continuing operations............................. (1,046) (1,756) (3,609) (4,854) (6,647)
Discontinued operations:
Income (loss) from discontinued operations................ 1,225 1,761 1,317 492 (73)
Gain on sale of discontinued operations................... -- -- -- -- 2,567
------- ------- ------- ------- -------
Income from discontinued operations..................... 1,225 1,761 1,317 492 2,494
------- ------- ------- ------- -------
Net income (loss)........................................... 179 5 (2,292) (4,362) (4,153)
------- ------- ------- ------- -------
Accretion of redeemable preferred stock and common stock.... -- -- -- 210 5,425
------- ------- ------- ------- -------
Net income (loss) attributable to common stockholders....... $ 179 $ 5 $(2,292) $(4,572) $(9,578)
======= ======= ======= ======= =======
Basic and diluted net income (loss) per common share........ $ 0.01 -- $ (0.12) $ (0.23) $ (0.49)
Weighted average number of common shares outstanding........ 16,800 17,611 19,624 19,632 19,640
Pro forma basic and diluted net income (loss) per common
share..................................................... $ 0.01 -- $ (0.11) $ (0.20) $ (0.14)
Shares used in computing pro forma basic and diluted net
income (loss) per common share............................ 16,800 18,117 21,024 21,534 30,076
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 323 $2,218 $ 546 $11,327 $ 1,670
Working capital........................................... (133) 3,514 1,309 10,890 4,871
Total assets.............................................. 2,242 7,247 6,269 15,805 17,543
Long-term obligations, net of current portion............. 167 64 480 3,102 177
Mandatorily redeemable convertible preferred stock, common
stock and warrants...................................... -- 1,429 1,429 12,931 17,969
Total stockholders' equity (deficit)...................... 302 3,865 1,588 (2,981) (11,778)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF OBJECTSPACE SHOULD BE READ IN CONJUNCTION WITH "SELECTED
FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND RELATED NOTES APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS FORWARD-
LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. OUR ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE
SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading provider of business-to-business infrastructure software
products and services that enable organizations to easily and rapidly integrate
business applications within and across organizations over the Internet.
At our inception in August 1992, we focused on providing services to assist
organizations in developing business software applications. In March 1994, we
introduced our first software product, which supported C++ applications
development. During October 1997, with the first license of our OpenBusiness
Infrastructure Platform, we shifted our focus from the C++ product line towards
B2Bi products. In each of September 1999 and March 2000, we sold businesses that
did not align with our strategic focus on B2Bi products. Both of these
businesses are treated in our financial statements as discontinued operations.
Our revenue is derived from sales of licenses of our products to end user
companies and original equipment manufacturers, or OEMs, and related services.
Historically, service revenue has constituted the substantial majority of our
revenue. However, as a result of the increasing acceptance of our OpenBusiness
products, license revenue has comprised an increasingly larger percentage of
total revenue. Specifically, license revenue accounted for approximately 26.1%
of our revenue in 1999 compared to approximately 7.7% of our revenue in 1998. We
expect license revenue to continue to increase as a percentage of total revenue.
We market our products and services globally through our direct sales force,
resellers and system integrators. We also believe our participation in a number
of technology and standards organizations, and the conformity of our products to
those standards, has increased the penetration and market acceptance of our B2Bi
solutions.
License revenue on product licenses to end user companies is recognized upon
shipment of our products, provided that the fee is fixed and determinable,
persuasive evidence of an arrangement exists, collection of the resulting
receivable is considered probable and vendor-specific objective evidence exists
to allow allocation of the total fee to elements of the arrangement. License
revenue from resale of our products by OEMs is recognized at the time the OEM
delivers our product to their customer. Historically, we have not experienced
significant returns or exchanges of our products.
Service revenue includes professional services, maintenance, support and
reimbursable expenses. Service revenue is billed on either a time-and-materials
or fixed-fee basis. We generally charge for our professional services on a
time-and-materials basis. Service revenue realized from time-and-materials
professional services contracts is recognized as the service is provided.
Service revenue realized from fixed-fee professional services contracts is
recognized using the percentage of completion method based on hours incurred
versus estimated hours to complete. Revenue from post-contract customer support
agreements, or maintenance, is recognized ratably over the term of the related
agreements, which typically have a 12-month term. Billings in advance of revenue
recognition are recorded as unearned revenue.
Although we have experienced revenue growth, we have incurred significant
costs to develop our products and to recruit and train personnel. As a result,
we have incurred significant losses since inception, and as of December 31,
1999, had an accumulated deficit of approximately $16.2 million. We
19
<PAGE>
believe our success depends on, among other things, rapidly increasing our
customer base, further developing our B2Bi products and introducing creative
product enhancements into the marketplace. We intend to continue to invest
heavily in sales and marketing and research and development. We therefore expect
to continue to incur substantial operating losses for the foreseeable future.
In September 1999, we completed the sale of our Educational Services
division, which provided software training services. This disposition resulted
in a gain on sale of $2.6 million. In March 2000, we completed the sale of our
FAB Solutions division, which provided manufacturing software solutions for the
semiconductor industry. This disposition resulted in an estimated gain on sale
of approximately $4.0 million. Both of these divisions are treated as
discontinued operations, and accordingly their results of operations are
presented as income (loss) from discontinued operations for all periods
presented.
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data as a
percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Revenue:
License................................................... 13.3% 7.7% 26.1%
Service................................................... 86.7 92.3 73.9
------ ------ ------
Total revenue........................................... 100.0 100.0 100.0
Cost of revenue:
License................................................... 8.3 6.0 4.6
Service................................................... 58.6 62.9 51.9
------ ------ ------
Total cost of revenue................................... 66.9 68.9 56.5
Gross profit................................................ 33.1 31.1 43.5
Operating expense:
Sales and marketing....................................... 24.6 31.4 33.6
Research and development.................................. 15.5 15.4 20.2
General and administrative................................ 25.5 23.8 19.6
Noncash stock compensation expense........................ 0.0 0.0 1.2
------ ------ ------
Total operating expense..................................... 65.6 70.6 74.6
Operating loss from continuing operations................... (32.5) (39.5) (31.1)
Interest expense............................................ 0.5 2.1 3.2
Interest income and other, net.............................. (0.2) (0.5) (1.3)
------ ------ ------
Loss from continuing operations before income tax........... (32.8) (41.1) (33.0)
Income tax benefit.......................................... (1.8) 0.0 0.0
------ ------ ------
Loss from continuing operations............................. (31.0)% (41.1)% (33.0)%
====== ====== ======
</TABLE>
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUE
TOTAL REVENUE. Total revenue was $11.6 million in 1997, $11.8 million in
1998 and $20.1 million in 1999, representing increases of 1.6% from 1997 to 1998
and 70.6% from 1998 to 1999. Four customers in 1997, two customers in 1998 and
two customers in 1999 individually accounted for over 10.0% of our total revenue
in each of those fiscal years. In the aggregate, these customers accounted for
65.7% of total revenue in 1997, 36.2% of total revenue in 1998 and 46.1% of
total revenue in 1999.
LICENSE. Our license revenue was $1.5 million in 1997, $908,000 in 1998 and
$5.3 million in 1999, representing a decrease of 41.3% from 1997 to 1998 and an
increase of 478.2% from 1998 to 1999. The
20
<PAGE>
decrease in 1998 was due primarily to a shift in focus of our sales and
marketing staff from our C++ line of products, which constituted the majority of
our license revenue in 1997, to our OpenBusiness product line. This OpenBusiness
suite of products serves an emerging market, which results in longer sales
cycles than our C++ products. As a result, the increase in 1999 was due
primarily to increased market acceptance of our OpenBusiness product line and
the success of our earlier marketing efforts.
SERVICE. Our service revenue was $10.1 million in 1997, $10.9 million in
1998 and $14.9 million in 1999, representing increases of 8.2% from 1997 to 1998
and 36.7% from 1998 to 1999. These increases were due primarily to our ability
to sell additional services to existing customers, attract new customers and
increase the size of our professional services engagements. In addition, the
increase in 1999 was due, in part, to additional development projects utilizing
our OpenBusiness products. Service revenue as a percentage of total revenue was
86.7% in 1997, 92.3% in 1998 and 73.9% in 1999.
COST OF REVENUE
LICENSE. Cost of license revenue consists primarily of distribution and
order fulfillment costs, product media and packaging and documentation. Our cost
of license revenue was $1.0 million in 1997, $714,000 in 1998 and $924,000 in
1999, representing a decrease of 26.2% from 1997 to 1998 and an increase of
29.4% from 1998 to 1999. The decrease in cost of license revenue in 1998 was due
primarily to a shift in product mix to our OpenBusiness products, which resulted
in lower license revenue. The increase in cost of license revenue in 1999 was
due primarily to increased revenue from licenses of our OpenBusiness products.
As a percentage of license revenue, cost of license revenue was 62.6% in 1997,
78.6% in 1998 and 17.6% in 1999. The percentage decrease in 1999 was due
primarily to our relatively fixed production and distribution costs being spread
over a larger revenue base.
SERVICE. Cost of service revenue consists primarily of direct labor costs
of our professional service group. Our cost of service revenue was $6.8 million
in 1997, $7.4 million in 1998 and $10.4 million in 1999, representing increases
of 9.0% from 1997 to 1998 and 40.8% from 1998 to 1999. The increases in cost of
service revenue was due primarily to an increase in the number of personnel from
43 in January 1997 to 73 in December 1999 to support the increase in service
revenue. As a percentage of service revenue, cost of service revenue was 67.6%
in 1997, 68.1% in 1998 and 70.1% in 1999. These increases are due to the use of
higher cost outside contractors. Due to the cost of recruiting personnel with
our desired skill sets, we may choose to carry under-utilized personnel for
short periods of time rather than reduce the size of our service organization.
This approach may cause our cost of service revenue as a percentage of service
revenue to vary significantly in the future, especially on a quarterly basis.
OPERATING EXPENSE
SALES AND MARKETING. Sales and marketing expense consists primarily of
salaries, commissions, bonuses, recruiting costs, travel, marketing materials
and trade shows. Sales and marketing expense was $2.9 million in 1997,
$3.7 million in 1998 and $6.8 million in 1999, representing increases of 29.7%
from 1997 to 1998 and 82.5% from 1998 to 1999. The increases in sales and
marketing expense were related primarily to increased hiring and higher
commissions and bonuses. In addition, we increased our spending on trade shows
and other marketing activities to increase awareness of our OpenBusiness
products. Sales and marketing expense was 24.6% of total revenue in 1997, 31.4%
of total revenue in 1998 and 33.6% of total revenue in 1999. We intend to invest
substantial resources to expand our selling efforts and to execute marketing
programs that will enhance awareness of our products and services. As a result,
we expect sales and marketing expense to increase significantly in the future.
RESEARCH AND DEVELOPMENT. Research and development expense consists
primarily of personnel and related expenses and the equipment and software
required to develop, test and enhance products. Research and development expense
was $1.8 million in 1997, $1.8 million in 1998 and $4.1 million in 1999,
representing increases of 0.5% from 1997 to 1998 and 125.0% from 1998 to 1999.
The increase
21
<PAGE>
from 1998 to 1999 was due primarily to increases in our research and development
personnel dedicated primarily to the development of our OpenBusiness products
and related compensation expense. Research and development expense was 15.5% of
total revenue in 1997, 15.4% of total revenue in 1998 and 20.2% of total revenue
in 1999. We believe that continued investment in research and development is
vital to our future, and we plan to accelerate the development of new products.
As a result, we expect to continue to increase our research and development
expenditures.
GENERAL AND ADMINISTRATIVE. General and administrative expense consists
primarily of salaries and other related costs for finance, human resources and
other administrative personnel, as well as accounting, legal and other
professional fees. General and administrative expense was $3.0 million in 1997,
$2.8 million in 1998 and $4.0 million in 1999, representing a decrease of 5.3%
from 1997 to 1998 and an increase of 40.9% from 1998 to 1999. The increase in
1999 was related primarily to increased personnel-related costs in
administrative functions, including information technology, human resources and
finance and accounting, to support the growth of our business. General and
administrative expense was 25.5% of total revenue in 1997, 23.8% of total
revenue in 1998 and 19.6% of total revenue in 1999, reflecting increasing
revenue. We expect general and administrative costs to increase in the future,
as we expect to add personnel to support our expanding operations, to incur
additional costs related to the growth of our business and to incur the ongoing
costs associated with being a public company.
NONCASH STOCK COMPENSATION. During 1999, we recorded $2.0 million of
deferred stock compensation in connection with stock options issued to
employees. This charge represents the difference between the fair value of the
options on the date of grant, based on an independent appraisal commissioned by
the Company, and the exercise price of the options. The deferred stock
compensation is being amortized over the four-year vesting period of the related
options. As a result, $337,000 of noncash stock compensation expense was
recognized during 1999, $105,000 of which was attributed to discontinued
operations. We did not incur any stock-based compensation expense prior to 1999.
We expect to incur noncash charges in the future relating to stock option grants
in 1999 and the first quarter of 2000.
INTEREST EXPENSE
Interest expense was $56,000 in 1997, $249,000 in 1998 and $642,000 in 1999.
The increases were due primarily to approximately $3.0 million of subordinated
indebtedness incurred in June 1998. We plan to use a portion of the proceeds
from this offering to repay this subordinated indebtedness in its entirety.
DISCONTINUED OPERATIONS
In September 1999, we completed the sale of our Educational Services
division for $2.9 million, resulting in a gain on sale of $2.6 million. In
addition, in March 2000, we sold our FAB Solutions division, resulting in an
estimated gain on sale of approximately $4.0 million. The results of operations
for both Educational Services and FAB Solutions are reported as discontinued
operations for all periods presented.
INCOME TAXES
No provision for income taxes was recorded in 1998 or 1999, as we incurred
net losses. During 1997, we recognized a tax benefit of $214,000 related to the
change in our deferred tax position from a net deferred tax liability to a net
deferred tax asset, which was completely offset by a valuation allowance.
QUARTERLY RESULTS OF CONTINUING OPERATIONS
The following table sets forth certain unaudited quarterly financial data
for 1998 and 1999. We obtained this information from unaudited quarterly
consolidated financial statements and, in the
22
<PAGE>
opinion of our management, it includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial results
for the periods. The quarterly results are not necessarily indicative of future
results of operations. See "Risk Factors--Our quarterly financial results are
subject to seasonality and fluctuations because of many factors, which could
harm our business prospects and our stock price."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
License........................... $ 230 $ 163 $ 183 $ 332 $ 175 $ 1,056 $ 883 $3,137
Service........................... 2,202 2,651 2,794 3,250 3,039 3,399 4,022 4,435
------- ------ ------- ------- ------- ------- ------- ------
Total revenue................... 2,432 2,814 2,977 3,582 3,214 4,455 4,905 7,572
Cost of revenue:
License........................... 138 153 178 244 226 242 238 218
Service........................... 1,623 1,737 1,817 2,245 2,043 2,408 2,588 3,408
------- ------ ------- ------- ------- ------- ------- ------
Total cost of revenue........... 1,761 1,890 1,995 2,489 2,269 2,650 2,826 3,626
Gross profit........................ 671 924 982 1,093 945 1,805 2,079 3,946
Operating expense:
Sales and marketing............... 605 624 1,213 1,270 1,375 1,745 1,614 2,040
Research and development.......... 452 487 371 502 718 892 1,099 1,366
General and administrative........ 640 677 663 827 847 975 865 1,269
Noncash stock compensation
expense......................... -- -- -- -- -- 56 57 119
------- ------ ------- ------- ------- ------- ------- ------
Total operating expense......... 1,697 1,788 2,247 2,599 2,940 3,668 3,635 4,794
------- ------ ------- ------- ------- ------- ------- ------
Operating loss from continuing
operations........................ (1,026) (864) (1,265) (1,506) (1,995) (1,863) (1,556) (848)
Interest expense.................... 46 46 129 28 160 139 172 170
Interest income and other, net...... (8) (5) (19) (25) (108) (73) (27) (48)
------- ------ ------- ------- ------- ------- ------- ------
Loss from continuing operations..... $(1,064) $ (905) $(1,375) $(1,509) $(2,047) $(1,929) $(1,701) $ (970)
======= ====== ======= ======= ======= ======= ======= ======
</TABLE>
AS A PERCENTAGE OF TOTAL REVENUE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
License.................... 9.4% 5.8% 6.1% 9.3% 5.4% 23.7% 18.0% 41.4%
Service.................... 90.6 94.2 93.9 90.7 94.6 76.3 82.0 58.6
------ ------ ------ ------ ------ ------ ------ ------
Total revenue............ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
License.................... 5.7 5.5 6.0 6.8 7.0 5.4 4.9 2.9
Service.................... 66.7 61.7 61.0 62.7 63.6 54.1 52.8 45.0
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenue.... 72.4 67.2 67.0 69.5 70.6 59.5 57.7 47.9
Gross profit................. 27.6 32.8 33.0 30.5 29.4 40.5 42.3 52.1
Operating expense:
Sales and marketing........ 24.9 22.2 40.7 35.4 42.8 39.2 32.9 26.9
Research and development... 18.6 17.3 12.5 14.0 22.3 20.0 22.4 18.0
General and
administrative........... 26.3 24.1 22.3 23.1 26.4 21.9 17.6 16.8
Noncash stock compensation
expense.................. 0.0 0.0 0.0 0.0 0.0 1.2 1.2 1.6
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expense................ 69.8 63.6 75.5 72.5 91.5 82.3 74.1 63.3
------ ------ ------ ------ ------ ------ ------ ------
Operating loss from
continuing operations...... (42.2) (30.8) (42.5) (42.0) (62.1) (41.8) (31.8) (11.2)
Interest expense............. 1.9 1.6 4.3 0.8 5.0 3.1 3.5 2.2
Interest income and other,
net........................ (0.3) (0.2) (0.6) (0.7) (3.4) (1.6) (0.6) (0.6)
------ ------ ------ ------ ------ ------ ------ ------
Loss from continuing
operations................. (43.8)% (32.2)% (46.2)% (42.1)% (63.7)% (43.3)% (34.7)% (12.8)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
23
<PAGE>
Our total revenue has generally increased during each of the eight quarters
presented. The increases in license revenue over the periods presented are
related primarily to market acceptance of our OpenBusiness Infrastructure
Platform. We have historically experienced stronger demand for our products and
services during the fourth quarter and weaker demand in the first quarter. We
expect to continue to experience this seasonal pattern. We experienced a
significant increase in license revenue during the quarter ended December 31,
1999 as a result of a transaction with one of our largest customers. This
resulted in license revenue accounting for 41.4% of total revenue for the
quarter. Because license revenue typically carries a higher margin percentage
than service revenue, our gross profit percentage for the quarter ended
December 31, 1999 was significantly above our historical levels. Due to the
difference in gross profit percentage, or gross margin, between license and
service revenue, our overall gross margin is heavily dependent on our mix of
revenue. Specifically, we experience a higher gross margin in quarters where
license revenue is a larger percentage of total revenue and a lower gross margin
in quarters where license revenue is a relatively smaller percentage of our
total revenue. Our cost of license revenue is relatively fixed and does not vary
significantly based on license revenue volume. Our operating expense has
continued to increase as we have expanded our operations, especially in sales
and marketing and research and development.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through private sales of
common and preferred stock, resulting in net proceeds from inception to
December 31, 1999 of $16.6 million, and, to a lesser extent, through bank loans,
subordinated indebtedness and equipment leases. As of December 31, 1999, we had
$4.7 million in cash and short-term investments and $4.9 million in working
capital.
Net cash used in operating activities was $1.6 million in 1997,
$3.3 million in 1998 and $8.3 million in 1999. Net cash flows from operating
activities in each period reflect increasing losses from continuing operations.
In addition, the net cash flow from operating activities in 1999 was affected by
a significant increase in accounts receivable.
Net cash used in investing activities was $1.0 million in 1997, $645,000 in
1998 and $1.6 million in 1999. Cash used in investing activities reflects
purchases of property and equipment, primarily computer equipment, and purchases
of marketable securities. Our capital expenditures are primarily related to
supporting the increase in the number of our personnel. Therefore, we expect our
capital expenditures to continue to increase in the future. At December 31,
1999, we had no material commitments for capital expenditures.
Net cash used in financing activities was immaterial in 1997. Net cash
provided by financing activities was $13.7 million in 1998. In 1998, cash was
primarily generated by private sales of preferred stock and issuance of debt.
Net cash used in financing activities was $289,000 in 1999, which was primarily
a result of payments for the redemption of common stock.
In September 1999, we received $2.9 million in net proceeds from the sale of
our Educational Services division, and in March 2000, we received approximately
$5.0 million in proceeds net of related expenses and escrowed amounts from the
sale of our FAB Solutions division. An additional $800,000 was placed in escrow
until March 2001 for satisfaction of indemnification claims against us which may
arise in connection with the sale of our FAB Solutions division.
As of December 31, 1999 our financing arrangements consisted of:
- $3.0 million of indebtedness, which has an effective interest rate of
approximately 15.2% and matures in June 2001;
- a $5.0 million revolving line of credit, which had no outstanding balance;
24
<PAGE>
- a 36-month equipment financing note in the original amount of $438,000,
which had an outstanding balance of $357,000 and matures in 2002; and
- various equipment leases totaling $412,000.
Borrowings under the revolving line of credit are limited to a borrowing
base calculation and bear interest at prime rate plus 0.75%. At December 31,
1999, we were not in compliance with one of the financial covenants on the
revolving line of credit and, as such, we obtained a waiver of the noncompliance
from the bank through February 29, 2000. We are currently negotiating an
amendment to the revolving line of credit to modify the covenants; however,
there can be no assurance that we will be successful in these efforts. The
$3.0 million senior subordinated note and the equipment financing note contain
cross-default provisions to the revolving line of credit. As a result, all three
have been reclassified to current liabilities. The equipment financing note
bears interest at a rate of 11.0%.
We expect to experience significant growth in our operating expense. In
particular, we would expect sales and marketing and research and development
expense to increase substantially in support of our OpenBusiness product line.
As a result, we expect to continue to generate operating losses. In addition, we
may use our cash to fund acquisitions, purchase new technologies or acquire
complementary product lines. We believe that the net proceeds of this offering,
together with our existing working capital immediately prior to this offering,
will be sufficient to fund our operations for at least the next twelve months.
We cannot be sure that we will be able to obtain this additional financing or
that, if we can, the terms will be acceptable to us.
As of December 31, 1999, we had net operating loss carryforwards for federal
income tax reporting purposes of $10.4 million that expire in various amounts
beginning in 2009. Federal income tax laws contain provisions that limit the use
in any future period of net operating losses and credit carryforwards upon the
occurance of various events, including a significant change in ownership
interests. We had net deferred tax assets, including our net operating loss
carryforwards and tax credits, of $4.0 million as of December 31, 1999. To
reflect the uncertainty of whether we will be able to use the benefit of these
net operating loss carryforwards, a valuation allowance has been recorded for
the entire net deferred tax asset. See Note 5 of the notes to the financial
statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133, as
amended, is effective for all quarters in fiscal years beginning after June 15,
2000. We do not currently utilize derivative financial instruments. Therefore,
we do not expect that the adoption of SFAS 133 will have a material impact on
our results of operations or financial position.
In December 1998, the AICPA issued SOP 98-9, "Software Revenue Recognition
with Respect to Certain Arrangements." This SOP requires recognition of revenue
using the "residual method" in a multiple element arrangement when fair value
does not exist for one or more of the delivered elements in the arrangement.
Under the "residual method," the total fair value of the undelivered elements is
deferred and subsequently recognized in accordance with SOP 97-2. We did not
have a material change to our accounting for revenue as a result of the
provisions of SOP 98-9.
In December 1999, the Securities and Exchange Commission issued SAB
No. 101, which summarizes some of the staff's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
We must comply with SAB 101 beginning with the quarter ended June 30, 2000. We
continue to evaluate the impact that SAB 101 will have on our timing of revenue
recognition in future periods. Based on our initial evaluation, we believe SAB
101 will not have a material impact on our future results of operations.
25
<PAGE>
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, Europe and Asia. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Substantially all of our sales are currently made
in U.S. dollars, and a strengthening of the dollar could make our products less
competitive in foreign markets. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since the majority of our
investments are in short-term instruments. Due to the short-term nature of our
investments, we believe that there is no material risk exposure. All of our
credit facilities, with the exception of our revolving credit facility, bear
interest at fixed rates. Because we had not utilized our revolving credit
facility through December 31, 1999, our interest expense for the periods
presented was not subject to fluctuations based on changes in the general level
of U.S. interest rates. Therefore, no quantitative tabular disclosures are
required. To the extent that we utilize our revolving credit facility in the
future, future interest expense could be subject to fluctuations based on the
general level of U.S. interest rates.
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BUSINESS
THE FOLLOWING DESCRIPTION OF OUR BUSINESS SHOULD BE READ IN CONJUNCTION WITH
THE INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DESCRIPTION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET FORTH IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading provider of business-to-business infrastructure software
products and services that enable organizations to easily and rapidly integrate
business applications within and across organizations over the Internet. Our
software allows organizations to link their business processes by sharing
services, conducting transactions and exchanging information in real-time, with
customers, suppliers and other trading partners. Our OpenBusiness solution
provides a robust, easy to configure integration platform that ensures reliable,
secure integration of complex, dynamic software applications and scales to
accommodate large numbers of B2B partners. In addition, to help our customers
adopt new B2B models and implement our OpenBusiness solution, we provide a wide
range of professional services, including strategic planning, architectural
design, project management and implementation services.
We market our products and services globally primarily through our direct
sales force, complemented by the selling and supporting efforts of value-added
resellers and system integrators. As of March 15, 2000, we had licensed our
OpenBusiness products or provided professional services to over 300 customers,
including Caterpillar, General Motors, Intel, Merrill Lynch, Nokia, Sprint and
Unisys.
INDUSTRY BACKGROUND
THE EMERGENCE OF THE NEW B2B BUSINESS MODEL
The Internet has emerged as a powerful new medium for communication and
commerce by fundamentally changing B2B interactions. We believe that
organizations have adopted the Internet as a new business platform in three
distinct phases. In the first phase, or "brochureware" phase, organizations
sought to quickly establish a presence on the Internet by creating websites that
provided online access to information about a company's products, services and
operations. In this first stage, organizations began to utilize the
communication benefits of the Internet, but generally failed to embrace the
Internet as a viable commerce and distribution channel. In the second phase, or
"consumer e-commerce" phase, early adopters of e-commerce technology designed
and implemented basic order entry websites so consumers could purchase goods or
services online. Today, in the third phase, or "B2B" phase, escalating
competitive pressures, shifting supplier relationships and diverse customer
demands are forcing organizations of all sizes to quickly embrace a new B2B
business model. This new model requires a higher level of business process
integration in which multiple customers, suppliers and other trading partners
transact business electronically in real-time over the Internet. We believe
organizations will not be able to effectively compete in today's global markets
without rapidly embracing this new B2B business model.
According to Forrester Research, revenue generated from B2B e-commerce will
grow from $406 billion in 2000 to $2.7 trillion in 2004. Forrester Research also
estimates that B2B e-commerce will account for more than 90% of U.S. e-commerce
transactions by 2004. To participate in this new market opportunity, we believe
organizations will be required to implement B2Bi software. This software enables
B2B e-commerce by integrating business processes and related information
technology systems of multiple customers, suppliers and other trading partners.
As a result, businesses are spending heavily to purchase B2Bi software in order
to transact business effectively over the Internet.
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The Delphi Group forecasts revenues from B2B e-commerce software and services to
grow from $5 billion in 1999 to $40 billion in 2002.
LIMITATIONS OF EXISTING B2B INTEGRATION SOLUTIONS
Over the last decade, organizations have invested billions of dollars in
custom and packaged software applications to improve and integrate internal
information technology systems. These applications frequently reside on
different hardware platforms and utilize varying data formats and communications
standards. In addition, these applications were not designed to communicate with
other companies' applications. To enable the emerging B2B business model,
isolated applications must be integrated not only within an organization, but
also externally with an organization's customers, suppliers and other trading
partners. For example, organizations are increasingly integrating their
inventory and order management applications with external purchasing
applications to automate the purchasing process once an order has been placed.
Most traditional approaches to B2Bi have been unable to adequately address
the challenges of integrating multiple customers, suppliers and other trading
partners. These approaches include in-house custom solutions, electronic data
interchange, or EDI, solutions and enterprise application integration, or EAI,
solutions. Most of these solutions are delivered over private networks,
resulting in limited scalability, long implementation times and high setup and
maintenance costs.
IN-HOUSE CUSTOM SOLUTIONS. In-house custom solutions are typically
point-to-point solutions developed by organizations and use closed or
proprietary technologies. These point-to-point solutions, or solutions that
typically integrate one specific software application to another with
inflexible code, often limit an organization's ability to easily modify
existing integrated software applications. These custom solutions often
require long development lead times and are typically limited to the
application for which they were designed. As a result, custom solutions
usually require large, expensive information technology staffs or system
integrators to develop and maintain, and they often lack the needed
flexibility and scalability for today's dynamic B2B business model.
EDI SOLUTIONS. EDI represented one of the first attempts to standardize
business-to-business interactions without the disadvantages of developing
and maintaining in-house custom solutions. However, due to the high cost and
lengthy time to implement and deploy EDI solutions, their benefits have been
limited typically to large organizations. In addition, because EDI is based
on point-to-point integration, fixed data formats and batch processing, it
limits organizations' ability to quickly respond to changing business
demands and to scale to large numbers of organizations. Therefore, EDI
solutions are often too time consuming, inflexible and expensive to
effectively solve today's rapidly evolving B2Bi challenges.
EAI SOLUTIONS. EAI solutions have been designed to effectively integrate
systems within an enterprise, but typically do not provide the open and
scalable inter-business integration that is critical for successful B2Bi.
While EAI solutions can be extended to integrate external customers,
suppliers and other trading partners, to do so often requires all parties to
implement a common integration architecture. As organizations develop their
new B2B business models and rapidly expand their B2B relationships,
requiring a common integration architecture for all participants has become
increasingly difficult. In addition, EAI solutions often have difficulty
integrating the applications of a diverse set of B2B partners because many
corporate firewalls do not readily recognize EAI communications protocols.
As a result, EAI solutions are typically too inflexible to provide the
necessary level of integration to fully achieve the benefits of B2Bi.
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THE OPPORTUNITY FOR A NEW INTERNET-BASED B2BI SOLUTION
We believe that by utilizing the Internet there is a significant opportunity
to provide organizations with a cost-effective B2Bi solution. This solution
should enable business process integration among customers, suppliers and other
trading partners, thereby facilitating the transition to a new B2B business
model. This solution should provide the flexibility and scalability to adjust to
dynamic business needs and allow organizations to offer their B2B partners the
ability to exchange information and conduct transactions in real-time,
regardless of their installed technology infrastructure. In addition, because
many organizations lack the expertise or resources to design and deploy new B2Bi
solutions, we believe a B2Bi solution should be supported by an experienced
professional services organization.
THE OBJECTSPACE SOLUTION
We provide an Internet-based B2Bi solution that enables organizations to
easily and rapidly integrate business applications within and across
organizations. Our software allows organizations to link their business
processes, sharing services, conducting transactions and exchanging information
in real-time, with customers, suppliers and other trading partners. Our
OpenBusiness solution provides a robust, easy to configure integration platform
that ensures reliable, secure integration of complex, dynamic business
applications and scales to accommodate large numbers of customers, suppliers and
other trading partners. We believe our OpenBusiness solution allows our
customers to integrate business processes with trading partners with fewer
alterations to their existing software applications than the current
alternatives require. Through the use of XML and support for a broad range of
additional communications standards, our solution provides a high level of
interoperability among disparate applications. As a result, unlike other B2Bi
solutions, our OpenBusiness solution allows multiple customers, suppliers and
other trading partners to successfully integrate otherwise incompatible software
applications without significant reprogramming or adopting the same
communications standards. In addition, to help our customers adopt a new B2B
model and implement our B2Bi solutions, we provide a wide range of professional
services, including strategic planning, architectural design, project management
and implementation services.
Our OpenBusiness solution provides the following business benefits to our
customers:
ENABLES NEW B2B BUSINESS MODELS. Our easy-to-use, scalable solution allows
our customers to rapidly adopt new B2B models that require seamless business
process integration. By improving, streamlining and automating B2B processes and
information flows, our solution enables organizations to capitalize on the
significant benefits associated with integrating customers, suppliers and other
trading partners in dynamic Internet-based B2B communities. These benefits
include enhanced revenue opportunities by enabling organizations to introduce
products to market more quickly and to provide new services to their customers.
In addition, organizations are able to increase operating efficiencies by
automating manual processes, efficiently managing inventories, reducing cycle
times and improving planning and forecasting capabilities.
REDUCES TIME TO MARKET. Our solution is designed to be easily and rapidly
deployed, permitting our customers to reduce their time to market for new
Internet-based B2B strategies. Unlike other B2Bi solutions, our OpenBusiness
solution does not require customers to modify existing applications or to adopt
a common integration technology. Therefore, customers generally need less time
to implement our OpenBusiness solution. Our solution is further differentiated
by providing easy-to-use portal software that allows our customers to further
simplify the process of integrating applications of B2B partners over the
Internet. As a result, our customers can quickly integrate their applications
with those of their customers, suppliers and other trading partners, saving
significant time and expense and speeding deployment of their B2B strategies. To
further speed time to market, we support our customers with extensive
professional services to help accelerate their implementation of B2Bi solutions.
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LEVERAGES EXISTING TECHNOLOGY INVESTMENTS. Over the last decade,
organizations have invested billions of dollars in custom and packaged software
applications, referred to as legacy applications. Using XML and supporting a
wide variety of other communications standards unlike other solutions, our
solution provides a high level of interoperability among legacy applications
without costly reprogramming. By eliminating reprogramming costs, organizations
are more likely to achieve broader, more extensive integration of their
disparate legacy applications, resulting in more effective B2Bi solutions.
Because our solution's integration capabilities easily extend legacy
applications to a wide range of users regardless of the user's location or
underlying infrastructure, organizations can realize greater returns on their
prior information technology investments.
OUR STRATEGY
Our goal is to be the leading provider of B2Bi software and services that
enable organizations to develop and implement new Internet-based B2B business
models. To achieve this objective, we are pursuing the following strategies:
EXTEND OUR PRODUCT AND TECHNOLOGICAL LEADERSHIP. We believe we have
developed the most comprehensive B2Bi solution currently available. Our products
feature a number of different B2B software integration capabilities that utilize
XML extensively. Furthermore, we believe our solution supports more B2B
communications and data format standards than any other competing solution,
allowing us to provide improved interoperability among business processes of B2B
partners. We intend to build upon our integration technology and improve our
solution's functionality and ease of use for rapidly developing B2Bi
requirements. We also intend to continue to remain actively involved with
industry standard organizations to ensure that our OpenBusiness products
incorporate new integration technology and communications standards as they
emerge. In addition, we may seek to enhance our product leadership through
licensing or acquiring complementary technologies or businesses.
LEVERAGE OUR EXISTING CUSTOMER BASE. We believe our current customer base
represents a significant opportunity for additional revenues. Since 1997, we
have developed relationships with over 800 customers, of which approximately 110
have purchased licenses for our OpenBusiness Infrastructure Platform. We believe
that many of these companies are beginning to implement new Internet-based B2B
strategies, and we intend to aggressively market our solution to them. In
addition, as our customers expand and refine their Internet strategies and begin
to realize the full potential of B2Bi, we believe we can increase sales by
expanding limited deployments into enterprise-wide implementations, as well as
by selling additional OpenBusiness products.
EXPAND SALES AND DISTRIBUTION CHANNELS. We intend to rapidly pursue a
multi-channel, global distribution strategy by capitalizing on our direct sales
force and key relationships with system integrators, value-added resellers,
OEMs and international distributors. We intend to increase our domestic
distribution by opening additional field offices and adding sales personnel in
our existing offices. We also plan to continue to expand our indirect
distribution through alliances with additional system integrators, value-added
resellers and OEMs. We intend to increase our international distribution by
developing additional relationships with international distributors,
establishing foreign direct sales offices and creating strategic alliances with
international system integrators.
BENEFIT FROM NETWORK EFFECTS. As customers utilize our OpenBusiness
products to integrate their B2B partners, these B2B partners will experience the
features and benefits of our products. We have already experienced additional
sales as a result of customers recommending and exposing our products to their
networks of customers, suppliers and other trading partners. Depending on the
level of B2B integration desired, some of our customers may require their B2B
partners to use our products. We believe this network effect will increase the
demand for our products, increase our brand recognition and strengthen our
position in the B2Bi solutions market.
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CAPITALIZE ON OUR PROFESSIONAL SERVICES CAPABILITIES. We have established
highly successful relationships with customers by assisting them in designing,
developing and deploying B2Bi solutions. Our extensive professional services
range from strategic and architectural planning to complete integration and
deployment of our products. In addition, we will continue to extend our
professional services expertise in applying emerging standards, especially XML
standards, to create B2Bi solutions. By offering a full range of professional
services, we believe we can deepen our existing customer relationships and
foster new customer relationships, thereby creating opportunities to sell
additional OpenBusiness products.
PRODUCTS
Our OpenBusiness products consist of three products: the OpenBusiness
Infrastructure Platform, the OpenBusiness Gateway and the OpenBusiness Portal.
Utilizing the technology developed in the OpenBusiness Infrastructure Platform,
which we first licensed in October 1997, we recently released the OpenBusiness
Gateway and OpenBusiness Portal in late March 2000. These products work together
to provide an integrated B2Bi solution that allows organizations to integrate
business processes over the Internet and to share services and exchange
information in real-time.
The OpenBusiness solution supports many current and emerging communications
standards, including XML, HTTP, CORBA, DCOM, SSL and RMI. In addition,
OpenBusiness supports many emerging XML standards, including Open Financial
Exchange, Oasis, RosettaNet, Open Travel Association and Microsoft BizTalk.
Our OpenBusiness product line is illustrated below:
[The diagram of our OpenBusiness product line consists of:
Four informational boxes arranged in a diamond pattern, each connected to an
oval in the center representing the Internet.
The box at the top of the diamond pattern contains the following
information:
"Inter-business application catalog includes:
Product Company--ERP Application
Retail Company--CRM Application
Shipping Company--Logistics Application"
This box also contains two other boxes connected in serial to the
representation of the Internet described above. One box is labeled "OpenBusiness
Portal." The other box is labeled "Firewall."
The box at the left of the diamond pattern is labeled "Product Company" and
contains headings arranged in a diamond pattern, each connected to a heading in
the center labeled "OpenBusiness Infrastructure." The heading at the top of this
diamond pattern is labeled "ERP Application." The heading at the left of this
diamond pattern is labeled "Inventory Application." The heading at the bottom of
this diamond pattern is labeled "Accounting Application." The center of this
diamond is connected in serial to: a box on the right of this diamond labeled
"OpenBusiness Gateway", then to a box labeled "Firewall" and finally to the
representation of the Internet described above.
The box at the bottom of the diamond pattern is labeled "Shipping Company"
and contains headings arranged in a diamond pattern, each connected to a heading
in the center labeled "OpenBusiness Infrastructure." The heading at the left of
this diamond pattern is labeled "Logistics Application." The heading at the
bottom of this diamond pattern is labeled "Tracking Application." The heading at
the right of this diamond pattern is labeled "Billing Application." The center
of this diamond is connected in serial to: a box on the top of this diamond
labeled "OpenBusiness Gateway", then to a box labeled "Firewall" and finally to
the representation of the Internet described above.
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The box at the right of the diamond pattern is labeled "Retail Company" and
contains headings arranged in a diamond pattern, each connected to a heading in
the center labeled "OpenBusiness Infrastructure." The heading at the bottom of
this diamond pattern is labeled "Customer Billing Application." The heading at
the right of this diamond pattern is labeled "Order Entry Application." The
heading at the top of this diamond pattern is labeled "CRM Application." The
center of this diamond is connected in serial to: a box on the left of this
diamond labeled "OpenBusiness Gateway", then to a box labeled "Firewall" and
finally to the representation of the Internet described above.]
OPENBUSINESS INFRASTRUCTURE PLATFORM. The OpenBusiness Infrastructure
Platform automates the exchange of information between incompatible legacy
software applications, databases and EDI software within an organization. For
example, by automatically translating between communications standards used by
different business applications, such as supply chain management and customer
relationship management applications, the Infrastructure Platform greatly
simplifies the challenge of connecting an organization's applications. The
Infrastructure Platform provides the critical foundation for integrating an
organization's disparate business applications, allowing them to be easily
extended to their external B2B partners.
OPENBUSINESS GATEWAY. The OpenBusiness Gateway builds upon the
functionality of the Infrastructure Platform by extending an organization's
internally integrated applications to their B2B partners over the Internet. An
organization that wants to make its internal applications accessible by its B2B
partners can use the Gateway to:
- define which applications can be accessed;
- manage security, defining who can access certain applications;
- limit when and for how long each application can be accessed;
- extend applications beyond corporate firewalls; and
- monitor, audit and bill for the usage of each application.
The Gateway utilizes XML to simplify the process of integrating the business
processes of B2B partners. Our XML-based approach also provides higher levels of
interoperability among disparate business applications, regardless of the
underlying communications standards, hardware platforms or operating systems.
The Gateway can be fully integrated with the OpenBusiness Portal software,
allowing customers to establish their own website to provide quick and easy
access to their business applications.
OPENBUSINESS PORTAL. By leveraging the integration and access capabilities
of the Infrastructure Platform and Gateway, the OpenBusiness Portal allows
organizations to rapidly create a website to catalog business applications that
they choose to make available to their community of B2B partners.
Organizations that establish websites using the Portal can configure and
manage the features and options of the website, including security features that
authorize portal access to their community of B2B partners. Once an organization
has created a website, any authorized partner using our Gateway product can also
provide access to their business applications on the website. This functionality
allows each member in a B2B community to easily exchange information and
services with other participants.
PRODUCT TECHNOLOGY
Our OpenBusiness solution utilizes several key technologies to provide
scalable, robust B2B integration. These key technologies are described below:
XML STANDARDS. We use XML, a key standard for providing interoperability
between disparate business applications, in our OpenBusiness solution. XML is an
emerging standard for defining uniform
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data formats. XML allows "descriptive tags" to be attached to data, allowing
applications to understand the meaning and context of the data. While these
descriptive tags provide significant flexibility in how data is described,
organizations often use them to describe data differently. Many industries are
establishing groups to define industry-specific standards for the use of XML
tags.
Our OpenBusiness solution provides support for many of the emerging industry
XML standards. With its non-intrusive architecture, our OpenBusiness solution
provides support for XML standards with minimal impact to existing business
applications. We believe this is a key in enabling integration of business
processes among B2B partners.
NON-INTRUSIVE ARCHITECTURE. Other B2Bi solutions typically require
organizations to make significant modifications to existing business application
source code, resulting in higher maintenance costs and lengthy time-to-market.
Our OpenBusiness products allow organizations to make existing business
applications available to other organizations over the Internet, without the
need for significant reprogramming. By minimizing the impact on existing
business applications, our B2Bi solutions generally can be implemented more
rapidly and at a lower cost than other B2Bi solutions. In addition, our
OpenBusiness products can be implemented without interfering with the normal
operation of a customer's business applications.
OPEN STANDARDS. Our OpenBusiness solution supports many open communications
standards, including XML, HTTP, CORBA, DCOM, SOAP, SSL and RMI. Communications
standards represent defined methods by which applications communicate
information. In addition, OpenBusiness supports many current and emerging
industry XML standards, including Open Financial Exchange, Oasis, RosettaNet,
Open Travel Association and Microsoft BizTalk. As new standards emerge, we
intend to enhance our OpenBusiness products to support these new standards,
consistent with our strategy to maintain OpenBusiness' support for open
standards.
MULTIPLE SERVER PLATFORM SUPPORT. Our OpenBusiness products are designed to
operate on most major server platforms, which facilitates implementing our
OpenBusiness products over a large number of B2B partners. These platforms
include Hewlett Packard HP-UX, IBM AIX, Linux, Microsoft Windows NT and Sun
Microsystems Solaris.
ROBUST SECURITY FEATURES. Our OpenBusiness solution contains robust
security features that permit organizations to securely transmit confidential
information over the Internet. Our software includes various forms of encryption
and access controls to ensure privacy of confidential data. In addition, because
all information sent through the OpenBusiness solution can be sent using popular
communications standards, including SSL, CORBA, DCOM, HTTP and SOAP, each of
which readily passes through corporate firewalls, our customers' business
partners are not required to modify their existing security features.
HIGHLY SCALABLE ARCHITECTURE. Our OpenBusiness solution has been designed
with a flexible architecture that can be scaled to allow usage by thousands of
integrated organizations operating over a geographically dispersed area in an
environment of high transaction volumes. Our OpenBusiness solution also includes
features that allow it to be readily deployed across a large number of
organizations with different hardware platforms and operating systems. In
addition, our OpenBusiness solution is designed to optimize performance in a
multi-server, multi-processor environment that can be configured by our
customers.
PRODUCT DEVELOPMENT
We licensed our first OpenBusiness product in October 1997. Using the
technology developed in our Infrastructure Platform, we recently introduced our
Gateway and Portal products. We continue to enhance our OpenBusiness products
with particular emphasis on providing improved interoperability, functionality
and ease of use. In addition, we work closely with industry standard
organizations to
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ensure that our products incorporate emerging technology and communications
standards. Our product development organization primarily focuses on enhancing
our existing products and technologies and on developing additional products to
extend our position as a leader in the B2Bi solutions market.
As of March 15, 2000, our product development organization consisted of 39
employees. Our product development employees typically have experience in
distributed computing, XML, Java and other advanced technologies. Our research
and development expenditures were $1.8 million in 1997, $1.8 million in 1998 and
$4.1 million in 1999. We expect to continue to invest heavily in product
development and to increase the size of our product development organization.
SERVICES
We offer a full range of professional services to customers who are engaged
in developing, deploying and managing mission-critical applications using our
OpenBusiness products. Specifically, we assist customers in all phases of
establishing their new B2B business models, from concept development to design
and implementation. Our professional services include project planning,
architectural design, prototyping, implementation, application integration and
project management. We believe that our professional services organization plays
a key role in creating opportunities to sell our OpenBusiness products.
As of March 15, 2000, we employed 84 professionals in our professional
services group, substantially all of whom are based in Dallas, Texas. Many of
our professional services employees have advanced degrees and/or substantial
industry experience in systems design and software architecture. We generally
charge for our professional services on a time-and-materials basis. We expect to
increase the size of our professional services group and expand the scope of the
services they offer as we continue to address the needs of domestic and
international businesses. In addition, we will continue to extend our
professional services expertise in applying emerging standards, especially XML
standards, to B2Bi solutions. Our professional services customers include
ClubCorp, EDS, General Motors, Merrill Lynch, Nokia, Nortel, PageMart and
Sprint.
We provide training on our OpenBusiness products to customers and system
integrators through a staff of full-time, dedicated training professionals. Our
curriculum includes introductory through advanced courses on our products. We
offer many forms of training, including in-house lectures, on-site training and
customized workshops tailored to address unique requirements.
CUSTOMERS
Since January 1, 1998, we have licensed our OpenBusiness products or
provided professional services to over 300 customers. Of these customers,
approximately 110 have purchased licenses for our OpenBusiness Infrastructure
Platform. These customers operate in a broad range of industries, including
financial, automotive, travel and entertainment and telecommunications. The
following is a
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partial list of our OpenBusiness Infrastructure Platform and professional
services customers since January 1, 1998:
<TABLE>
<CAPTION>
PRODUCTS PROFESSIONAL SERVICES
- ------------------------------------------------ ------------------------------------------
<S> <C> <C> <C>
2Bridgesoftware Galileo International ABT Infotech Software
Abatis General Motors Bell Atlantic Intel
ABT Lockheed Martin BP Amoco Merrill Lynch
AT&T MCI Caterpillar Nokia
Bowne Software Solect Technology Group ClubCorp Northern Telecom
Solutions Spark Online Connex Omron
Carbon Street Temasek Polytechnic Crag Technologies Pagemart
Countrywide Home Loans Tivoli Earthcars.com ProCure
EMC Unisys EDS Ridge Technologies
Fujitsu Experian Sprint
Galileo International USAA
General Motors WDC Storage Systems
ILog
</TABLE>
In 1999, ClubCorp accounted for 26% of our total revenue, and General Motors
accounted for 20% of our total revenue. We expect that a small number of
customers will continue to account for a substantial portion of our revenues for
the foreseeable future.
CASE STUDIES
The following case studies illustrate how some companies use our products to
enable new business models.
GENERAL MOTORS/ONSTAR
OnStar, a division of General Motors, operates several call centers to
provide GM vehicle owners with on board convenience and emergency services.
BUSINESS CHALLENGE. OnStar wanted to expand the functionality and breadth
of travel related services it could offer to GM car owners. OnStar decided to
create a call center service that could be accessed by the push of a button
within a car, through which a car passenger could speak with a call center agent
regarding a large variety of convenience services. Examples of these services
include providing dinner reservations, travel planning and entertainment
choices. In providing its new expanded service, OnStar was confronted with the
challenge of integrating multiple, disparate internal call center and back
office systems with external applications from services organizations, such as
restaurants and travel agencies, that provided OnStar access to additional
convenience services. Furthermore, OnStar required a flexible and scalable
solution that could easily manage increasing service and customer contact
information as well as accommodate millions of potential General Motors
customers.
SOLUTION. OnStar selected our OpenBusiness solution as a flexible
integration architecture to quickly integrate new call center services. Our
Infrastructure Platform enabled OnStar to efficiently integrate a wide variety
of internal applications, data bases and other business systems seamlessly into
a new web-based call center application. Our solution also reduced the time
required to integrate service offerings or applications from external service
providers into OnStar's Call Center Application. OnStar's service partners who
employ a variety of computer operating platforms and technologies were able to
provide services to OnStar without having to adopt new integration technologies
or reprogram their existing applications. Through the use of our solution,
OnStar expects to rapidly expand its service offerings and deliver these
services across a larger base of car owners in a highly efficient and
cost-efficient process.
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GALILEO INTERNATIONAL
Galileo International is one of the world's leading providers of global
distribution services for the travel industry.
BUSINESS CHALLENGE. Galileo has historically provided global distribution
services for travel agencies located throughout the world and travel suppliers,
including more than 500 airlines, 38 car rental companies, 44,700 hotel
properties and all major cruise lines. Galileo wanted to enable a new business
model by expanding the potential user base of its services over the Internet.
The challenge was to allow traditional customers such as travel agencies and
end-user corporations, as well as new classes of customers such as application
service providers and wireless communications companies, to quickly and easily
integrate travel services into their business solutions. Because Galileo's
customers typically have a broad range of disparate systems that use proprietary
or closed technologies, the challenge for Galileo was to install a
business-to-business infrastructure that could easily extend its services over
the Internet while integrating with a variety of operating platforms and
communications standards.
SOLUTION. Galileo implemented our OpenBusiness solution to integrate its
travel services with new delivery and communications methods. Our OpenBusiness
Infrastructure Platform simplified the process of integrating Galileo's internal
applications prior to being extended over the Internet. Galileo has initially
utilized our solution to develop a new service offering that enables travelers
to view and modify flight reservations using wireless devices, including cell
phones, personal digital assistants and two way pagers. This new distribution
channel gives Galileo the ability to access incremental customers and derive
additional revenue. In addition, Galileo intends to utilize our solution to
integrate its travel services with several application service providers and
wireless communications companies to further extend its potential base of new
Internet users.
SALES AND MARKETING
We primarily license our OpenBusiness products and market our services in
the United States through our direct sales organization. Our direct sales
organization consists of account executives who generate sales leads in their
assigned geographic territories. In general, our direct sales force targets
large multi-national companies and other organizations that we believe, because
of their extensive supply chains, represent attractive candidates for our
OpenBusiness products. The OpenBusiness suite of products serves an emerging
market, which results in longer sales cycles than our C++ products. The sales
cycle for our OpenBusiness solution often ranges from three to six months. We
work closely with our targeted customers to analyze their B2Bi needs and to
propose an OpenBusiness solution. In many cases, our sales team works closely
with senior management to develop a solution. We currently have direct sales
offices in our Dallas, Texas headquarters and our offices in New York, New York;
San Francisco, California; Atlanta, Georgia; Reston, Virginia and Chicago,
Illinois. We intend to expand our domestic direct sales organization by opening
additional sales offices and adding sales personnel in our existing offices.
We are in the early stages of expanding our presence in international
markets by developing relationships with additional international distributors,
establishing foreign direct sales offices and creating strategic alliances with
international system integrators. Our sales strategy also leverages both our
strategic relationships with system integrators, value-added resellers,
independent software vendors and our existing customer relationships to gain new
customers.
We focus our marketing efforts on developing awareness of our OpenBusiness
products and generating new sales opportunities. Our marketing activities
include:
- participating in seminars, conferences and trade shows;
- joint marketing campaigns with our existing business partners;
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<PAGE>
- advertising in industry and other publications; and
- creating new strategic relationships.
We intend to significantly increase our sales and marketing expenses to
increase awareness of our OpenBusiness products.
STRATEGIC ALLIANCES
To promote market penetration and enhance development of our products, we
have formed the following strategic alliances:
SYSTEM INTEGRATION ALLIANCES. To increase market penetration of our
products, we have established strategic relationships with several professional
services organizations and system integrators, including EDS, Origin Technology
in Business and Perot Systems. These non-exclusive relationships provide us with
an indirect channel to market our OpenBusiness products to a substantial number
of potential customers and access to broad-based technical expertise. These
system integrators also give us feedback on our products, which we use to
improve subsequent releases. We are aggressively pursuing additional
relationships with system integrators who offer us opportunities to expand into
geographic and/or industry markets more rapidly or who provide us with
additional market or technological expertise.
TECHNOLOGY ALLIANCES. To make use of standards in the areas of business
data interchange, e-commerce transaction support, distributed computing security
and authentication, we continue to maintain relationships with key technology
providers, such as HP, Microsoft, Novell and Sun Microsystems.
COMPETITORS
The market for Internet-based B2Bi solutions is new and evolving, highly
competitive and subject to rapid technological change. In addition, we believe
the market for these solutions will become more competitive in the near future.
Increased competition could significantly reduce our future revenue and increase
our operating losses due to price reductions, lower gross margins or lost market
share. We are subject to current or potential competition from other B2Bi
vendors, internal information technology departments, EAI software vendors and
other software vendors.
B2BI VENDORS. We face direct competition from other B2Bi solution providers
who focus on various aspects of B2B integration. These vendors include
OnDisplay, Software Technologies Corporation and webMethods.
INTERNAL INFORMATION TECHNOLOGY DEPARTMENTS. Potential customers' internal
information technology departments may have developed or be in the process of
developing software that solves some of the same problems that our OpenBusiness
products solve. In those cases, we may have difficulties licensing our
OpenBusiness products to them.
EAI SOFTWARE VENDORS. While EAI software vendors generally do not compete
directly with us, they may in the future expand their products or add
functionality to their existing products which could put them in competition
with our OpenBusiness products. These vendors include CrossWorlds Software, New
Era of Networks and Vitria Technology.
OTHER SOFTWARE VENDORS. We may face future competition from large, well
established software vendors, such as Microsoft or Oracle, if they decide to
develop products that compete with our products or acquire one of our existing
or future competitors.
Many of our existing and potential competitors have better brand
recognition, longer operating histories, larger customer bases and greater
financial, technical, marketing and other resources than us.
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As a result, they may be able to leverage these advantages to gain market share
from us. In addition, they may be able to respond more effectively than we can
to changing technologies, conditions or customer demands, especially during
market downturns.
We believe the principal competitive factors in the B2Bi solutions market
include:
- interoperability with existing applications, hardware platforms, operating
systems and communications standards;
- product functionality, quality, performance and price;
- speed and ease of implementation;
- support for emerging XML standards; and
- quality and breadth of professional services.
Although we believe our OpenBusiness solution generally competes favorably
with respect to these factors, the Internet-based B2Bi solutions market is new
and rapidly evolving. Therefore, we may not be able to maintain our competitive
position against existing and future competitors, especially those that have
greater financial, technical, marketing and other resources than us.
PROPRIETARY RIGHTS
Our success is dependent upon protecting our proprietary technology. To do
this, we rely on a combination of contractual provisions and copyright, trade
secret, trademark and patent laws. In addition, we also maintain confidentiality
procedures to protect our proprietary information and intellectual property
rights. As part of our confidentiality procedures, we generally enter into
non-disclosure agreements with our employees, contractors and strategic
partners.
We also enter into license agreements for our technology, documentation and
other proprietary information. Our customer licenses are generally
non-transferable, perpetual and prohibit reverse engineering our products. Our
OEM licenses are generally non-transferable, last from one to three years and
prohibit reverse engineering our products. A few of our agreements contain
provisions that, under some circumstances, would allow third parties to obtain
the source code for our software. A limited number of our agreements allow third
parties to license the source code for our software. We have entered into an
agreement with Tivoli, a subsidiary of IBM, that grants Tivoli the right of
first refusal to buy a portion of our object and source code that is included in
our OpenBusiness Infrastructure Platform, together with subsequent enhancements
and error connections for that code. This agreement could inhibit us from
selling our company or that code to a third party.
We currently hold a trademark registration in the United States for the name
"ObjectSpace" and have applied for a trademark registration in the United States
for the name "OpenBusiness." In addition, as of March 15, 2000, we have 17
pending patent applications for technology related to our OpenBusiness product
line. While we are not aware that our products, trademarks, copyrights or other
proprietary rights infringe the proprietary rights of third parties, it is
possible that our patents, copyrights or trademarks could be challenged and
invalidated. Further, we expect that software companies will increasingly be
subject to infringement claims as the number of products and competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. From time to time, we hire or retain employees or consultants
who have worked for independent software vendors or other companies developing
products similar to those offered by us. Those prior employers may claim that
our products are based on their products and that we have misappropriated their
intellectual property. Any claims of that variety, with or without merit, could
cause a significant diversion of management attention, result in costly and
protracted litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Those royalty or
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licensing agreements, if required, may not be available on terms acceptable to
us or at all, which would have a material adverse affect on our business.
Policing unauthorized use of our products is difficult, particularly because
the global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. In addition,
existing copyright, trade secret, trademark and patent laws afford only limited
protections. Effective protection of intellectual property rights may be
unavailable or limited in certain countries, because the laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. While we are unable to determine the extent to which
piracy of our software exists, we expect software piracy to be a persistent
problem. Furthermore, it is possible that our competitors will adopt product or
service names similar to ours, which could hinder our ability to protect our
intellectual property and possibly lead to customer confusion. Overall, the
protection of our proprietary rights may not be adequate and our competitors may
independently develop similar technology.
EMPLOYEES
As of March 15, 2000, we employed 190 full-time employees in our current
operations, including 30 in sales and marketing, 84 in professional services, 39
in research and development and 37 in administration and finance. We also employ
varying numbers of independent contractors and consultants to support our
professional services and research and development activities. Our future
success will depend in part on our ability to attract, retain and motivate
highly qualified technical and management personnel, for whom competition is
intense. None of our employees are represented by a collective bargaining
agreement, and we have never experienced a strike or similar work stoppage. We
consider our relations with our employees to be good.
FACILITIES
Our principal executive and corporate offices currently occupy approximately
60,000 square feet in Dallas, Texas pursuant to leases expiring in March 2003.
We also maintain offices for sales and support personnel in New York, New York;
San Francisco, California; Atlanta, Georgia; Reston, Virginia and Chicago,
Illinois. These offices are leased for various terms and generally consist of
less than 1,000 square feet of office space. We believe that our current
facilities are adequate through June 2000. We are currently negotiating leases
for additional space, which we believe we can obtain on commercially acceptable
terms, although we may be unable to do so.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth information regarding our officers and
directors as of March 30, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David Norris................................... 36 Chairman of the Board, Chief Executive Officer
and President
Paul Lipari.................................... 52 Vice President, Chief Financial Officer and
Secretary
Stewart Bush................................... 43 Vice President, Sales
James Canter................................... 36 Vice President, Engineering
Bruce Flory.................................... 49 Vice President, Marketing
Alan Larson.................................... 44 Vice President, Professional Services
John Bentley................................... 40 Director
Grant Dove..................................... 71 Director
Graham Glass................................... 37 Director
Eugene Lowenthal............................... 54 Director
David Near..................................... 41 Director
R. Stephen Polley.............................. 49 Director
</TABLE>
EXECUTIVE OFFICERS
DAVID NORRIS is a co-founder of ObjectSpace and has served as a member of
our board of directors since August 1992, our President since March 1997, our
Chief Executive Officer since December 1997 and our Chairman of the Board since
March 2000. Prior to founding ObjectSpace, from 1984 to 1992, Mr. Norris
designed and built distributed software systems for companies including Casco
Signal, DSC Communications, EDS, Frito-Lay, General Signal, IBM, Intellicall,
International Paper and Toccata Systems. Mr. Norris holds his B.S. in computer
science from the University of Texas.
PAUL LIPARI has served as our Vice President, Chief Financial Officer and
Secretary since September 1999. From September 1996 to February 1999,
Mr. Lipari served as Chief Financial Officer for DSET Corporation, a software
tools company specializing in telecommunications applications. From May 1995 to
August 1996, Mr. Lipari served as Vice President and Chief Financial Officer of
Chamberlain Phipps North America, a manufacturer and distributor of footware and
footware components. From December 1993 to April 1995, Mr. Lipari was the Vice
President, Finance and Operations, and Chief Financial Officer of NetLink, a
hardware and software networking solutions manufacturer. Mr. Lipari holds his
B.S. in accounting from the University of Akron and is a certified public
accountant in the State of New York.
STEWART BUSH has served as our Vice President, Sales since April 1999. From
October 1997 to February 1999, Mr. Bush was Senior Vice President of North
American Sales at Segue Software, a software development company. From
September 1991 to October 1997, Mr. Bush held various sales management positions
at Talarian Corporation, a middleware company. Mr. Bush received his B.S. in
mathematics from the University of Southern Florida.
JAMES CANTER has served as our Vice President, Engineering since
August 1999. From September 1998 to August 1999, Mr. Canter was Vice President,
Software Engineering for ADAC Laboratories, a nuclear medicine biomedical
systems company. From April 1998 to July 1998, Mr. Canter served as Vice
President of Systems Engineering and General Manager of Artecon, a fault
tolerant storage subsystems company. From February 1994 through April 1998,
Mr. Canter held various
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positions at Storage Dimensions, a fault tolerant storage subsystems company,
including Vice President of Engineering, Vice President of Software Engineering
and Director of Software Engineering. Mr. Canter holds his B.S. in microbiology
from Arizona State University and his M.B.A. from the University of Phoenix.
BRUCE FLORY has served as our Vice President, Marketing since October 1999.
From May 1998 to October 1999, Mr. Flory served as Vice President, Marketing for
Sterling Software, an enterprise software company. From August 1993 to
December 1998, Mr. Flory served as Vice President of Marketing for Liant
Software, a software application development tool company. Mr. Flory holds his
B.A. in marketing and his M.B.A. from St. Edward's University in Austin, Texas.
ALAN LARSON has served as our Vice President, Professional Services since
March 2000. From July 1999 to March 2000, Mr. Larson was Vice President,
Professional Services, Western Area for Interworld Corporation, a software
company specializing in Internet commerce applications. From November 1998 to
June 1999, Mr. Larson served as Vice President, Product Management for EXE
Technologies, a supplier of supply chain execution software. From February 1998
to November 1998, Mr. Larson was the Director of Professional Services for the
Central United States and Latin America for Siebel Systems, a developer of
enterprise application software for sales, marketing and call center operations.
From July 1997 to February 1998, Mr. Larson served as Area Manager for EMC
Corporation, a manufacturer of enterprise class disk storage systems. From
March 1993 to July 1997, Mr. Larson held the positions of Area Director for
Powersoft Educational Services and District Manager for Worldwide Professional
Services for Sybase, a software developer specializing in the computer
client/server marketplace. Mr. Larson holds his B.S. in industrial management
from the University of Wyoming and his M.B.A. from the University of
Wisconsin-Whitewater.
DIRECTORS
JOHN BENTLEY has served as a director since December 1998. Mr. Bentley
co-founded Cornerstone Equity Partners, LLC, a private equity company, in 1995.
From February 1989 to February 1995, Mr. Bentley held several positions,
including a partner, in the merchant banking group of Banc One Capital
Corporation. From July 1985 to January 1989, Mr. Bentley served as Chief
Financial Officer of R. J. Moran, a diversified holding company. Mr. Bentley is
also a director of New Century Financial Corporation and NetPro Computing.
Mr. Bentley received his B.A. in business administration from Baylor University.
GRANT DOVE has served as a director since December 1998. Mr. Dove has served
as Managing Partner of Technology Strategies & Alliances, an investment banking
firm specializing in the technology industry, since 1992. Mr. Dove is also a
director of Microelectronics and Computer Technology Corporation, MediaOne
Group, Cooper Cameron Corporation, Netpliance, Spotcast Communications, Inet
Technologies, Control Systems International and InterVoice-Brite. From 1987 to
1991, Mr. Dove was Chairman and Chief Executive Officer of Microelectronics and
Computer Technology. Prior to joining Microelectronics and Computer Technology,
Mr. Dove spent 28 years with Texas Instruments, retiring as Executive Vice
President. Mr. Dove received his B.S.E. in electrical engineering from Virginia
Polytechnic Institute and State University.
GRAHAM GLASS is a co-founder of ObjectSpace and has served as a director
since August 1992. Mr. Glass also served as our Chief Technical Officer from
December 1997 to January 2000. From 1990 to 1992, he was the founder and
President of ObjectLesson, an object oriented training company. From 1987 to
1989, Mr. Glass was a Senior Lecturer at the University of Texas at Dallas.
Mr. Glass holds his B.S. in mathematics and computer science from the University
of Southampton and a M.S. in computer science from the University of Texas at
Dallas.
EUGENE LOWENTHAL has served as a director since June 1998. Since
January 2000, Mr. Lowenthal has been a general partner with Sanchez Capital
Partners, a venture capital firm which focuses on early-
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stage, high-technology companies. Mr. Lowenthal currently serves on the board of
directors of several privately owned technology companies. From June 1994 to
December 1999, Mr. Lowenthal was an employee of Growth Capital Partners, a
regional investment banking firm. From October 1989 to May 1994, Mr. Lowenthal
served in several positions with LIM International, including Chairman of the
Board of Directors and Executive Vice President, Business Development. From
May 1989 to February 1993, Mr. Lowenthal served as Vice President of Cooperative
Computing. Mr. Lowenthal holds his B.A. in mathematics from the University of
Chicago and a Ph.D. in computer science from the University of Texas.
DAVID NEAR has served as a director since March 2000. Mr. Near has served as
Senior Vice President, Internet and eCommerce of Galileo, a provider of global
distribution services to the travel industry. Prior to assuming these
responsibilities, Mr. Near served as Senior Vice President, Subscriber
Marketing, Senior Vice President of Intuitive Products and Interactive Services
and as Director of Car, Hotel, Leisure and Advertising Product Management for
Galileo. Prior to joining Galileo in 1987, Mr. Near held a number of management
positions at United Airlines and B.F. Goodrich. Mr. Near is a director of
several Galileo International subsidiaries, Uniglobe.com, QuixData Systems and
IGT Travel Solutions. Mr. Near holds a B.A. from Cornell University and an
M.B.A. from Purdue University.
R. STEPHEN POLLEY has served as a director since June 1998. Since March
2000, Mr. Polley has served as President of Trinity eVentures, a wholly owned
subsidiary of Trinity Industries specializing in Internet e-commerce ventures.
From March 1999 to February 2000, Mr. Polley was Chairman, Chief Executive
Officer and President of cozone.com, a wholly owned subsidiary of CompUSA
specializing in the online retailing of computer and electronics products. From
November 1993 to March 1999, Mr. Polley was Chief Executive Officer and Chairman
of the Board of Interphase Corporation, a computer networking company.
Mr. Polley remains Chairman of the Board for Interphase. From August 1992 to
June 1994, Mr. Polley served as a director for Computer Automation, a provider
of various products and services for use in facsimile management systems,
minicomputers and microcomputers. From May 1987 to April 1992, Mr. Polley served
as President, Chief Executive Officer and a director of Intellicall, a supplier
of telecommunications products and services, including private pay telephones
and microprocessor-based automated operator systems. Mr. Polley holds his B.A.
in business from the University of Texas at Austin and an M.B.A. from George
Washington University.
BOARD COMPOSITION
Following this offering, our board of directors will consist of seven
directors. Our certificate of incorporation provides that the members of our
board of directors are divided into three staggered classes, each of whose
members serve for a three-year term. Following this offering, our board of
directors will consist of three class I directors, Messrs. Bentley, Lowenthal
and Near, two class II directors, Messrs. Dove and Polley, and two class III
directors, Messrs. Norris and Glass. At each annual meeting of stockholders, a
class of directors will be elected for a three-year term to succeed the
directors of the same class whose terms are then expiring. The terms of the
current directors expire upon the election of successor directors at the annual
meeting of stockholders to be held during calendar year 2000 for the class III
directors, 2001 for the class I directors and 2002 for the class II directors.
Each officer serves at the discretion of the board of directors and holds
office until his or her successor is elected or until his or her earlier
resignation or removal. There are no family relationships among any of our
directors or executive officers.
BOARD COMMITTEES
We have established an audit committee and a compensation committee. The
compensation committee of our board of directors is currently composed of
Messrs. Bentley, Dove and Lowenthal.
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The compensation committee reviews and recommends to our board of directors the
compensation and benefits of our executive officers and administers our stock
option and compensation plans.
The audit committee of our board of directors is composed of Messrs. Dove,
Lowenthal and Polley. The audit committee is governed by a charter that requires
each member of the committee to be independent. The charter also identifies the
roles and responsibilities of this committee, which include:
- oversight of the audit process performed by our independent auditors;
- review of the scope and the results of the audit process;
- oversight of the integrity and accuracy of our internal and external
financial reporting; and
- review of our financial statements with our independent auditors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since February 1999, our compensation committee has been composed of
Messrs. Bentley, Dove and Lowenthal. Prior to February 1999, our board of
directors and Mr. Norris, our Chief Executive Officer, addressed compensation
issues. None of our executive officers has served on the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our board of directors or compensation committee. None of the members
of our compensation committee is employed by ObjectSpace.
During the year ended December 31, 1998, we paid an aggregate of $170,421 to
GCP Securities, a regional investment banking firm. Of this amount, we paid GCP
Securities $40,000 in connection with the sale by us of 571,429 shares of our
Series A preferred stock to certain investors and $130,421 in connection with
our obtaining $3.0 million of debt financing. During the calendar year ended
December 31, 1999, we paid to GCP Securities $150,355 in connection with our
sale of 2,702,703 shares of our Series B preferred stock to certain investors.
In December 1998, we issued to Growth Capital Partners, an affiliate of GCP
Securities, a warrant to purchase 234,595 shares of common stock, at an exercise
price of $1.32 per share. Mr. Lowenthal, a director, was an employee of Growth
Capital Partners from 1994 to 1999. In addition, entities affiliated with
Mr. Bentley have purchased shares of our preferred stock and have registration
rights related to their shares. See "Certain Transactions--Convertible Preferred
Stock Issuances and Registration Rights."
DIRECTOR COMPENSATION
Directors who are not employees of ObjectSpace receive $1,000 for each board
meeting they attend. In addition, all board members are reimbursed for expenses
incurred in attending board or committee meetings.
We have occasionally granted non employee directors options to purchase
shares of our common stock. In June 1998, we granted each of Messrs. Polley and
Lowenthal an option to purchase 42,000 shares of our common stock at an exercise
price of $1.43 per share. In December 1998, we granted Mr. Dove an option to
purchase 42,000 shares of our common stock at an exercise price of $1.43 per
share. In February 1999, we granted each of Messrs. Dove, Lowenthal and Polley
an option to purchase 28,000 shares of our common stock at an exercise price of
$1.43 per share. All of these options vest ratably over two years from the date
of their grant. In March 2000, we established our Non-Employee Director Stock
Option Plan, under which non-employee directors will receive automatic grants of
stock options. See "Management--Stock Option Plans" for a more detailed
discussion of the plan.
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EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation we paid during
1999 to our Chief Executive Officer and our three other most highly compensated
executive officers whose salary and bonus for 1999 equaled or exceeded $100,000.
The summary compensation table excludes compensation in the form of perquisites
and other personal benefits earned by these officers in 1999 if these benefits
are less than $50,000 and 10% of the total salary and bonus earned by these
officers. We refer to these officers elsewhere in this prospectus as the "named
executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS OPTIONS COMPENSATION
<S> <C> <C> <C> <C>
David Norris........................................... $175,000 -- -- --
Chairman of the Board, President and Chief
Executive Officer
Stewart Bush(1)........................................ 111,442 $72,881(2) 420,000 $80,027(3)
Vice President, Sales
Graham Glass(4)........................................ 175,000 -- -- --
Chief Technology Officer
Kenneth J. Overton(5).................................. 143,750 78,125 -- --
Vice President, Enterprise Solutions
</TABLE>
- --------------------------
(1) Mr. Bush became our Vice President, Sales in April 1999. His current annual
salary is $150,000.
(2) Includes $16,250 in bonus and $56,631 in commissions.
(3) Represents reimbursement for relocation expenses.
(4) Mr. Glass resigned from his position effective January 2000.
(5) Mr. Overton resigned from his position effective February 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during 1999 to each of the named executive officers. The exercise price per
share of each option granted was equal to the fair market value of our common
stock on the date of grant, as determined by our board of directors. Each of
these options vests over a four-year period, with 25% vesting on each
anniversary of the award date.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(2)
OPTIONS FISCAL PRICE EXPIRATION -----------------------
GRANTED YEAR(1) PER SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
David Norris........................ -- -- -- -- -- --
Stewart Bush........................ 420,000 11.6% $0.66 4/30/09 $518,140 $990,313
Graham Glass........................ -- -- -- -- -- --
Ken Overton......................... -- -- -- -- -- --
</TABLE>
- --------------------------
(1) The percentage of total options granted to employees in the last fiscal year
is based on options granted during 1999 to purchase an aggregate of
3,610,958 shares.
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<PAGE>
(2) Amounts that may be realized upon exercise of the options immediately before
the expiration of their term, assuming 5% and 10% compound rates of
appreciation on the market value of the common stock on the date of option
grant over the term of the options. These numbers are calculated based on
rules promulgated by the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. Actual gains, if any, on
stock option exercises and common stock holdings are dependent on the timing
of exercise and the future performance of our common stock. We cannot assure
you that the rates of appreciation assumed in this table can be achieved or
that the amounts reflected will be received by the individuals.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding unexercised options
held as of December 31, 1999 by our named executive officers. None of the named
executive officers exercised stock options during 1999.
There was no public trading market for our common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of the initial
public offering price of $ per share, less the applicable exercise price
per share, multiplied by the number of shares underlying the options.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END YEAR-END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
David Norris........................ -- -- -- --
Stewart Bush........................ -- 420,000 -- $
Graham Glass........................ -- -- -- --
Ken Overton......................... 70,000 210,000 $
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
None of the named executive officers has an employment agreement for any
specified term. These officers may resign or we may terminate their employment
at any time.
We entered into an employment agreement with Mr. Norris in December 1998 and
an amendment to this agreement in March 2000. The agreement provides for an
annual base salary of $175,000, subject to increase, and expires in
December 2003. Under this agreement, Mr. Norris may continue to receive base
salary for one year after his resignation or termination if he is terminated
without cause or if he resigns for certain reasons, including a reduction or
change in his duties.
The agreement also provides that during Mr. Norris's employment and for one
year after his employment terminates, he may not:
- own, have an interest in or be an executive, agent or consultant for, any
company that manufactures, distributes or sells products in North America
that compete with the products that we provided during his employment; or
- solicit business in competition with our company from our customers or
potential customers with whom he had contact during the year prior to the
termination of his employment.
In addition, for two years following the termination of Mr. Norris'
employment, the agreement generally prohibits him from soliciting for employment
our employees and our customers' employees with whom he had contact during his
employment.
In December 1998, we entered into an employment agreement with Mr. Glass
that was scheduled to expire in December 2003. Mr. Glass voluntarily terminated
his employment with us effective in January 2000. In addition, we entered into a
consulting agreement with Mr. Glass in February 2000. See "Certain
Transactions--Consulting Agreement" for a description of the terms of the
consulting agreement.
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In August 1999, we entered into a letter agreement with Mr. Lipari,
providing that if we terminate Mr. Lipari's employment for any reason other than
performance or cause, he will continue to receive payments equal to six months'
base salary, his bonus and all benefits. If Mr. Lipari's employment is
terminated because of a change of control of our company, he will continue to
receive twelve months' base salary, his bonus and all benefits.
Our 1998 Stock Option Plan and Non-Employee Director Stock Option Plan each
provide that outstanding options will become fully vested upon a change in
control of ObjectSpace. See "Management--Stock Option Plans" for a detailed
description of these provisions.
STOCK OPTION PLANS
1994 STOCK OPTION PLAN. Our board of directors adopted the 1994 Restricted
Stock and Stock Option Plan in September 1994 and amended and restated it in
March 1997. This plan provided for the grant of non-qualified stock options or
restricted stock to our employees. As of March 30, 2000, 62,509 shares were
issued upon the exercise of stock options granted under the plan and 1,005,318
shares were subject to outstanding options. We made no grants of restricted
stock under this plan. We no longer grant stock or options to purchase stock
under this plan.
The compensation committee of our board of directors administers this plan
and determines who is granted options and the terms of options granted,
including the number of shares subject to individual option awards, the option
exercise price and vesting period. The term of all options granted under this
plan may not exceed ten years.
If we are not the surviving corporation in a merger or consolidation, then
the company that does survive may substitute new option rights on terms
substantially similar to the options granted under this plan. If the surviving
corporation in a merger or consolidation does not assume the obligations under
this plan or we sell all or substantially all of our assets, then we may set a
date at least 20 days before the merger, consolidation or sale on which all of
the options outstanding under this plan will vest. If this occurs, all of the
options granted under this plan will terminate and be void after the merger,
consolidation or sale.
A holder of options granted under this plan may not transfer his options
other than by will or the laws of descent and distribution, and only the holder
or the holder's attorney in fact may exercise the options during the lifetime of
the holder.
This plan terminates in September 2004, unless the board of directors
terminates the plan earlier.
1998 STOCK OPTION PLAN. Our board of directors adopted our 1998 Stock
Option Plan in June 1998 as the successor to our 1994 Stock Option Plan. This
plan provides for the grant of incentive or non-qualified stock options or
direct stock grants to our employees. We have reserved 8,400,000 shares of
common stock for issuance under this plan. As of March 30, 2000, 276,990 shares
were issued upon the exercise of stock options, 3,613,353 shares were subject to
outstanding options and 4,509,657 shares were available for future grant.
The compensation committee of our board of directors administers this plan
and determines who is granted options and the terms of options granted,
including the number of shares subject to individual option awards, the option
exercise price and the vesting period of options. The exercise price for
incentive stock options granted under this plan may not be less than 100% of the
fair market value of our common stock on the option grant date. However, if we
grant an option to an employee who owns greater than 10% of the combined voting
power of all of our common stock, the exercise price of the options may not be
less than 110% of the fair market value of our common stock on the option grant
date and the maximum term of the option may not exceed five years. The term of
all other options granted under this plan may not exceed ten years.
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If we are the surviving corporation in any merger, consolidation or share
exchange, any outstanding stock options granted under this plan will apply to
the securities, cash, property or assets that our holders of common stock
receive. In the event we undergo a merger, consolidation or share exchange in
which we are not the surviving corporation or we dissolve, liquidate or sell all
or substantially all of our assets, the holder of an option under this plan will
be entitled to receive, upon the exercise of his options, the securities or
other assets that are distributed to the holders of our common stock. However,
we may cancel all options granted under this plan upon a reorganization, merger,
consolidation or share exchange in which we are not the surviving corporation or
upon a dissolution or liquidation of our company, subject to each option
holder's right to purchase the common stock underlying his options for a period
of 30 days immediately preceding the effective date of the event.
An option under this plan will generally become fully vested upon a change
of control of our company. A change in control includes:
- a consolidation, merger or share exchange in which we are not the
surviving corporation, unless the holders of our common stock will hold
the same proportion of common stock of the surviving corporation as they
held in our company before the transaction;
- a sale, lease or other transfer of all or substantially all of our assets;
- approval by our stockholders of a plan to liquidate or dissolve our
company;
- the cessation of control of directors who were either directors at the
time of the adoption of this plan or were nominated by at least two-thirds
of the directors then in office who were directors at the date of the
adoption of this plan or whose election or nomination for election was
previously so approved;
- certain acquisitions of 20% of the voting power of our outstanding voting
securities by a person or group who owned less than 15% of our voting
securities on the date this plan was adopted;
- certain acquisitions of an additional 5% of the voting power of our
outstanding voting securities by a person or group who owned at least 15%
of our voting securities on the date this plan was adopted; or
- a bankruptcy proceeding.
A holder of an option under this plan may not transfer the option other than
by will or the laws of descent and distribution, and only the holder or the
holder's attorney in fact may exercise the option during the lifetime of the
holder. Under this plan, a holder may transfer non-qualified stock options to
immediate family members, to a trust or family partnership for the sole benefit
of immediate family members, to a tax exempt entity under Section 501(c)(3) of
the federal tax code or to a split interest trust or pooled income fund as
described in Section 2522(c)(2) of the federal tax code. The recipient of any
transfer is bound to the terms of the stock option agreement being transferred
and to the terms of this plan.
Our board of directors may discontinue or amend this plan at any time,
subject to any required stockholder approval. This plan will terminate in
April 2008, unless the board of directors terminates the plan earlier.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. We adopted our 2000 Non-Employee
Director Stock Option Plan in March 2000 and have reserved a total of 700,000
shares of common stock for issuance under this plan. This plan provides for the
grant of non-qualified stock options to our directors who:
- are not employed by us and have not been employed by us for three years
prior to their election or appointment; and
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- are not, and have not been for three years prior to their election or
appointment, a director, officer or employee of an entity that owns more
than 5% of any class of our common stock when considered with that
entity's affiliates.
Under this plan, we automatically grant each of these directors an option to
purchase 42,000 shares of our common stock on the date on which the person first
becomes a director and an option to purchase 28,000 shares of our common stock
on the date on which the person is re-elected to the board of directors. The
exercise price of options under this plan will be equal to the fair market value
of the common stock on the date of grant. The maximum term of the options
granted under this plan is ten years. The options become exercisable in two
equal installments on the first and second anniversary of the date of grant. As
of March 30, 2000, we had not granted any stock options under this plan. A
committee appointed by our board of directors administers this plan.
If we are the surviving corporation in any merger, consolidation or share
exchange, any outstanding stock options granted under this plan will apply to
the securities, cash, property or assets that our holders of common stock
receive. In the event we undergo a merger, consolidation or share exchange in
which we are not the surviving corporation or we dissolve, liquidate or sell all
or substantially all of our assets, the holder of an option under this plan will
be entitled to receive, upon the exercise of his options, the securities or
other assets that are distributed to the holders of our common stock. However,
we may cancel all options granted under this plan upon a reorganization, merger,
consolidation or share exchange in which we are not the surviving corporation or
upon a dissolution or liquidation of our company, subject to each option
holder's right to purchase the common stock underlying his options for a period
of 30 days immediately preceding the effective date of the event.
An option under this plan will generally become fully vested upon a change
of control of our company. A change in control includes:
- a consolidation, merger or share exchange in which we are not the
surviving corporation, unless the holders of our common stock will hold
the same proportion of common stock of the surviving corporation as they
held in our company before the transaction;
- a sale, lease or other transfer of all or substantially all of our assets;
- approval by our stockholders of a plan to liquidate or dissolve our
company;
- the cessation of control of our board of directors by directors who were
either in office at the time of the adoption of this plan or were
nominated by at least two-thirds of the directors then in office who were
directors at the date of the adoption of this plan or whose election or
nomination for election was previously so approved;
- certain acquisitions of 20% of the voting power of our outstanding voting
securities by a person or group who owned less than 15% of our voting
securities on the date this plan was adopted;
- certain acquisitions of an additional 5% of the voting power of our
outstanding voting securities by a person or group who owned at least 15%
of our voting securities on the date this plan was adopted; or
- a bankruptcy proceeding.
A holder of an option under this plan may not transfer the option other than
by will or the laws of descent and distribution, and only the holder or the
holder's attorney in fact may exercise the option during the lifetime of the
holder. Under this plan, a holder may transfer non-qualified stock options to
immediate family members, to a trust or family partnership for the sole benefit
of immediate family members, to a tax exempt entity under Section 501(c)(3) of
the federal tax code or to a split interest trust or pooled income fund as
described in Section 2522(c)(2) of the federal tax code. The recipient of
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any transfer is bound to the terms of the stock option agreement being
transferred and to the terms of this plan.
Our board of directors may discontinue or amend the director plan at any
time, subject to any required stockholder approval. This plan will terminate in
March 2010 unless the board of directors terminates the plan earlier.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation requires us to indemnify our directors and
officers to the fullest extent permitted by Delaware law, as it now exists and
may in the future be amended. In addition, our certificate of incorporation
limits the liability of directors to the maximum extent permitted by Delaware
law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for any of the following:
- any breach of their duty of loyalty to ObjectSpace or its stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies, including injunctive relief or rescission.
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CERTAIN TRANSACTIONS
Since December 31, 1996, we have not been a party to any transaction or
series of transactions involving $60,000 or more and in which any director,
executive officer or holder of more than 5% of our capital stock had a material
interest, other than the transactions described below.
CONSULTING AGREEMENT
In February 2000, we entered into a consulting agreement with Mr. Glass, a
director and our former Chief Technology Officer. Under this agreement,
Mr. Glass receives $14,583 per month for providing us consulting and advisory
services on technology issues. The agreement terminates on January 31, 2001.
The agreement also provides that until January 2001, Mr. Glass may not:
- own, have an interest in or be an executive, agent or consultant for, any
company that manufactures, distributes or sells products in North America
that compete with the products that we provided at the time that the
consulting agreement was entered into; or
- solicit business in competition with our company from our customers or
potential customers with whom he had contact during the year prior to the
date that he entered into the consulting agreement.
In addition, the agreement generally prohibits Mr. Glass from soliciting for
employment our employees and our customers' employees with whom he had contact
during his employment with us until January 31, 2002.
PROMISSORY NOTES
In each of December 1999 and January 2000, our board of directors approved a
$50,000 loan to Mr. Lipari, our Chief Financial Officer. In connection with the
loans, we received two promissory notes, aggregating $100,000, each bearing
interest at the rate of 6% per year. Accrued interest on the notes is due
quarterly beginning March 2000. The principal on each note is due on its third
anniversary. Mr. Lipari used the proceeds of the loans to purchase
63,000 shares of our common stock from third parties. As of March 15, 2000, the
principal amount outstanding on these notes was $100,000.
In December 1998, our board of directors approved a $150,000 loan to
Mr. Norris, our Chairman of the Board, President and Chief Executive Officer,
and a $150,000 loan to Mr. Glass, a director and our former Chief Technology
Officer. In connection with these loans, we received a promissory note from each
individual. The principal and accrued interest on each note are due in three
annual installments, beginning 270 days after the effective date of the
registration statement containing this prospectus. As of March 15, 2000, the
entire principal amount of each note was outstanding and the effective interest
rate was 6.11%.
PUT RIGHTS
We entered into an agreement in August 1996 with David Cook, who was then an
owner of more than 5% of our stock, under which Mr. Cook has the right to
require us to repurchase amounts of his
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common stock at $3.57 per share. Mr. Cook has required us to repurchase the
following shares under this agreement:
<TABLE>
<CAPTION>
YEAR NUMBER OF SHARES AGGREGATE PURCHASE PRICE PAID
<S> <C> <C>
1998................................ 82,471 $294,540
1999................................ 122,293 436,765
2000................................ 50,803 181,440
</TABLE>
Mr. Cook's right to require us to repurchase shares expires upon the
consummation of this offering.
RELATIONSHIP WITH GALILEO INTERNATIONAL
In December 1998, we sold 1,351,352 shares of Series B preferred stock to
Magellen Technologies, which will automatically convert into approximately %
of our common stock upon the closing of this offering. In 1999, we provided
professional services and our OpenBusiness products to Galileo International,
which is affiliated with Magellen Technologies. We received $1.6 million from
Galileo in 1999 and $992,000 in the period from January 1, 2000 through
March 29, 2000. Paul Bristow, a director of our company until March 2000, was
Senior Vice President of Magellen Technologies. Mr. Near, a current director of
our company, is the Senior Vice President, Internet and eCommerce of Galileo.
PREFERRED STOCK ISSUANCES AND REGISTRATION RIGHTS
The following table summarizes the sales of preferred stock to our executive
officers, directors and principle stockholders, and persons associated with
them, since our inception. This table shows the number and series of preferred
stock held by each of these parties prior to conversion of the shares into
common stock.
<TABLE>
<CAPTION>
INVESTOR SERIES A SERIES B
<S> <C> <C>
Novell...................................................... 571,429 --
Magellen Technologies....................................... -- 1,351,352
Cornerstone Equity Partners................................. -- 27,027
Cornerstone Fund I.......................................... -- 658,784
Venture Fund I.............................................. -- 152,027
</TABLE>
In September 1998, we sold shares of Series A preferred stock to Novell for
a purchase price of $3.50 per share. In December 1998, we sold shares of
Series B preferred stock to Magellen Technologies, whose Senior Vice President
at the time was Paul Bristow. Mr. Bristow was a member of our board of directors
prior to his resignation in March 2000. In December 1998, we also sold shares of
Series B preferred stock to Cornerstone Equity Partners, Cornerstone Fund I and
Venture Fund I. Mr. Bentley, a director, is the Managing Director of each of
these entities. The purchase price for the Series B preferred stock was $3.70
per share.
The preferred stockholders listed above have entered into agreements
pursuant to which they will be entitled to registration rights on the shares of
our common stock issuable upon the conversion of their preferred stock after
this offering. See "Shares Eligible for Future Sale--Registration Rights" for a
description of these agreements.
WARRANT ISSUANCE
In December 1998, in connection with certain financing transactions, we
issued a warrant to Growth Capital Partners to purchase 234,595 shares of our
common stock at an exercise price of $1.32 per share. The warrant is fully
vested and immediately exercisable and will expire in December 2003.
Mr. Lowenthal, a director of our company, has a 10% beneficial interest in the
warrant and was an employee of Growth Capital Partners until December 1999.
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OPTION GRANTS
We have granted options to some of our directors and executive officers, and
we intend to grant additional options to them in the future. See
"Management--Director Compensation," "Management--Option Grants in Last Fiscal
Year" and "Principal Stockholders."
In addition, in October 1999, our board of directors approved the grant of a
stock option for 448,000 shares of our common stock to Paul Lipari, our Chief
Financial Officer. Half of this option vests upon the effectiveness of the
registration statement containing this prospectus. The remainder of the option
vests over a four year period, with 25% vesting on each anniversary of the award
date.
CONFLICT OF INTEREST POLICY
All future transactions between us and our officers, directors and 10%
stockholders will be on terms no less favorable to us than could be obtained
from unaffiliated third parties. These transactions must be approved by a
majority of our independent and disinterested directors to the extent that the
amount involved in the transaction exceeds $50,000 or the aggregate amount per
director, officer or 10% stockholder exceeds $100,000.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us regarding the
beneficial ownership of our common stock as of March 30, 2000, by:
- each person or entity whom we know to own beneficially more than 5% of our
common stock;
- each of the named executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
The number and percentage of shares beneficially owned is determined in
accordance with the rules of the Securities and Exchange Commission, and is not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which a person has
sole or shared voting power or investment power and also any shares of common
stock underlying options or warrants that are exercisable by that person within
60 days of March 30, 2000. However, shares underlying options or warrants are
not treated as outstanding for the purpose of computing the percentage ownership
of any other person or entity. Unless otherwise indicated in the footnotes, each
person has sole voting and investment power with respect to the shares shown as
beneficially owned by that person. Percentage of beneficial ownership prior to
the offering is based on 30,258,468 shares of common stock outstanding as of
March 30, 2000, assuming the conversion of all outstanding shares of our
preferred stock into shares of common stock. Percentage of beneficial ownership
after the offering assumes shares of common stock to be outstanding after
completion of this offering and no exercise of the underwriters' over-allotment
option to purchase up to an aggregate of additional shares.
Unless otherwise indicated, the address for each listed person or entity is
c/o ObjectSpace, Inc., 14850 Quorum Drive, Suite 500, Dallas, Texas 75240.
<TABLE>
<CAPTION>
SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED AFTER THE
PRIOR TO THE OFFERING OFFERING
------------------------ ---------------------
NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Anthony Sanchez(1).................. 1,750,000 5.8%
Novell(2)........................... 1,600,001 5.3
Magellen Technologies(3)............ 3,783,785 12.5
Cornerstone Equity Partners(4)...... 2,345,945 7.8
DIRECTORS AND OFFICERS:
David Norris........................ 8,226,400 27.2
Stewart Bush........................ 105,000 *
Ken Overton(5)...................... 14,000 *
John C. Bentley(4).................. 2,345,945 7.8
Grant A. Dove(5).................... 35,000 *
Graham Glass........................ 8,314,600 27.5
Eugene Lowenthal(6)................. 58,460 *
David Near(7)....................... -- --
R. Stephen Polley(5)................ 35,000 *
All directors and executive officers
as a group (9 persons)(8)......... 19,134,405 62.8
</TABLE>
- ------------------------
* Represents less than one percent of the total.
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(1) The address for Mr. Sanchez is 1920 Sandman, Laredo, Texas 78041.
(2) Consists of 571,429 shares of Series A preferred stock, assuming the
conversion of each share of preferred stock into 2.8 shares of common stock.
The address for Novell is 1555 N. Technology Way, Orem, Utah 84097.
(3) Consists of 1,351,352 shares of Series B preferred stock, assuming the
conversion of each share of preferred stock into 2.8 shares of common stock.
The address for Magellen Technologies is 9700 West Higgins Road, Rosemont,
Illinois 60018.
(4) Consists of 27,027 shares of Series B preferred stock held of record by
Cornerstone Equity Partners, 658,784 shares of Series B preferred stock held
of record by Cornerstone Fund I and 152,027 shares of Series B preferred
stock held of record by Venture Fund I, assuming the conversion of each
share of preferred stock into 2.8 shares of common stock. Mr. Bentley is the
manager of Cornerstone Equity Partners. Mr. Bentley shares the power to vote
and to dispose of the shares held by Cornerstone Equity Partners with
Sherman I. Chu. Cornerstone Equity Partners is the manager of Cornerstone
Fund I and Venture Fund I. Cornerstone Equity Partners has the power to vote
the shares held of record by Cornerstone Fund I and Venture Fund I and
shares the power to dispose of these shares with the Foundation Companies
and New Church Ventures. The address for Cornerstone Equity Partners,
Cornerstone Fund I and Venture Fund I is 5050 North 40(th) Street, Suite
310, Phoenix, Arizona 85018.
(5) Consists of shares underlying options that are exercisable within 60 days of
March 30, 2000.
(6) Consists of 35,000 shares underlying options held by Mr. Lowenthal that are
exercisable within 60 days of March 28, 2000 and 23,460 shares underlying a
warrant held by Growth Capital Partners that is exercisable within 60 days
of March 30, 2000.
(7) Does not include shares held by Magellen. Mr. Near disclaims beneficial
ownership of shares held by Magellen.
(8) Only includes shares beneficially owned by current directors and executive
officers as a group.
DESCRIPTION OF CAPITAL STOCK
Following this offering, our authorized capital stock will consist of
95,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $1.00 per share. The following summary of
certain provisions of the common stock and the preferred stock is not complete
and is qualified by our certificate of incorporation and bylaws and by the
provisions of applicable law.
COMMON STOCK
As of March 30, 2000, assuming conversion of all shares of convertible
preferred stock into common stock, there would have been 30,258,468 shares of
common stock outstanding held by approximately 90 stockholders of record. There
will be shares of common stock outstanding, assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
or warrants, after giving effect to the sale of common stock in this offering
and the automatic conversion of all of our outstanding preferred stock into
shares of common stock.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders and do not have cumulative voting
rights. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of outstanding shares of common stock are entitled
to receive dividends out of assets legally available at times and in amounts as
the board may determine from time to time. In the event of our liquidation,
dissolution or winding up, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of any preferred stock then outstanding. Upon the
consummation of
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this offering, the common stock will have no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon
completion of this offering will be fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series
of preferred stock that we may designate in the future.
PREFERRED STOCK
Upon the closing of this offering, each share of our outstanding Series A
preferred stock and Series B preferred stock will automatically convert into 2.8
shares of common stock. Under the terms of our certificate of incorporation, the
board of directors is authorized, subject to any limitations prescribed by law,
without stockholder approval, to issue shares of preferred stock in one or more
series. The board of directors would have the power to determine the rights and
privileges of each series, including voting rights, dividend rights, conversion
rights, redemption privileges and liquidation preferences. The rights of the
holders of common stock will be subject to, and may be adversely affected by,
the rights of holders of any preferred stock that may be issued in the future.
Issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a party to acquire, or of discouraging a party
from attempting to acquire, a majority of our outstanding voting stock.
WARRANTS
As of March 30, 2000, three warrants were outstanding to purchase an
aggregate of 434,795 shares of our common stock outstanding. In addition, we had
an outstanding warrant to purchase a number of shares of common stock equal to
$2.5 million divided by the offering price of the common stock in this offering.
In June 1998, in connection with our securing a revolving credit facility,
we issued a warrant to Silicon Valley Bank to purchase up to 196,000 shares of
common stock at a purchase price of $.01 per share. The warrant vested and
became exercisable immediately, but the number of shares that may be purchased
under the warrant is subject to reduction upon repayment of the credit facility.
This warrant expires on June 16, 2005.
In December 1998, in connection with certain financing transactions, we
issued a warrant to Growth Capital Partners to purchase 234,595 shares of common
stock at an exercise price of $1.32 per share. The warrant is fully vested,
immediately exercisable and will expire in December 2003.
In December 1999, in connection with one of our licensing and professional
services transactions, we issued a warrant to General Motors to purchase that
number of shares of common stock equal to $2.5 million divided by the offering
price of the common stock in this offering. The warrant is fully vested and
immediately exercisable, expires one year after the date of this prospectus and
has an exercise price per share equal to the initial public offering price.
In January 2000, in connection with our obtaining services from a
consultant, we issued a warrant to Avision to purchase up to 4,200 shares of
common stock at a purchase price of $8.57 per share. The warrant is fully
vested, exercisable and expires in January 2002.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
Our certificate of incorporation provides for the division of the board of
directors into three classes as nearly equal in size as possible with staggered
three-year terms. In addition, our certificate of incorporation provides that
directors may be removed with cause only by the affirmative vote of the
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holders of a majority of the shares of our capital stock entitled to vote. The
likely effect of the classification of the board of directors and the
limitations on the removal of directors is an increase in the time required for
the stockholders to change the composition of the board of directors.
Upon the effectiveness of this offering, our certificate of incorporation
will provide that all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. Our bylaws provide that special
meetings of the stockholders may only be called by a resolution approved by at
least a majority of the board of directors or by a holder of record of at least
25% of the outstanding shares of capital stock that are entitled to vote. Our
bylaws further provide that for a stockholder to bring business to be voted upon
at an annual or special meeting or to nominate a director, the stockholder must
comply with requirements regarding advance notice to us. The foregoing
provisions could have the effect of delaying until the next stockholders'
meeting actions which are favored by the holders of a majority of our
outstanding voting securities. These provisions may also discourage another
person or entity from making a tender offer for our common stock, because such
person or entity, even if it acquired a majority of our outstanding voting
securities, would only be able to take action as a stockholder, such as electing
new directors or approving a merger, at a duly called stockholders' meeting, and
not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our certificate of incorporation requires the
affirmative vote of the holders of at least two-thirds of the shares of our
capital stock that are issued and outstanding and entitled to vote to amend or
repeal various provisions of our certificate of incorporation. Our bylaws may
generally be amended or repealed by a vote of two-thirds of the board of
directors and may also be amended or repealed by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of each class of stock
that is entitled to vote. The two-thirds stockholder vote would be in addition
to any separate class vote that might in the future be required in accordance
with the terms of any series of preferred stock that might be outstanding at the
time any such amendments are submitted to stockholders.
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the General Corporation Law of the State of
Delaware, which, in general, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date of the transaction in which the person or entity became
an interested stockholder. A business combination includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. An interested stockholder is any entity or person, alone or with
affiliates and associates, who owns, or within the last three years has owned,
15% or more of the outstanding voting stock. This provision could discourage
anti-takeover attempts not approved by our Board of Directors, including
attempts that might result in a premium over the market price for shares of
common stock by our stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock will be American Stock
Transfer and Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, assuming no exercise of the underwriters'
over-allotment option, we will have an aggregate of shares of common stock
outstanding, assuming no exercise of outstanding options or warrants. Of the
total outstanding shares, the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares held by our affiliates, as that term is defined under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 as described below.
SALES OF RESTRICTED SHARES
The remaining shares of common stock held by existing stockholders
were issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act. Of these shares, will be subject
to "lock-up" agreements providing that the stockholder will not offer, sell or
otherwise dispose of any of the shares of common stock owned by them for a
period of 180 days after the date of this offering. However, holders of such
restricted shares who have not been officers, directors or affiliates of our
company on or since the date of this prospectus may offer, sell or otherwise
dispose of 25% of their shares on the earlier of 90 days after the date of this
offering or on the second trading day after the first public release of our
quarterly results if the last recorded sale price on the Nasdaq National Market
for 20 of the 30 trading days ending on such date is at least twice the price
per share in the initial public offering. These stockholders may also offer,
sell or otherwise dispose of an additional 25% of their shares 135 days after
the date of this offering if the price per share of common stock has achieved
the same target level. However, Donaldson, Lufkin & Jenrette Securities
Corporation may in its sole discretion, at any time without notice, release all
or any portion of the shares subject to lock-up agreements. Donaldson, Lufkin &
Jenrette has approved pledges of up to 3,609,446 shares of common stock to
secure loans. If a default occurs under a loan, the lender may foreclose upon
and sell any pledged shares. Upon expiration of the lock-up agreements,
shares will become eligible for sale pursuant to Rule 144(k), shares will
become eligible for sale under Rule 144 and shares will become eligible
for sale under Rule 701.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
(LISTED BY DATE UPON WHICH SHARES BECOME SALEABLE)
<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES COMMENTS
- ---- --------- --------------------------------------------
<S> <C> <C>
At the effective date.......................
90 days after the effective date or second Shares saleable under Rule 701
trading day following the first public
release of quarterly earnings(1)..........
135 days after the effective date(1)........ Shares saleable under Rule 701
180 days after the effective date Shares saleable under Rule 144, 144(k), 701
(expiration of lock-up)...................
, 2001........................... Shares saleable under Rule 144
</TABLE>
- --------------------------
(1) The number of shares listed may be offered, sold or traded provided that the
last recorded sale price per share for 20 of the 30 trading days ending on
such date is at least twice the initial public offering price per share.
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our stock option
plans. Based upon the number of shares subject to outstanding options as of
March 30, 2000 and currently reserved for issuance under these plans, this
registration statement would
57
<PAGE>
cover approximately 9,954,328 shares. Shares registered under the registration
statement will generally be available for sale in the open market immediately
after the 180-day lock-up agreements expire.
RULE 144
In general, under Rule 144 as currently in effect, a person including an
affiliate, who has beneficially owned shares of our common stock for at least
one year would be entitled to sell in "broker's transactions" or to market
makers, within any three-month period, a number of shares that does not exceed
the greater of:
- 1% of the number of shares of common stock then outstanding (which will
equal approximately shares immediately after this offering); or
- the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to the availability of current public
information about ObjectSpace.
RULE 144(K)
Under Rule 144(k), a person who was not our affiliate at any time during the
three months preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell the shares
without having to comply with the manner of sale, public information, volume
limitation or notice filing provisions of Rule 144.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell the shares 90 days after the
effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirement of Rule 144 and, in
the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144. However,
holders of shares that would otherwise be saleable under Rule 701 are subject to
the contractual restrictions described above which restrict the sale or
disposition of such shares for 180 days following the effective date.
WARRANTS
As of March 30, 2000, we had outstanding warrants currently exercisable for
a total of 434,795 shares of common stock. In addition, we had an outstanding
warrant to purchase a number of shares of common stock equal to $2.5 million
divided by the offering price of the common stock in this offering. All of these
shares are restricted by the terms of the lock-up agreements.
REGISTRATION RIGHTS
After this offering, the holders of 12,957,999 shares of common stock and
warrants to purchase common stock will be entitled to registration rights. In
addition, the holders of a warrant to purchase that number of shares of common
stock equal to $2.5 million divided by the offering price of the common stock on
the effective date of this prospectus will be entitled to registration rights.
If we propose to register any of our securities under the Securities Act, either
for our own account or for the account of other security holders exercising
registration rights, we must notify these security holders and these security
holders may be entitled to include all or part of their shares in the
registration. Further, the holders of these registration rights may require us
to file additional registration statements
58
<PAGE>
on Form S-3. The holders of 9,363,567 shares of common stock and warrants to
purchase common stock have demand registration rights under which they may
require us to use our best efforts or commercially reasonable efforts to
register shares of their common stock. All of these registration rights are
subject to various conditions and limitations, including:
- the right of underwriters to limit the number of shares included in a
registration;
- our right to refuse to effect a requested registration following an
offering of our securities, including this offering, for a period of time
that ranges from 120 days to 180 days depending on the registration rights
agreement;
- in some circumstances, a minimum number of shares that must be included in
a request for registration; and
- in some circumstances, the requirement that a demand registration be
underwritten.
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc.,
Dain Rauscher Incorporated, Warburg Dillon Read LLC and DLJDIRECT Inc., have
severally agreed to purchase from us the number of shares of common stock set
forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS: OF SHARES
<S> <C>
Donaldson Lufkin & Jenrette Securities Corporation..........
Bear, Stearns & Co. Inc.....................................
Dain Rauscher Incorporated..................................
Warburg Dillon Read LLC.....................................
DLJDIRECT Inc...............................................
-------
Total.....................................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares of common stock offered by this
prospectus are subject to approval by their counsel of legal matters concerning
the offering and to conditions that must be satisfied by us. The underwriters
are obligated to purchase and accept delivery of all of the shares of common
stock offered by this prospectus, other than those shares covered by the
over-allotment option described below, if any are purchased.
The underwriters initially 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 dealers, including the
underwriters, at such price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the representatives at any time without notice. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
An electronic prospectus will be available on the website maintained by
DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
this website relating to the offering is not part of this prospectus, has not
been approved or endorsed by us or the underwriters, and should not be relied on
by prospectus investors.
We have granted to the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase, from time to time, in whole or in
part, up to an aggregate of additional shares of common stock at the
initial public offering price less underwriting discounts and commissions. The
underwriters may exercise the option solely to cover over-allotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise the option, each underwriter will become obligated, subject to
conditions contained in the underwriting agreement, to purchase its pro rata
portion of such additional shares based on the underwriters' percentage
underwriting commitment as indicated in the above table.
We have agreed to indemnify the underwriters against liabilities which may
arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.
60
<PAGE>
We, our executive officers and directors and certain of our stockholders
have agreed, subject to certain exceptions, not to:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock;
regardless of whether any of the transactions described above are to be settled
by the delivery of common stock, or such other securities, in cash or otherwise,
for a period of 180 days after the date of this prospectus without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation. However,
25% of the shares of common stock subject to the restrictions described above
(other than shares owned by directors, officers or affiliates) will be released
from these restrictions if the reported last sale price of the common stock on
the Nasdaq National Market is at least twice the initial public offering price
for 20 of the 30 consecutive trading days ending on the last trading day of the
90-day period after the date of this prospectus. These shares will be released
on the later to occur of the 90-day period after the date of this prospectus and
the second trading day after the first public release of our quarterly results.
An additional 25% of the shares subject to the restrictions described above will
be released from these restrictions if the reported last sale price of the
common stock on the Nasdaq National Market is at least twice the initial public
offering price for 20 of the 30 consecutive trading days ending on the last
trading day of the 135-day period after the date of this prospectus. The
underwriters have approved pledges by each of Messrs. Cook, Glass and Norris of
up to 20% of their common stock holdings to secure loans to them. In addition,
if a default occurs, the underwriters have approved the lender's foreclosure
upon and the sale of the pledged shares. Any of these loans must mature at least
180 days after the date of this prospectus.
In addition, during the 180-day period described above, we have also agreed
not to file any registration statement with respect to the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock, except for registration statements on Form S-8
registering shares of common stock pursuant to our existing stock plans, without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
Prior to the offering, there has been no established trading market for our
common stock. The initial public offering price of the shares of common stock
offered by this prospectus will be determined by negotiation among us and the
underwriters. The factors to be considered in determining the initial public
offering price include:
- the history of and the prospects for the markets in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future financial performance;
- recent market prices of securities of generally comparable companies; and
- the general condition of the securities markets at the time of the
offering.
The underwriters have reserved up to shares of our common stock to be
sold in this offering for sale to some of our employees and associates of our
employees and directors, and to other individuals or companies who have
commercial arrangements or personal relationships with us. Through this directed
share program, we intend to ensure that those individuals and companies that
have supported us, or that are in a position to support us in the future, have
the opportunity to
61
<PAGE>
purchase our common stock at the same price that we are offering our shares to
the general public. Prospective participants will not receive any investment
materials other than a copy of this prospectus, and will be permitted to
participate in this offering at the initial public offering price presented on
the cover page of this prospectus. No commitment to purchase shares by any
participant in the directed share program will be accepted until the
registration statement of which this prospectus is part is effective and an
initial public offering price has been established. The number of shares
available for sale to the general public will be reduced by the number of shares
sold through the directed share program. Any shares reserved for the directed
share program which are not so purchased will be offered by the underwriters to
the general public on the same basis as the other shares offered hereby.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of common stock offered in any jurisdiction in which such an
offer or a solicitation is unlawful.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot the offering, creating a syndicate
short position. The underwriters may bid for and stabilize the price of the
common stock. In addition, the underwriting syndicate may reclaim selling
concessions from syndicate members and selected dealers if they repurchase
previously distributed common stock in syndicate covering transactions, in
stabilizing transactions or otherwise. These activities may stabilize or
maintain the market price of the common stock above independent market levels.
The underwriters are not required to engage in these activities, and may end any
of these activities at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Haynes and Boone, LLP, Dallas, Texas. Certain legal matters in
connection with the offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, Austin, Texas.
EXPERTS
The financial statements of ObjectSpace, Inc. at December 31, 1998 and 1999,
and for each of the three years in the period ended December 31, 1999, appearing
in this prospectus and 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 on the
authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
The prospectus constitutes a part of a registration statement on Form S-1,
which we have filed with the Securities and Exchange Commission with respect to
the common stock offered in this prospectus. This prospectus does not contain
all of the information in the registration statement. For further information
about us and our securities, see the registration statement and its amendments,
supplements, schedules and exhibits. This prospectus contains a description of
the material terms and features of some material contracts, reports or exhibits
to the registration statement. However, as the descriptions are summaries of the
contracts, reports or exhibits, we urge you to refer to the copy of
62
<PAGE>
each material contract, report and exhibit attached to the registration
statement. Copies of the registration statement and the exhibits to the
registration statement, as well as the periodic reports, proxy statements and
other information we will file with the Securities and Exchange Commission, may
be examined without charge in the Public Reference Section of the Securities and
Exchange Commission, 450 Fifth Street, N.W. Room 1024, Washington, DC 20549, and
the Securities and Exchange Commission's regional offices located at 500 West
Madison Street, Suite 1400, Chicago, IL 60661, and 7 World Trade Center, 13(th)
Floor, New York, NY 10048 or on the Internet at http://www.sec.gov. You can get
information about the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. Copies of all or a portion
of the registration statement can be obtained from the Public Reference Section
of the Securities and Exchange Commission upon payment of prescribed fees.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will be
required to file periodic reports, proxy statements and other information with
the Securities and Exchange Commission. We will send an annual report to
stockholders and any additional reports or statements required by the Securities
and Exchange Commission. The annual report to stockholders will contain
financial information that has been examined and reported on, with an opinion
expressed by an independent public accountant. The Securities and Exchange
Commission maintains a website which provides online access to periodic reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission at the
address http://www.sec.gov.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999.................... F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
ObjectSpace, Inc.
We have audited the accompanying balance sheets of ObjectSpace, Inc. (the
Company) as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 ObjectSpace, Inc., at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Dallas, Texas
March 30, 2000
F-2
<PAGE>
OBJECTSPACE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $11,326,740 $ 1,669,745
Marketable securities available for sale.................. -- 3,001,082
Accounts receivable, less allowance of $71,000 and
$238,000 at December 31, 1998 and 1999, respectively.... 2,193,218 9,046,487
Prepaid expenses.......................................... 122,084 272,069
Net assets held for sale.................................. -- 1,140,596
----------- ------------
Total current assets.................................... 13,642,042 15,129,979
Property and equipment, net................................. 1,813,979 1,801,199
Notes receivable from officers and common stockholders...... 150,000 350,000
Other assets................................................ 198,667 261,778
----------- ------------
Total assets............................................ $15,804,688 $ 17,542,956
=========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 43,815 $ 507,169
Accrued liabilities....................................... 1,881,432 2,744,335
Notes payable............................................. 20,680 --
Unearned revenue and customer deposits.................... 607,541 3,525,600
Current portion of long-term debt and capital lease
obligations............................................. 198,946 3,482,004
----------- ------------
Total current liabilities............................... 2,752,414 10,259,108
Long-term debt.............................................. 2,813,925 --
Long-term unearned revenue.................................. -- 916,000
Capital lease obligations................................... 288,318 176,738
----------- ------------
Total liabilities....................................... 5,854,657 11,351,846
Commitments and contingencies
REDEEMABLE STOCK AND PUT WARRANTS TO PURCHASE COMMON STOCK:
Redeemable common stock (1,317,529 shares and 1,195,236
shares in 1998 and 1999, respectively) and put warrants
to purchase common stock................................ 1,440,942 1,901,155
Redeemable convertible Series A preferred stock,
$2,000,002 aggregate liquidation value, $1.00 par value:
571,429 shares authorized, issued and outstanding....... 1,932,771 2,738,151
Redeemable convertible Series B preferred stock,
$10,000,001 aggregate liquidation value, $1.00 par
value: 2,702,703 shares authorized, issued and
outstanding............................................. 9,556,842 13,329,794
STOCKHOLDERS' DEFICIT:
Preferred stock, $1.00 par value: shares
authorized--1,725,868; shares issued and
outstanding--none.
Common stock, $0.01 par value: shares
authorized--20,000,000; shares issued and
outstanding--19,633,656 in 1998 and 19,685,032 in
1999.................................................... 196,337 196,850
Additional paid-in capital................................ 3,440,597 5,926,594
Deferred stock compensation............................... -- (1,699,566)
Accumulated deficit....................................... (6,617,458) (16,195,072)
Accumulated other comprehensive loss...................... -- (6,796)
----------- ------------
Total stockholders' deficit............................. (2,980,524) (11,777,990)
----------- ------------
Total liabilities and stockholders' deficit............. $15,804,688 $ 17,542,956
=========== ============
</TABLE>
The accompanying notes to the financial statements are
an integral part of these financial statements.
F-3
<PAGE>
OBJECTSPACE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
<S> <C> <C> <C>
REVENUE:
License................................................... $ 1,547,312 $ 908,196 $ 5,250,425
Service................................................... 10,069,779 10,897,098 14,895,536
----------- ----------- -----------
Total revenue........................................... 11,617,091 11,805,294 20,145,961
COST OF REVENUE:
License................................................... 967,659 713,629 924,179
Service................................................... 6,808,356 7,421,755 10,447,514
----------- ----------- -----------
Total cost of revenue................................... 7,776,015 8,135,384 11,371,693
----------- ----------- -----------
Gross profit................................................ 3,841,076 3,669,910 8,774,268
OPERATING EXPENSE:
Sales and marketing....................................... 2,863,025 3,711,615 6,773,116
Research and development.................................. 1,801,774 1,811,149 4,074,915
General and administrative................................ 2,964,973 2,808,197 3,955,983
Noncash stock compensation expense........................ -- -- 232,051
----------- ----------- -----------
Total operating expense................................. 7,629,772 8,330,961 15,036,065
----------- ----------- -----------
Operating loss from continuing operations................... (3,788,696) (4,661,051) (6,261,797)
Interest expense............................................ 55,749 249,056 641,609
Interest income and other, net.............................. (21,162) (56,463) (256,102)
----------- ----------- -----------
Loss from continuing operations before income taxes......... (3,823,283) (4,853,644) (6,647,304)
Income tax benefit.......................................... (214,041) -- --
----------- ----------- -----------
Loss from continuing operations............................. (3,609,242) (4,853,644) (6,647,304)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations................ 1,317,238 491,896 (73,210)
Gain on sale of discontinued operations................... -- -- 2,567,484
----------- ----------- -----------
Income from discontinued operations..................... 1,317,238 491,896 2,494,274
----------- ----------- -----------
Net loss.................................................... (2,292,004) (4,361,748) (4,153,030)
Accretion of redeemable preferred stock and common stock.... -- 210,303 5,424,584
----------- ----------- -----------
Net loss attributable to common stockholders................ $(2,292,004) $(4,572,051) $(9,577,614)
=========== =========== ===========
Basic and diluted income (loss) per common share:
Loss from continuing operations........................... $ (0.18) $ (0.26) $ (0.61)
Income from discontinued operations....................... 0.06 0.03 0.12
----------- ----------- -----------
Net loss.................................................. $ (0.12) $ (0.23) $ (0.49)
=========== =========== ===========
Weighted average number of common shares outstanding........ 19,624,401 19,632,121 19,640,120
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are
an integral part of these financial statements.
F-4
<PAGE>
OBJECTSPACE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED RETAINED ACCUMULATED
------------------------ PAID-IN STOCK EARNINGS OTHER
SHARES AMOUNT CAPITAL COMPENSATION (ACCUMULATED DEFICIT) COMPREHENSIVE LOSS
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.... 19,606,300 $ 3,619,012 $ -- $ -- $ 246,597 $ --
Reincorporation of Company in
Delaware.................... -- (3,422,949) 3,422,949 -- -- --
Exercise of employee stock
options..................... 20,328 203 7,057 -- -- --
Tax benefit of employee stock
option exercise............. -- -- 7,623 -- -- --
Net loss...................... -- -- -- -- (2,292,004) --
---------- ----------- ---------- ----------- ------------ -------
Balance at December 31, 1997.... 19,626,628 196,266 3,437,629 -- (2,045,407) --
Exercise of employee stock
options..................... 7,028 71 2,968 -- -- --
Accretion of put warrants..... -- -- -- -- (210,303) --
Net loss...................... -- -- -- -- (4,361,748) --
---------- ----------- ---------- ----------- ------------ -------
Balance at December 31, 1998.... 19,633,656 196,337 3,440,597 -- (6,617,458) --
Exercise of employee stock
options..................... 51,376 513 59,659 -- -- --
Deferred compensation--
employee stock options...... -- -- 2,036,338 (2,036,338) -- --
Amortization of deferred
compensation................ -- -- -- 336,772 -- --
Issuance of warrants.......... -- -- 390,000 -- -- --
Accretion of redeemable common
stock....................... -- -- -- -- (840,278) --
Accretion of redeemable
preferred stock............. -- -- -- -- (4,584,306) --
Net unrealized losses on
marketable securities....... -- -- -- -- -- (6,796)
Net loss...................... -- -- -- -- (4,153,030) --
---------- ----------- ---------- ----------- ------------ -------
Balance at December 31, 1999.... 19,685,032 $ 196,850 $5,926,594 $(1,699,566) $(16,195,072) $(6,796)
========== =========== ========== =========== ============ =======
<CAPTION>
TOTAL
COMPREHENSIVE STOCKHOLDERS'
LOSS EQUITY (DEFICIT)
<S> <C> <C>
Balance at December 31, 1996.... $ -- $ 3,865,609
Reincorporation of Company in
Delaware.................... -- --
Exercise of employee stock
options..................... -- 7,260
Tax benefit of employee stock
option exercise............. -- 7,623
Net loss...................... -- (2,292,004)
----------- ------------
Balance at December 31, 1997.... -- 1,588,488
Exercise of employee stock
options..................... -- 3,039
Accretion of put warrants..... -- (210,303)
Net loss...................... -- (4,361,748)
----------- ------------
Balance at December 31, 1998.... -- (2,980,524)
Exercise of employee stock
options..................... -- 60,172
Deferred compensation--
employee stock options...... -- --
Amortization of deferred
compensation................ -- 336,772
Issuance of warrants.......... -- 390,000
Accretion of redeemable common
stock....................... -- (840,278)
Accretion of redeemable
preferred stock............. -- (4,584,306)
Net unrealized losses on
marketable securities....... (6,796) (6,796)
Net loss...................... (4,153,030) (4,153,030)
----------- ------------
Balance at December 31, 1999.... $(4,159,826) $(11,777,990)
=========== ============
</TABLE>
The accompanying notes to the financial statements are
an integral part of these financial statements.
F-5
<PAGE>
OBJECTSPACE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.................................................. $(2,292,004) $(4,361,748) $(4,153,030)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amoritzation........................... 642,009 690,534 817,734
Amortization of debt discount and put warrant
adjustments............................................ -- (89,471) 132,392
Noncash stock compensation expense...................... -- -- 232,051
Provision for bad debts................................. 41,375 63,421 166,851
Tax benefit of employee stock option exercise........... 7,623 -- --
(Income) loss from discontinued operations.............. (1,317,238) (491,896) 73,210
Gain on sale of discontinued operation.................. -- -- (2,567,484)
Deferred income taxes................................... (215,601) -- --
Changes in operating assets and liabilities:
Accounts receivable................................... 253,933 738,823 (6,582,154)
Prepaid expenses...................................... (127,539) 115,593 (129,132)
Other assets.......................................... (30,811) (24,033) (119,778)
Accounts payable...................................... 26,239 (46,356) 456,050
Accrued liabilities................................... 403,690 915,961 454,931
Unearned revenue and customer deposits................ 1,032,467 (782,039) 2,021,707
Long-term unearned revenue............................ -- -- 916,000
----------- ----------- -----------
Net cash used in operating activities....................... (1,575,857) (3,271,211) (8,280,652)
Net cash provided by discontinued operations................ 907,313 1,033,693 494,106
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (1,000,215) (495,069) (1,304,304)
Notes receivable from officers and common stockholders...... -- (150,000) (200,000)
Proceeds from sale of discontinued operation................ -- -- 2,931,000
Purchase of marketable securities........................... -- -- (3,007,878)
----------- ----------- -----------
Net cash used in investing activities....................... (1,000,215) (645,069) (1,581,182)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on capital leases.................................. (205,487) (175,670) (243,414)
Proceeds from issuance of notes payable and long-term
debt...................................................... 225,318 3,000,000 437,753
Payments on notes payable and long-term debt................ (30,063) (189,149) (101,039)
Payments for redemption of redeemable stock................. -- (294,536) (436,765)
Proceeds from issuance of preferred stock................... -- 11,489,613 --
Issuance costs related to preferred stock and debt
offerings................................................. -- (170,000) (5,974)
Proceeds from exercise of stock options..................... 7,260 3,039 60,172
----------- ----------- -----------
Net cash provided by (used in) financing activities......... (2,972) 13,663,297 (289,267)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ (1,671,731) 10,780,710 (9,656,995)
Cash and cash equivalents at beginning of year.............. 2,217,761 546,030 11,326,740
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 546,030 $11,326,740 $ 1,669,745
=========== =========== ===========
Cash paid during the year for interest...................... $ 55,749 $ 338,532 $ 452,551
=========== =========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES
Assets acquired under capital lease......................... $ 658,128 $ -- $ 167,881
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are
an integral part of these financial statements.
F-6
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
ObjectSpace, Inc. (the Company), was incorporated under the laws of the
State of Texas on August 17, 1992. The Company was reincorporated under the laws
of the State of Delaware on November 24, 1997. As part of this reincorporation,
the Company recapitalized its common stock to a $0.01 par value and authorized
the issuance of one million shares of preferred stock.
The Company provides business-to-business, or B2Bi, software products that
enable organizations to easily and rapidly integrate business applications
within and across organizations over the Internet. The Company's OpenBusiness
software allows organizations to link their business processes, sharing
services, conducting transactions and exchanging information in real-time, with
customers, suppliers and other trading partners. The Company expects a
substantial portion of its license and service revenue to be generated from its
OpenBusiness products for the year 2000 and beyond.
On January 14, 2000, the Company's Board of Directors authorized a 100%
stock dividend for stockholders of record at the close of business on
January 14, 2000. On March 11, 2000, the Company's Board of Directors authorized
a 40% stock dividend for stockholders of record at the close of business on
March 30, 2000. All share and per-share amounts in the accompanying financial
statements have been restated to give effect to these stock dividends.
Additionally, the Company increased the common shares authorized to 95,000,000
effective March 30, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Software license revenue is recognized upon execution of a contract and
delivery of software, provided that the license fee is fixed and determinable;
no significant production, modification, or customization of the software is
required; collection is considered probable by management; and vendor-specific
objective evidence exists to allow the allocation of the total fee to elements
of the arrangement. In December 1998, the AICPA issued SOP 98-9, "Software
Revenue Recognition with Respect to Certain Arrangements." This SOP requires
recognition of revenue using the "residual method" in a multiple element
arrangement when fair value does not exist for one or more of the delivered
elements in the arrangement. Under the "residual method," the total fair value
of the undelivered elements is deferred and subsequently recognized in
accordance with SOP 97-2. The Company adopted the provisions of this SOP
effective January 1, 1999. The Company did not have a material change to its
accounting for revenue as a result of the provisions of SOP 98-9.
Revenue for consulting services performed under fixed-price contracts, which
are in excess of six months in duration, is recognized on a
percentage-of-completion method. Revenue from these contracts is recognized in
the proportion that labor hours incurred to date bear to total estimated labor
hours at completion. Anticipated losses on fixed-price contracts are recognized
when estimable. Revenue generated from consulting services performed under time
and materials agreements is recognized as services are performed and includes
reimbursement of expenses incurred in connection with the performance of
service. Maintenance contract revenue is recognized ratably over the term of the
related contract.
ADVERTISING COSTS
Advertising costs are expensed upon first showing. Amounts expensed were
approximately $552,000, $743,000 and $1.0 million in 1997, 1998 and 1999,
respectively.
F-7
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid investments with a maturity period of
three months or less at the date of purchase. Cash equivalents are stated at
cost, which approximates fair value.
MARKETABLE SECURITIES
As of December 31, 1999, marketable securities consisted of investments in
corporate and government bond funds. These securities are classified as
"available for sale" since management intends to hold the securities for an
indefinite period of time and may sell the securities prior to their maturity.
The marketable securities are carried at aggregate fair value based on the
specific identification method. Available for sale securities that are
reasonably expected by management to be sold within one year from the balance
sheet date are classified as current assets.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Equipment acquired under
capital leases is stated at the lower of the present value of minimum future
lease payments or fair value of the equipment at the inception of the lease.
Amortization of equipment acquired under capital lease is included in
depreciation expense. Depreciation of property and equipment, other than
leasehold improvements, is provided over the estimated useful lives of the
respective assets (ranging from three to seven years) using the straight-line
method. Leasehold improvements are amortized on a straight-line basis over the
shorter of the respective lease term or estimated useful life of the asset.
OTHER ASSETS
Other assets consist primarily of costs to obtain patents and trademarks.
The Company amortizes these costs over a period of 5 years using the
straight-line method beginning when the patent or trademark is issued.
Previously capitalized costs related to abandoned or denied patent applications
are expensed in the period when the application is abandoned or denied.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the recoverability of its long-lived assets on an
annual basis or whenever adverse events or changes in circumstances or business
climate indicate that expected undiscounted future cash flows related to such
long-lived assets may not be sufficient to support the net book value of such
assets. If undiscounted cash flows are not sufficient to support the recorded
assets, an impairment is recognized to reduce the carrying value of the
long-lived assets to the estimated fair value. Cash flow projections, although
subject to a degree of uncertainty, are based on trends of historical
performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Additionally, in conjunction with the review for impairment, the remaining
estimated lives of certain of the Company's long-lived assets are assessed.
SOFTWARE DEVELOPMENT COSTS
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86 (SFAS 86), "Accounting for the Costs of
Computer Software to be Sold,
F-8
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leased or Otherwise Marketed." Under SFAS 86, capitalization of software
development costs begins upon the establishment of technological feasibility,
subject to net realizable value considerations. To date, such capitalizable
costs have not been material as the establishment of technological feasibility
of the Company's products and general release of such software have
substantially coincided. Accordingly, the Company has charged all such costs to
research and development expense. Future capitalized costs, if any, will be
amortized on a straight-line basis over the estimated lives of the products or
by the ratio of current revenue to the total of current and anticipated future
revenue, whichever expense is greater.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related
interpretations in accounting for its employee stock options and to follow the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, compensation expense is based on the difference, if
any, on the date of grant, between the estimated fair value of the Company's
shares and the exercise price of options to purchase that stock.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences of temporary differences and income tax credits. Temporary
differences are primarily the result of the differences between the tax bases of
assets and liabilities and their financial reporting amounts. Deferred tax
assets and liabilities are measured by applying enacted statutory tax rates
applicable to the future years in which deferred tax assets or liabilities are
expected to be settled or realized. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
The Company has provided a full valuation allowance against its net deferred tax
assets as of December 31, 1998 and 1999.
NET LOSS PER SHARE
Basic net loss per share is computed based on the weighted average number of
outstanding shares of common stock during each period. The diluted per share
amount is computed using the weighted average number of common stock shares
outstanding and the common equivalent shares consisting of convertible preferred
stock, stock options, warrants and redeemable common stock using the treasury
stock and reverse treasury stock methods, if dilutive. Diluted loss per share is
the same as basic loss per share for all periods presented because the effects
of such items were anti-dilutive given the Company's losses. See Notes 10 and 11
for anti-dilutive securities that were excluded from the net loss per share
calculation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-9
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT REPORTING
The Company operates as a single segment and will evaluate additional
segment disclosure requirements as it expands its operations.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting comprehensive income and its components in financial statements.
The Company's comprehensive loss is comprised of the net loss and elements of
other comprehensive income such as unrealized gains or losses on
available-for-sale securities.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
SFAS 133, as amended, is effective for quarters beginning after June 15, 2000.
We do not currently utilize derivative financial instruments. Therefore, we do
not expect that the adoption of SFAS 133 will have a material impact on our
results of operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101) which summarizes certain of the staff's
view in applying generally accepted accounting principles to revenue recognition
in financial statements. The effective date of SAB 101 for the Company is the
quarter ended June 30, 2000. The Company continues to evaluate the impact that
SAB 101 will have on the timing of revenue recognition in future periods. Based
on its initial evaluation, the Company believes SAB 101 will not have a material
impact on its future results of operations.
3. MARKETABLE SECURITIES
As of December 31, 1999, the Company's marketable securities available for
sale consisted of corporate and government bond funds. The securities had a cost
basis of $3,007,878 and a market value, as of December 31, 1999 of $3,001,082
resulting in an unrealized loss of $6,796. The securities are reflected in the
balance sheet at their fair market value. The gross unrealized losses for the
year ended December 31, 1999 have been recorded as a separate component of
stockholders' deficit. There were no marketable securities during 1997 or 1998.
F-10
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1998 1999
<S> <C> <C>
Computer equipment and accessories.......................... $ 1,693,713 $ 1,935,547
Equipment acquired under capital leases..................... 893,216 998,709
Purchased software.......................................... 266,993 407,505
Office equipment............................................ 81,954 67,841
Office furniture............................................ 262,528 261,315
Leasehold improvements...................................... 342,656 241,278
----------- -----------
3,541,060 3,912,195
Less -- Accumulated depreciation and amortization........... (1,727,081) (2,110,996)
----------- -----------
$ 1,813,979 $ 1,801,199
=========== ===========
</TABLE>
Accumulated amortization of assets under capital leases amounted to $353,887
and $454,191 at December 31, 1998 and 1999, respectively.
5. INCOME TAXES
The tax effected temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 830,252 $ 2,431,984 $ 3,841,931
Depreciation of fixed assets.............................. 54,877 66,223 30,226
Reserve for assets held for sale.......................... -- -- 6,919
Allowance for doubtful accounts........................... -- 26,249 87,834
Stock options and warrants................................ -- -- 229,972
Accrued expenses.......................................... -- 176,146 127,072
Timing of revenue recognition............................. 498,138 96,193 --
Research and development credit........................... 58,987 134,622 327,415
Other, net................................................ -- -- 462
---------- ----------- -----------
Total deferred tax assets................................... 1,442,254 2,931,417 4,651,831
Valuation allowance for deferred tax assets................. (740,132) (2,427,954) (4,009,154)
---------- ----------- -----------
Deferred tax assets, net of valuation allowance............. 702,122 503,463 642,677
Deferred tax liabilities:
Cash to accrual adjustment................................ (702,122) (470,543) (221,049)
Capitalization of patent costs............................ -- (21,095) (56,864)
Deferred losses from discontinued operations.............. -- -- (362,455)
Prepaid expenses.......................................... -- (11,825) (2,309)
---------- ----------- -----------
Total deferred tax liabilities.............................. (702,122) (503,463) (642,677)
---------- ----------- -----------
Deferred income tax assets, net of deferred tax
liabilities............................................... $ -- $ -- $ --
========== =========== ===========
</TABLE>
F-11
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The Company has federal net operating loss carryforwards of approximately
$10.4 million at December 31, 1999, which, if not utilized, will begin to expire
in 2009. Of this amount approximately $6.3 million is subject to limitation
under Internal Revenue Code Section 382. In addition, the Company has
approximately $10.5 million of state net operating loss carryforwards as of
December 31, 1999. Also, the Company has approximately $327,000 of research and
development credit carryforwards at December 31, 1999. Approximately $229,000 of
the research and development credits are subject to limitation under Internal
Revenue Code Section 383.
At December 31, 1997, 1998 and 1999, the Company has recorded a valuation
allowance against its net deferred tax assets because management believes that,
after considering all the available objective evidence, the realization of the
assets are not reasonably assured.
The differences between the actual income tax benefit and the amount
computed by applying the statutory federal tax rate to the loss from continuing
operations before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Benefit computed at federal statutory rate....... $(1,299,916) $(1,650,239) $(2,260,083)
State income tax benefit, net of federal tax
effect at state statutory rate................. (67,313) (127,185) (127,529)
Research and development credit.................. (37,084) (55,666) (98,743)
Change in valuation allowance.................... 1,187,993 1,809,677 2,437,244
Other............................................ 2,279 23,413 49,111
----------- ----------- -----------
Total.......................................... $ (214,041) $ -- $ --
=========== =========== ===========
</TABLE>
Significant components of the provision (benefit) for income taxes on loss
from continuing operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Current:
Federal................................................. $ -- $ -- $ --
State................................................... 1,560 -- --
--------- ---- ----
Total current............................................. 1,560 -- --
Deferred:
Federal................................................. (180,425) -- --
State................................................... (35,176) -- --
--------- ---- ----
Total deferred............................................ (215,601) -- --
--------- ---- ----
Total..................................................... $(214,041) $ -- $ --
========= ==== ====
</TABLE>
6. LEASES
The Company is obligated under various capital leases and noncancelable
operating lease agreements for facilities and equipment. The significant capital
leases contain bargain purchase options. During 1997, the Company entered into
four leases for office space in Dallas and Austin, all of which
F-12
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASES (CONTINUED)
include rent escalation clauses. A summary of future minimum lease payments as
of December 31, 1999, is as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
2000........................................................ $262,173 $1,630,278
2001........................................................ 127,657 1,607,064
2002........................................................ 72,327 1,623,862
2003........................................................ -- 500,838
-------- ----------
Total payments due.......................................... $462,157 $5,362,042
==========
Less amounts representing interest.......................... 50,426
--------
Present value of minimum lease payments..................... 411,731
Less current portion........................................ 234,993
--------
Noncurrent portion.......................................... $176,738
========
</TABLE>
Rental expense under noncancelable operating leases for facilities and
equipment approximated $1.1 million, $1.5 million and $1.4 million for the years
ended December 31, 1997, 1998 and 1999, respectively.
7. ACCRUED LIABILITIES
Accrued liabilities as of December 31 consisted of:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Accrued payroll-related expenses............................ $ 825,068 $1,657,561
Accrued property-related expenses........................... 104,837 297,525
Other accruals.............................................. 951,527 789,249
---------- ----------
$1,881,432 $2,744,335
========== ==========
</TABLE>
8. DEBT AND PUT WARRANTS TO PURCHASE COMMON STOCK
As of December 31, 1999, the Company had an outstanding balance of $357,394
under a 36-month note (the Term Loan) in the original amount of $437,753 entered
into in June 1999. This fixed-term borrowing, which has an interest rate of
approximately 11.0%, is being repaid in monthly installments over the term of
the loan.
On June 16, 1998, the Company issued a $3.0 million Senior Subordinated Note
(the Note) to a bank that had an original maturity of June 16, 2001, along with
196,000 seven-year detachable warrants to purchase common stock at $.01 per
share. The proceeds from the Note were allocated between the Note and the
warrants based on their relative fair market values at the time of issuance. A
discount of $227,075 was recorded against the face value of the Note which
represented the estimated fair value of the warrants on the date of issuance.
The carrying value of the Note at December 31, 1998 and 1999, was $2,813,925 and
$2,889,617, respectively, which is net of the unamortized discount of $186,075
and $110,383, respectively. The discount is being amortized until the maturity
of the Note, resulting in an effective interest rate of 15.2%. The principal of
the Note is payable at maturity and interest is payable
F-13
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. DEBT AND PUT WARRANTS TO PURCHASE COMMON STOCK (CONTINUED)
monthly based on a 12% interest rate. The Note is secured by all the assets of
the Company, but is subordinate to the Revolver and contains the same
nonfinancial covenants as the Revolver. The Company intends to use a portion of
the proceeds of this offering to repay the Note and therefore considers the
carrying value to approximate fair value.
The number of warrants exercisable can decrease to as low as 84,000 provided
the Note is paid on or before certain dates. The noteholder has the option to
sell the warrants back to the Company (Put Warrants to Purchase Common Stock) on
either August 16, 2001, or on the occurrence of other specified events at an
amount per warrant equal to the Company's fair value per share at the put date
less the exercise price. The option to sell the warrants back to the Company
terminates upon specified events which include, the first sale of the Company's
common stock pursuant to a registration statement with, and declared effective
by the Securities and Exchange Commission which results in gross proceeds of at
least $10,000,000. The fair value of the warrants is included in redeemable
common stock and put warrants to purchase common stock in the accompanying
balance sheets. Changes in the fair value of the warrants are reflected as
adjustments to interest expense in the accompanying statement of operations. The
value of the warrants is reflected at the estimated fair value of the warrants,
based on an independent appraisal commissioned by the Company.
The Company has a Loan and Security Agreement with a bank that provides the
Company with a $5 million revolving line of credit (the Revolver). The Company
may elect to borrow under the Revolver on a revolving or fixed-term basis.
Borrowings under the Revolver bear interest at the bank's prime rate plus .75%,
are secured by all the assets of the Company and are due on the maturity date of
the Revolver (April 7, 2000). Borrowings under the Revolver are limited to a
borrowing base equal to 80% of eligible trade receivables less any letters of
credit outstanding. As of December 31, 1999, there were $446,622 in letters of
credit outstanding which expire at various times during the year 2000. These
letters of credit were primarily used in lieu of security deposits on certain
operating and capital leases. The Company must also comply with certain
financial ratio and other nonfinancial covenants, including a prohibition on the
payment of dividends. As of December 31, 1999 the Company was not in compliance
with one of the covenants and, as such, obtained a waiver of the noncompliance
from the bank through February 29, 2000. The Company is currently negotiating an
amendment to the Revolver to modify the covenants, however, there can be no
assurance that the Company will be successful in those efforts. The Note and the
Term Loan contain cross-default provisions to the Revolver. As a result, all
three have been reclassified to current liabilities as of December 31, 1999.
9. EMPLOYEE RETIREMENT PLAN
The Company's 401(k) plan (PIE Investment Plan) provides retirement benefits
to eligible employees. Under the PIE Investment Plan, employees are eligible to
participate after one year of service. Participants are permitted to make salary
reduction contributions of up to 15% of their eligible compensation. While the
plan provides for discretionary contributions by the Company, no such
contributions have been made.
F-14
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTED STOCK AND STOCK OPTION PLAN (CONTINUED)
The Company has a 1994 Restricted Stock and Stock Option Plan (the 1994
Plan) and a 1998 Stock Option Plan (the 1998 Plan) under which shares are
available for grant of restricted stock and stock options to employees. The 1994
Plan provides for the granting of a maximum of 2,800,000 shares of stock or
stock options with no more than 560,000 to any one employee in a single year. At
December 31, 1999, the 1998 Plan provides for the granting of a maximum of
5,180,000 shares of stock options with no limitations on grants to individual
employees. Under each plan, the stock option exercise price per share is equal
to the fair market value on the date of grant, as determined by the Board of
Directors. Options vest pursuant to vesting schedules as determined by the Board
of Directors (ranging from one to five years) and expire, if unexercised, ten
years from the date of grant. In addition, the Company issued 126,000 and 84,000
options to its nonemployee directors during 1998 and 1999, respectively. These
options have an exercise price of $1.43, vest over 2 years and have a 10 year
life. These options were issued outside of the Company's option plans.
Stock option transactions in the Company's plans are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1998 1999
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE OF OPTIONS PRICE
<S> <C> <C> <C> <C> <C> <C>
Options outstanding-beginning of year.......... 1,180,133 $0.36 1,762,180 $0.86 3,268,634 $1.20
Options granted................................ 986,272 1.43 2,329,550 1.43 3,610,958 0.79
Options forfeited.............................. (383,897) 0.78 (816,068) 1.12 (2,177,288) 1.29
Options exercised.............................. (20,328) 0.36 (7,028) 0.36 (51,376) 1.17
--------- --------- ----------
Options outstanding--end of year............... 1,762,180 0.86 3,268,634 1.20 4,650,928 0.84
========= ========= ==========
Options exercisable at end of year............. 298,900 $0.36 421,618 $0.47 846,888 $0.79
========= ========= ==========
Weighted average grant date fair value of
options granted during the year.............. $0.44 $0.39 $0.65
</TABLE>
The following summarizes information about the Company's stock options
outstanding:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
<C> <C> <S> <C> <C> <C>
$0.36 559,748 5.6 years $0.36 503,418 $0.36
0.66 2,800,750 9.6 years 0.66 -- --
1.43 1,290,430 8.2 years 1.43 343,470 1.43
--------- -------
4,650,928 8.7 years $0.84 846,888 $0.79
========= =======
</TABLE>
At December 31, 1999, there were 3,244,040 options available for future
issuance under the Company's plans.
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
F-15
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. RESTRICTED STOCK AND STOCK OPTION PLAN (CONTINUED)
employee stock options. The Company had no deferred stock compensation during
1997 and 1998. During 1999, in connection with options granted to employees to
purchase common stock, the Company recorded deferred stock compensation of
$2,036,338 of which $336,772 was recognized as expense. Of the amount recognized
$104,721 was charged to discontinued operations. This initial amount deferred
represents the difference between the fair value of the options on the date of
grant, based on an independent appraisal commissioned by the Company, and the
exercise price of the options. Although the Company's Board of Directors
believed that the exercise price per share assigned to stock options was equal
to the fair value on the date of grant, the Company concluded an independent
appraisal was necessary to validate the estimates of fair value due to the
subjective nature of such estimates. Therefore, the Company commissioned an
independent appraisal of its common stock as of October 31,1999. The appraised
value was used as a basis to estimate stock compensation on option grants during
1999 and was also used to determine the fair value of put warrants to purchase
common stock (Note 8). The deferred stock compensation is being amortized over
the vesting period of the related options, which is generally four years.
Information regarding pro forma net loss is required by SFAS 123 and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of SFAS 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
no volatility and the following assumptions: weighted average risk-free interest
rate of 6.23% in 1997, 5.35% in 1998, and 5.86% in 1999, no dividends, and a
weighted average expected life of the option of 6.0 years in 1997 and 1998, and
2.75 years in 1999.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Pro forma net loss attributable to common stockholders...... $(2,375,572) $(4,801,815) $(9,824,594)
=========== =========== ===========
Pro forma basic and diluted net loss per share.............. $ (0.12) $ (0.24) $ (0.50)
=========== =========== ===========
</TABLE>
The pro forma disclosures include only the effect of options granted
subsequent to December 31, 1994. Accordingly, the pro forma information does not
reflect the pro forma effect of all previous stock option grants of the Company,
and thus is not necessarily indicative of future amounts until SFAS 123 is
applied to all outstanding stock options.
F-16
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. REDEEMABLE STOCK
REDEEMABLE COMMON STOCK
Effective March 31, 1998, one of the Company's common stockholders received
the right to require the Company to repurchase up to 1,400,000 (less 204,764
shares repurchased as of December 31,1999) of his shares at $3.57 per share (Put
Shares). The number of shares the Company could be required to repurchase each
quarter multiplied by $3.57 per share cannot exceed 2.5% of the preceding
quarter's revenue. The repurchase obligation of the Company terminates upon the
successful completion of an initial public offering with a pre-offering Company
valuation exceeding $100 million. With the issuance of the Series B preferred
stock, in order to conform the investor's put rights to those of the newly
issued series B preferred stock, the investor's right was amended to, in
addition to the rights described above, allow for all his Put Shares then
outstanding to be subject to repurchase at any time after January 1, 2003, if a
public offering has not occurred, or at any time that the Series A or Series B
preferred stockholders can exercise their put rights due to the Company's breach
of the preferred stockholder agreement. Additionally, the Put Shares must still
be repurchased at $3.57 per share and, upon exercise of the amended right, the
repurchase price payable shall be paid by the Company through the issuance of a
three-year note with a quarterly payment schedule and at an interest rate of
prime plus 1%. Since the repurchase of the shares is outside of the control of
the Company, the shares subject to repurchase are treated as redeemable common
stock and are presented outside of stockholders' deficit. Periodic accretions
based on the straight-line method are recorded such that the carrying value of
the Put Shares will equal the $3.57 redemption value on January 1, 2003.
Accretion to redemption value is recorded as a charge to accumulated deficit and
credited to redeemable common stock.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company issued 571,429 shares of Series A redeemable convertible
preferred stock for gross proceeds of $2.0 million on September 4, 1998, and
2,702,703 shares of Series B redeemable convertible preferred stock for gross
proceeds of $10.0 million on December 30, 1998.
DIVIDEND PREFERENCE:
The Series A and Series B preferred stockholders are entitled to receive
noncumulative dividends in preference to the common stockholders at the rate of
$0.28 and $0.30 per share (8% of the liquidation value), respectively, per annum
provided such dividends are declared.
VOTING RIGHTS:
Except as otherwise required by law, the Series A and Series B preferred
stockholders vote together with the common stockholders on all matters upon
which the common stockholders are entitled to vote. Each holder of preferred
stock is entitled to one vote for each share of common stock into which each
share of preferred stock could then be converted. In addition, the Series B
preferred stockholders are entitled to elect two directors to the Company's
Board of Directors.
CONVERSION RIGHTS:
Each share of preferred stock is convertible, at the stockholder's option,
at any time after issuance into 2.8 shares of common stock. The conversion
prices at December 31, 1999 are $1.25 and $1.32 for the Series A and Series B,
respectively.
The Series A preferred stock is automatically converted into common at the
then-applicable conversion rate (i) if the Series A stockholder holds at least
50% of the shares of Series A originally
F-17
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. REDEEMABLE STOCK (CONTINUED)
issued to it and it consents to such conversion; (ii) if the Series A
stockholder converts at least 50% of the Series A shares originally issued to it
into common stock; (iii) upon a consolidation, merger, or sale of the Company at
a price per Series A preferred share of not less than $7.00; or (iv) upon the
closing of an underwritten public offering of shares of the Company at a per
share public offering price (prior to underwriter commission and expense) of not
less than $7.00 per Series A preferred share and for a total offering of more
than $20 million.
The conversion price of the Series A preferred stock is subject to
adjustment proportionately for stock splits, stock dividends, recapitalization,
etc.
The Series B preferred stock is automatically converted into common stock at
the then-applicable conversion rate (i) upon a consolidation, merger, or sale of
all the outstanding capital stock of the Company for cash consideration of at
least two times the then-effective conversion rate or consideration payable in
registered securities of an issuer that is publicly traded and has a market
capitalization of at least $500 million post-acquisition or (ii) upon the
closing of an underwritten public offering that results in aggregate gross
proceeds of at least $20 million.
The conversion price of the Series B preferred stock is subject to
adjustment proportionately for stock splits, stock dividends, recapitalization,
etc. It is also subject to adjustment on a weighted average basis for sales by
the Company of its common stock at prices below the conversion price, and for
grants of stock options in excess of a specified amount prior to December 31,
2000.
REDEMPTION RIGHTS:
If at any time the Company materially breaches the respective stockholder
agreements or if at any time after January 1, 2003, the Company has not
consummated a qualifying public offering, the Series A and Series B preferred
stockholders have the right to require the Company to repurchase the preferred
or common stock then owned by them. The repurchase price is equal to the greater
of the fair market value or a per share sale price defined as $7.40 per share
plus a 10% annual return on the original purchase price (redemption value of
$9.02 per share for the Series A preferred stockholders and $9.12 per share for
the Series B preferred stockholders). The amount payable under the repurchase
rights shall be paid by the Company issuing a three-year note with a quarterly
payment schedule and at an interest rate of prime plus 1%. Accretion towards the
maximum redemption amount using the straight-line method is charged against the
Company's additional paid-in capital and credited to the redeemable preferred.
LIQUIDATION PREFERENCE:
In the event of the Company's dissolution, the preferred stockholders are
entitled to receive, prior to and in preference to any distribution of any of
the Company's assets and surplus funds to the common stockholders, liquidation
proceeds on a pro rata basis that is determined based on $3.50 per share plus
any declared but unpaid dividends for the Series A preferred stock and $3.70 per
share plus any declared but unpaid dividends for the Series B preferred stock.
In addition, having received their liquidation preference, the preferred
stockholders will share ratably with the common stockholders in the remaining
assets of the Company on a common share equivalent basis.
F-18
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. REDEEMABLE STOCK (CONTINUED)
The activity in the redeemable preferred stock and redeemable common stock
and warrants is as follows:
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
----------------------------------------------- REDEEMABLE COMMON
SERIES A SERIES B STOCK AND WARRANTS
--------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............... -- $ -- -- $ -- 1,400,000 $1,428,571
------- ---------- --------- ----------- --------- ----------
Balance at December 31, 1997............... -- -- -- -- 1,400,000 1,428,571
Issuance of Series A preferred stock..... 571,429 1,932,771 -- -- -- --
Issuance of Series B preferred stock..... -- -- 2,702,703 9,556,842 -- --
Issuance of put warrants................. -- -- -- -- -- 227,075
Accretion of redeemable common stock..... -- -- -- -- -- 210,303
Decretion of put warrants................ -- -- -- -- -- (130,471)
Shares repurchased from investor upon
exercise of put option................. -- -- -- -- (82,471) (294,536)
------- ---------- --------- ----------- --------- ----------
Balance at December 31, 1998............... 571,429 1,932,771 2,702,703 9,556,842 1,317,529 1,440,942
Shares repurchased from investor upon
exercise of put option................. -- -- -- -- (122,293) (436,765)
Accretion of put warrants................ -- -- -- -- -- 56,700
Accretion of redeemable common stock..... -- -- -- -- -- 840,278
Other.................................... -- -- -- (5,974) -- --
Accretion of preferred stock............. -- 805,380 -- 3,778,926 -- --
------- ---------- --------- ----------- --------- ----------
Balance at December 31, 1999............... 571,429 $2,738,151 2,702,703 $13,329,794 1,195,236 $1,901,155
======= ========== ========= =========== ========= ==========
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
One of the Company's customers has the right of first refusal to purchase
certain elements of the Company's OpenBusiness software should the Company
contract for its sale.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. While management currently believes the amount
of ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations, or liquidity of the
Company, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur, the impact could be material to the Company.
13. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
During 1999, the Company sold its Educational Services division to a third
party for approximately $2.9 million in cash. The sale produced a pretax gain of
approximately $2.6 million.
In July 1999, the board of directors authorized the Company to sell its FAB
Solutions division. This sale was completed in March 2000. As the Company
realized a gain on the sale of FAB Solutions, the net assets of FAB Solutions
are recorded as Net Assets Held for Sale in the December 31, 1999
F-19
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE (CONTINUED)
balance sheet at their historical net book value plus post-measurement date
losses. Net Assets Held for Sale as of December 31, 1999, is comprised of:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 708,386
Prepaid expenses............................................ 47,110
Property and equipment, net................................. 434,270
Accounts payable............................................ (7,304)
Accrued liabilities......................................... (172,998)
Deferred Revenue............................................ (849,270)
Post-measurement date losses................................ 980,402
-----------
Net assets held for sale.................................... $ 1,140,596
===========
</TABLE>
Revenue from the Educational Services and FAB Solutions divisions
represented approximately $5.4 million in 1997, $5.1 million in 1998 and
$4.8 million in 1999. These revenue amounts have been eliminated from the
respective revenue lines in the accompanying statements of operations.
14. SIGNIFICANT CUSTOMERS
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains an allowance for
doubtful accounts based upon the expected collectibility of all trade accounts
receivable. The losses incurred by the Company with respect to trade receivables
have not exceeded management's expectations.
Revenue from certain of the Company's largest customers individually
exceeded 10% of the Company's revenue as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
CUSTOMER 1997 1998 1999
<S> <C> <C> <C>
A........................................................... 15% ** **
B........................................................... 19% 15% **
C........................................................... 14% ** **
D........................................................... 17% ** **
E........................................................... ** 21% 26%
F........................................................... ** ** 20%
</TABLE>
- --------------------------
** Less than 10%.
15. WARRANTS
During December 1998, in connection with certain financing transactions, the
Company issued a warrant to purchase 234,595 shares of common stock at an
exercise price of $1.32 per share. The warrant is fully vested, immediately
exercisable, nonforfeitable and will expire in December 2003.
During December 1999, as a sales-inducement to one of its largest customers,
the Company agreed to issue one year warrants covering $2.5 million of common
stock at the Company's initial public offering price. The Company commissioned
an independent appraisal of the warrants. Based on this
F-20
<PAGE>
OBJECTSPACE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. WARRANTS (CONTINUED)
appraisal, the fair value of these warrants at the date of the agreement of
$390,000, was recorded in additional paid in capital and as a reduction of
license revenue.
16. SHARES RESERVED FOR FUTURE ISSUANCE
The Company has reserved common shares for issuance at December 31, 1999, as
follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock...................... 1,600,001
Conversion of Series B preferred stock...................... 7,567,566
Exercise of stock options................................... 8,104,968
Exercise of warrants........................................ 430,595
----------
Total reserved for issuance................................. 17,703,130
==========
</TABLE>
17. INITIAL PUBLIC OFFERING
On March 11, 2000, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of an initial public offering of the Company's common stock.
F-21
<PAGE>
[Inside back cover portrays the following:
Logo of OpenBusiness in upper center. Text in the right center of the page
reads:
"B2B INTEGRATION SOLUTIONS
OpenBusiness Infrastructure Platform
OpenBusiness Gateway
OpenBusiness Portal
Professional Services"
The background is a solid blue, under which appears a curved digitized
cityscape. Logo of ObjectSpace and slogan "The Power Between" appear at lower
right corner.]
<PAGE>
- ---------------------------------------------------------
- ---------------------------------------------------------
, 2000
[LOGO]
SHARES OF COMMON STOCK
----------------
P R O S P E C T U S
-----------------
DONALDSON, LUFKIN & JENRETTE
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
WARBURG DILLON READ LLC
DLJDIRECT Inc.
- ---------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of ObjectSpace
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to its unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<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 ObjectSpace, Inc.
("ObjectSpace") in connection with the sale of common stock being registered.
All amounts are estimates except the SEC registration fee, the NASD filing fee
and the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... 90,000
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Transfer Agent and Registrar fees........................... *
Miscellaneous expenses...................................... *
--------
Total....................................................... $ *
========
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of ObjectSpace provides that the liability
of the directors of ObjectSpace to ObjectSpace or any of its stockholders for
monetary damages arising from acts of omissions occurring in their capacity as
directors shall be limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware. This limitation does not apply with
respect to any action in which a director would be liable under Section 174 of
the General Corporation Law of the State of Delaware nor does it apply with
respect to any liability in which a director:
- breached his duty of loyalty to ObjectSpace or its stockholders;
- did not act in good faith or, in failing to act, did not act in good
faith;
- acted in a manner involving intentional misconduct or a knowing violation
of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law; or
- derived an improper personal benefit.
ObjectSpace's Certificate of Incorporation requires ObjectSpace to indemnify
its directors, officers and employees and former directors, officers and
employees to the fullest extent permitted by the General Corporation Law of the
State of Delaware. Pursuant to the provisions of Section 145 of the General
Corporation Law of the State of Delaware, ObjectSpace has the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding (other than an
action by or in the right of ObjectSpace) by reason of the fact that he is or
was a director, officer, employee or agent of ObjectSpace, against any and all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of ObjectSpace, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of
ObjectSpace as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or
II-1
<PAGE>
settlement of the claim itself and with the further limitation that in such
actions no indemnification shall be made in the event of any adjudication of
negligence or misconduct unless the court, in its discretion, believes that in
light of all the circumstances indemnification should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
Reference is made to the Form of Underwriting Agreement, to be filed as
Exhibit 1.1 to this registration statement, which provides for indemnification
by the underwriters under certain circumstances of the directors and officers of
ObjectSpace signing the registration statement and certain controlling persons
of ObjectSpace against certain liabilities, including those arising under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling ObjectSpace
pursuant to the foregoing provisions, ObjectSpace 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the registrant has issued unregistered
securities to a limited number of persons as described below:
1. On June 16, 1998, the registrant issued and sold a warrant to purchase up to
196,000 shares of common stock at a purchase price of $0.01 per share in
connection with a financing transaction.
2. On September 4, 1998, the registrant issued and sold 571,429 shares of
Series A preferred stock to one investor for $3.50 per share, or an
aggregate of approximately $2.0 million.
3. On December 30, 1998, the registrant issued and sold an aggregate of
2,702,703 shares of Series B preferred stock to a total of 6 investors for
$3.70 per share, or an aggregate of approximately $10.0 million.
4. On December 30, 1998, the registrant issued and sold a warrant to purchase
234,595 shares of common stock at a purchase price of $1.32 per share in
connection with certain financing transactions.
5. On December 23, 1999, in connection with one of our licensing and
professional services transactions, the registrant issued a warrant to
purchase that number of shares of common stock equal to $2.5 million divided
by the offering price of the common stock in this offering.
6. As of January 17, 2000, the registrant issued and sold a warrant to purchase
up to 4,200 shares of common stock at a purchase price of $8.57 per share in
connection with the registrant's obtaining services from a consultant.
7. As of March 22, 2000, an aggregate of 322,977 shares of common stock had
been issued upon exercise of options under the registrant's stock option
plans.
On January 14, 2000, the registrant effected a split of its common stock in
the form of a stock dividend of one share of common stock for each share of
common stock outstanding as of that date. On March 30, 2000, the registrant
effected a split of its common stock in the form of a stock dividend of 0.4
shares of common stock for each share of common stock outstanding as of that
date.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the registrant believes
that each transaction was exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof,
Regulation D promulgated thereunder or Rule 701 promulgated under Section 3(b)
thereof, pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such
transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and
II-2
<PAGE>
appropriate legends were affixed to the share certificates and instruments
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.
2.1 Asset Purchase Agreement dated as of March 8, 2000 by and
between ObjectSpace, Inc. and KLA-Tencor Corporation.
2.2 Stock Purchase Agreement dated as of September 23, 1999 by
and between ObjectSpace, Inc. and Valtech, S.A.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Specimen common stock certificate.
5.1* Opinion of Haynes and Boone, LLP, counsel to the registrant.
10.1* Master Services Agreement dated as of August 6, 1999 by and
between ObjectSpace, Inc. and Galileo International, L.L.C.
10.2 Master Escrow Agreement dated as of November 11, 1998 by and
between ObjectSpace, Inc. and Data Securities International,
Inc.
10.3* License Agreement dated as of October 28, 1997 by and
between ObjectSpace, Inc. and Tivoli Systems, Inc.
10.4 Lease Agreement dated as of April 29, 1997 by and between
ObjectSpace, Inc. and CarrAmerica Realty, L.P.
10.5 First Amendment to Lease Agreement dated as of September 23,
1999 by and between ObjectSpace, Inc. and CarrAmerica
Realty, L.P.
10.6 Office Lease Agreement dated as of May 30, 1997 by and
between ObjectSpace, Inc. and 14850 Quorum Associates, Ltd.
10.7 Office Lease Agreement dated as of September 5, 1997 by and
between ObjectSpace, Inc. and Brookdale Investors, L.P.
10.8 Amended and Restated 1994 Restricted Stock and Stock Option
Plan.
10.9 1998 Stock Option Plan.
10.10 Amendment No. 3 to 1998 Stock Option Plan dated as of
March 30, 2000.
10.11 Non-Employee Director Stock Option Plan.
10.12* Loan and Security Agreement dated as of February 9, 1998 by
and between ObjectSpace, Inc. and Silicon Valley Bank.
10.13* Senior Subordinated Loan and Security Agreement dated as of
June 16, 1998 by and between ObjectSpace, Inc. and Silicon
Valley Bank.
10.14 Employment Agreement dated as of December 30, 1998 by and
between ObjectSpace, Inc. and David Norris.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.15 Amendment to Employment Agreement of David Norris, dated as
of March 28, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Haynes and Boone, LLP, counsel to the registrant.
24.1 Power of Attorney (see signature page hereto).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
b) FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedules are not listed because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions referenced in
Item 14 of this registration statement or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, 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 a 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 whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
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 of 1933 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 of
1933, 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas,
on the 31st day of March, 2000.
<TABLE>
<S> <C> <C>
OBJECTSPACE, INC.
By: /s/ DAVID NORRIS
-----------------------------------------
David Norris
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and/or officers of ObjectSpace, Inc., hereby
severally constitute and appoint David Norris, Chief Executive Officer, and Paul
A. Lipari, Chief Financial Officer, and each of them individually, with full
powers of substitution and resubstitution, our true and lawful attorneys, with
full powers to them and each of them to sign for us, in our names and in the
capacities indicated below, the registration statement on Form S-1 filed with
the Securities and Exchange Commission, and any or all amendments to said
registration statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of equity securities of ObjectSpace, Inc., and to file or
cause to be filed the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents the full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
foregoing, as to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, 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 below.
<TABLE>
<CAPTION>
TITLE DATE
----- ----
<C> <S> <C>
/s/ DAVID NORRIS Chairman of the Board,
------------------------------------------- President and Chief March 31, 2000
David Norris Executive Officer
/s/ PAUL A. LIPARI Chief Financial Officer
------------------------------------------- (principal financial and March 31, 2000
Paul A. Lipari accounting officer)
/s/ JOHN C. BENTLEY
------------------------------------------- Director March 31, 2000
John C. Bentley
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
TITLE DATE
----- ----
<C> <S> <C>
/s/ GRANT A. DOVE
------------------------------------------- Director March 31, 2000
Grant A. Dove
/s/ GRAHAM GLASS
------------------------------------------- Director March 31, 2000
Graham Glass
/s/ EUGENE LOWENTHAL
------------------------------------------- Director March 31, 2000
Eugene Lowenthal
/s/ R. STEPHEN POLLEY
------------------------------------------- Director March 31, 2000
R. Stephen Polley
/s/ DAVID NEAR
------------------------------------------- Director March 31, 2000
David Near
</TABLE>
II-6
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
KLA-TENCOR CORPORATION
AND
OBJECTSPACE, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Section Page
- ------- ----
1. TRANSFER OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(c) Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Prepaid Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(e) Marketing and Sales Information. . . . . . . . . . . . . . . . . . . . . . 2
(f) Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(g) Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. ASSETS EXCLUDED FROM SALE . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Amount of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Manner of Payment of the Purchase Price. . . . . . . . . . . . . . . . . . 4
(c) Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . 4
4. ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Excluded Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. LABOR AND EMPLOYMENT MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Employment Transition Provisions . . . . . . . . . . . . . . . . . . . . . 8
(c) Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Location and Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Seller's Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Purchaser's Closing Documents. . . . . . . . . . . . . . . . . . . . . . . 10
(e) Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(f) Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(g) Purchase Price Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . 12
i
<PAGE>
(h) Working Capital Adjustment . . . . . . . . . . . . . . . . . . . . . . . . 12
(i) Employee Retention Funds . . . . . . . . . . . . . . . . . . . . . . . . . 14
7. REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . . . . . . . . . . . . . 14
(a) Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Business Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 15
(d) Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Actions, Suits, Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 16
(f) Compliance with Applicable Laws and Other Instruments. . . . . . . . . . . 16
(g) Facility Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(h) Title to the Purchased Assets. . . . . . . . . . . . . . . . . . . . . . . 16
(i) Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . 17
(j) Contracts, Leases, Commitments and Agreements. . . . . . . . . . . . . . . 17
(k) Composition and Condition of Purchased Assets. . . . . . . . . . . . . . . 18
(l) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(m) Major Suppliers and Customers. . . . . . . . . . . . . . . . . . . . . . . 18
(n) Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(o) Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(p) Government License and Regulation. . . . . . . . . . . . . . . . . . . . . 19
(q) Location of the Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(r) Year 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . . . 19
(a) Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Corporate Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Litigation and Other Proceedings . . . . . . . . . . . . . . . . . . . . . 20
9. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE. . . . . . . . . . . . . . . . . 20
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 20
(b) Observance and Performance . . . . . . . . . . . . . . . . . . . . . . . . 21
(c) Violations of Laws and Ordinances. . . . . . . . . . . . . . . . . . . . . 21
(d) Officer's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(e) Change in Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ii
<PAGE>
(f) Key Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(g) Searches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(h) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(i) Closing Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(j) Proceedings and Documents. . . . . . . . . . . . . . . . . . . . . . . . . 22
(k) Hiring of Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10. CONDITIONS TO OBLIGATION OF SELLER TO CLOSE . . . . . . . . . . . . . . . . . 22
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 22
(b) Observance and Performance . . . . . . . . . . . . . . . . . . . . . . . . 22
(c) Violations of Laws and Ordinances. . . . . . . . . . . . . . . . . . . . . 22
(d) Officer's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Closing Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(f) Proceedings and Documents. . . . . . . . . . . . . . . . . . . . . . . . . 23
(g) Purchase Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11. GOVERNMENTAL FILINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12. COVENANTS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Operation of Business Prior to Closing . . . . . . . . . . . . . . . . . . 23
(b) Notices to Employees; Continuation of Benefits . . . . . . . . . . . . . . 24
(c) Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Notice of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(f) Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(g) No Solicitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(h) Further Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(i) Covenant not to Sue. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13. COVENANT NOT TO COMPETE . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14. COVENANTS OF PURCHASER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Notice of Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(c) Further Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(d) Use of Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
iii
<PAGE>
15. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Survival of Representations and Warranties . . . . . . . . . . . . . . . . 28
(b) Indemnification by Seller. . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) Indemnification by Purchaser . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Procedures for Indemnification . . . . . . . . . . . . . . . . . . . . . . 29
(e) Sole Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
16. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
17. DISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Discovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(c) Court Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Rulings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) Findings of Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(h) Selection of Arbitrator. . . . . . . . . . . . . . . . . . . . . . . . . . 33
(i) Other Arbitration Provisions . . . . . . . . . . . . . . . . . . . . . . . 34
18. ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Transition Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
19. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(a) Amendments and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(c) Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(d) Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(e) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(f) Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(g) Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(h) Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(i) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
iv
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into as
of this 8th day of March, 2000 by and between KLA-Tencor Corporation, a
Delaware corporation ("PURCHASER"), and OBJECTSPACE, INC., a Delaware
corporation ("SELLER").
RECITALS
A. Seller is engaged, among other things, in the business of providing
software products and services in the area of electronics manufacturing yield
and productivity improvement through development, application, and support of
factory monitoring and control software solutions (collectively, the
"BUSINESS").
B. Seller desires to sell to Purchaser and Purchaser desires to purchase
and acquire from Seller the Purchased Assets (as hereinafter defined) relating
to the Business and Purchaser desires to assume, as part of the purchase price
of the Purchased Assets, the Assumed Liabilities (as hereinafter defined) as of
the Closing Date (as hereinafter defined), all upon the terms and conditions set
forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, the parties agree as follows:
1. TRANSFER OF ASSETS. On the terms and subject to the conditions of
this Agreement, Seller agrees to sell, transfer, convey, deliver and assign to
Purchaser, and Purchaser agrees to purchase, acquire and accept from Seller, at
and effective as of the Closing Date, for the consideration hereinafter
provided, all of Seller's rights, title and interest in and to the following
assets, properties and rights in and related to the Business, other than the
Excluded Assets (as hereinafter defined) (the "PURCHASED ASSETS"):
(a) PERSONAL PROPERTY. All machinery, equipment, computer hardware,
cabling, data viewers, improvements, tools, furniture, furnishings and
other tangible personal property listed on SCHEDULE 1(A) hereto.
(b) INTELLECTUAL PROPERTY. All of Seller's rights in the trademarks,
trade secrets, copyrights (including those in software), patents, pending
patent applications, and other intellectual property, and all associated
goodwill, and all related applications and registrations for the foregoing
(collectively, the "INTELLECTUAL PROPERTY") that are listed on
SCHEDULE 1(b) attached hereto.
<PAGE>
(c) CONTRACTS. To the extent the consents listed on the Disclosure
Schedule to Section 7(j) have been obtained, all rights of Seller under the
contracts, agreements, personal property leases, licenses, purchase orders,
sales orders and other instruments, agreements and arrangements that are
listed on SCHEDULE 1(c) (hereinafter collectively referred to as the
"ASSUMED CONTRACTS").
(d) PREPAID ASSETS. All deposits or other prepaid items relating to
services or products provided by the Business and accepted by Seller prior
to the Closing (as hereinafter defined) but to be delivered by Purchaser on
or subsequent to the Closing that are listed on SCHEDULE 1(d), as such may
be amended by mutual agreement of the parties up to the Closing.
(e) MARKETING AND SALES INFORMATION. All customer lists, vendor or
supplier lists, prospect lists, database information, marketing or
advertising brochures or pamphlets, documents, records or other
information, whether in electronic form or otherwise, owned by Seller and
relating to current or planned sales or marketing operations of the
Business.
(f) DOCUMENTS. All copies of records, computer software and
documents, books, work orders, drawings, electronic art, database
information, program and process documentation owned by Seller and
primarily related to the Business.
(g) LICENSES AND PERMITS. To the extent transferable, all of
Seller's rights in all government licenses, permits and authorizations
listed on SCHEDULE 1(g) hereto.
2. ASSETS EXCLUDED FROM SALE. Notwithstanding other contrary provisions
of this Agreement, the following property and assets of Seller are expressly
excluded from the sale to Purchaser (the "EXCLUDED ASSETS"):
(a) Any employee benefit plan (within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA")) with respect
to which Seller or any entity which, together with Seller, would be deemed
a "single employer" (within the meaning of Sections 414(b), (c), (m) or (o)
of the Internal Revenue Code of 1986, as amended (the "CODE")) is a plan
sponsor or would otherwise have any potential liability.
(b) Any of Seller's causes of action, judgments, claims and demands
of whatever nature, except those related to the Purchased Assets and the
Assumed Liabilities.
(c) Articles of Incorporation, Bylaws, corporate seal and original
minute books of Seller (it being agreed that copies of those minutes
relating to the sale of the Business shall be supplied to Purchaser before
the Closing), qualifications to conduct business as a foreign corporation,
taxpayer and other identification numbers and other documents relating to
the organization, maintenance and existence of Seller as a corporation.
2
<PAGE>
(d) All financial records of Seller relating to the Business,
including Seller's general ledger and related items, tax returns and
related work papers (it being agreed that copies of those financial records
relating to the Business shall be supplied to Purchaser before the
Closing).
(e) All of Seller's cash (including cash received after the Closing
for products or services relating to the Business delivered on or before
the Closing) and cash equivalents, including all deposits and other prepaid
items not described in Section 1(d) of this Agreement.
(f) All rights of Seller under this Agreement and all other related
agreements to which Seller is a party contemplated by this Agreement.
(g) All of Seller's personnel records and other records that Seller
is required by law to retain in its possession and all invoices, expense
reports and purchase orders.
(h) All of Seller's claims for refunds of Taxes and other
governmental charges of whatever nature relating to periods prior to the
Closing Date.
(i) Other than the licensed software located on the personal
computers used by the Scheduled Employees, all of Seller's enterprise-wide
licensed software including, without limitation, Lotus/Notes software used
for artifact management, server software that connects the Austin IT
infrastructure of the Business to Seller's Dallas office, and corporate
financial systems.
(j) All of Seller's rights in insurance policies and insurance
claims.
(k) All trademarks, trade names, service marks and other intellectual
property relating to or including the name "ObjectSpace" and "Voyager," and
all derivations thereof, and all intellectual property relating to Seller's
Voyager Software and C++ toolkit (Standards Toolkit; Foundations Toolkit;
Communications Toolkit; Systems Toolkit).
(k) All rights of Seller in the T1 line used in the Business to
connect the Business to Seller's Dallas headquarters.
(m) All of Seller's rights in its Dallas server, which is currently
used to host the Web site relating to the Business.
(n) All assets listed on Schedule 2(n) hereto.
3
<PAGE>
3. PURCHASE PRICE.
(a) AMOUNT OF PURCHASE PRICE. In addition to the assumption of the
Assumed Liabilities (as hereinafter defined) by Purchaser, Purchaser shall
pay to Seller for the Purchased Assets an amount equal to $8,000,000 (the
"PURCHASE PRICE"), including the $800,000 which shall be held in an escrow
account pursuant to Section 6(g), and subject to adjustment as set forth in
Section 6(h). The Purchase Price will be exclusive of all Transfer Taxes
(as hereinafter defined). All references to "$" and "dollars" herein shall
mean United States dollars.
(b) MANNER OF PAYMENT OF THE PURCHASE PRICE. At the Closing,
Purchaser shall assume the Assumed Liabilities and deliver $6,930,000 (the
Purchase Price minus the Purchase Price Escrow Funds (defined below) and
the Employee Retention Funds (defined below)) (the "CASH PURCHASE PRICE")
by wire transfer of immediately available funds to Seller.
(c) ALLOCATION OF PURCHASE PRICE. The parties agree to allocate the
aggregate of the Purchase Price and the Assumed Liabilities to the
Purchased Assets and to the covenants not to compete of Seller as set forth
on SCHEDULE 3(c) hereto which shall comply with Section 1060 of the Code.
Seller and Purchaser agree that they will adopt and utilize the amounts
allocated to each Purchased Asset and such other assets and benefits for
purposes of all Tax Returns (as hereinafter defined) filed by them and that
they will not voluntarily take any position inconsistent therewith.
Purchaser agrees to prepare and timely file all applicable Internal Revenue
Service and other governmental authority forms, and each party hereto
agrees to cooperate with the other party's reasonable request in the
preparation of such forms, and to furnish the other party with a copy of
such forms prepared in draft, within a reasonable period before the filing
due date thereof.
4. ASSUMPTION OF LIABILITIES.
(a) GENERALLY. On the Closing Date, as partial consideration for the
purchase of the Purchased Assets, Purchaser shall assume and agree to pay,
perform and discharge, to the extent not theretofore performed, paid or
discharged, the following (and only the following) liabilities and/or
obligations of Seller relating to the Business (collectively, the "ASSUMED
LIABILITIES"):
(1) FACILITY LEASE. The Office Lease between Steve R. Scott and
Seller dated June 9, 1997, as amended (the "FACILITY LEASE"), relating
to the facility located at 811 Barton Springs Road, Suite 300, Austin,
Texas 78704-1163 (the "FACILITY").
(2) ASSUMED CONTRACTS. The obligations of Seller under the
Assumed Contracts.
4
<PAGE>
(3) PRORATED ITEMS. The pro rated amounts determined pursuant
to Section 6(f) of this Agreement.
(4) TAXES. Any and all liabilities and obligations, direct or
indirect, fixed or contingent, for Taxes attributable to and incurred
in connection with the Business or the Purchase Assets after the
Closing Date, including, without limitation, any AD VALOREM, real or
personal or intangible property, sales or other Taxes which are
attributable to any period after the Closing Date.
(5) EMPLOYEE LIABILITIES. All (i) accrued payroll taxes
attributable to the Scheduled Employees on the Closing Date, (ii) all
accrued liabilities owed to the Scheduled Employees on the Closing
Date, including accrued vacation benefits, sick leave benefits,
bonuses, and commissions and (iii) those liabilities set forth on
SCHEDULE 4(a)(5) related to other employee benefits for the Scheduled
Employees.
(b) EXCLUDED LIABILITIES. Except for the liabilities and
obligations of Seller expressly assumed by Purchaser under Section 4(a)
hereof, Purchaser shall not assume, and the term "Assumed Liabilities"
shall not include, any liabilities or obligations of Seller
(collectively, the "EXCLUDED LIABILITIES"), including, without
limitation, the following, and Seller expressly agrees it will remain
liable for, it will indemnify Purchaser, its stockholders, affiliates,
employees, agents and representatives for, and it will discharge, the
Excluded Liabilities:
(1) Any liability or claim with respect to accidents or
occurrences arising on or before the Closing Date.
(2) Any claim by a third party for personal injury, injury or
damage to property or economic loss, whether sounding in tort, breach
of warranty or any other theory of recovery, seeking compensatory,
special, exemplary, punitive or consequential damages, or any other
relief, relating, directly or indirectly, to an alleged defective or
unsuitable product arising prior to the Closing Date.
(3) Any claims (including severance claims) relating to the
termination by Seller of the employment of any of its employees
(including any such termination deemed to have occurred upon the
transfer of any such employee from Seller to Purchaser).
(4) Except as set forth in Section 4(a), any unpaid liability
for Taxes (as hereinafter defined) incurred prior to the Closing
Date, including without limitation the following: any and all
liabilities and obligations, direct or indirect, fixed or
contingent, for Taxes (i) of Seller or any member of any affiliated
group (within the
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meaning of Section 1504(a) of the Code) or any combined, consolidated
or unitary group for state or other tax purposes of which Seller is
or has been a member, whenever incurred; (ii) except as expressly
set forth herein, attributable to or incurred in connection with the
Business or the Purchased Assets prior to or on the Closing Date,
including, without limitation, any AD VALOREM, real or personal or
intangible property, sales or other Taxes which are not due or
assessed until after the Closing Date but which are attributable to
any period (or portion thereof) ending on the Closing Date and (iii)
attributable to interest, fines, additions to tax or penalties
relating to Taxes. For purposes of this Agreement, (A) the term
"TAXES" shall mean any and all taxes, duties, premiums, imposts,
charges, fees, levies, excises, deductions, withholdings or other
like assessments (and all related interest, fines, additions to tax
and penalties), including, without limitation, those levied on, or
measured by, or referred to as income, transfer, gains, gross
receipts, profits, capital, excise, inventory, property (real,
personal or intangible), land transfer, value-added, goods and
services, sales, use, license, withholding, payroll, health,
employment, stamp, business, capital stock, franchise, social
services, education and social security taxes, all surtaxes, all
customs duties and import and export taxes, all license, franchise
and registration fees and all unemployment insurance, health
insurance and other government pension plan premiums, imposed by the
United States or any state, local or foreign government or
subdivision or agency thereof, whether computed on a consolidated,
unitary, combined or any other basis; and (B) the term "TAX RETURNS"
shall mean any and all reports, returns or other information filed
with or required to be supplied to a taxing authority in connection
with Taxes.
(5) Any cause of action or judicial or administrative action,
suit, proceeding or investigation relating to periods prior to the
Closing.
(6) Any governmental compliance, enforcement or regulatory
action, suit or claim or any claim by any person or entity based upon
an actual or alleged failure of Seller to comply prior to the Closing
with, or an actual or alleged violation by Seller prior to the
Closing of, any law, rule, regulation, statute, ordinance, permit,
permit requirement, judgment, injunction, order, decree, license or
other governmental authorization or approval applicable to Seller or
the Purchased Assets.
(7) Any infringement of the rights of any other person or
entity arising out of the use of any of the Purchased Assets prior to
the Closing.
(8) Except as set forth in Section 4(a), any liability under
any employee benefit plan maintained or contributed to by Seller or
any ERISA Affiliate (as hereinafter defined) which is not assumed by,
or plan assets are not transferred to, the Purchaser.
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(9) Any liabilities with respect to contracts of Seller (other
than the Assumed Contracts).
(10) Any liabilities or obligations of Seller relating to
casualty or liability claims attributable to the period prior to the
Closing.
(11) Bank overdrafts and other liabilities of Seller to banks
for money borrowed.
(12) Any and all other liabilities and/or obligations of Seller
not specifically included in the Assumed Liabilities.
(c) LIMITATIONS. The parties expressly agree (1) that the only
liabilities and obligations of Seller which Purchaser has agreed to pay or
assume are the Assumed Liabilities and (2) that Purchaser has not agreed
to pay, shall not be required to assume and shall not have any liability
or obligation, direct or indirect, absolute or contingent, of Seller, the
Business, or any other person or entity, the assumption of which by
Purchaser is not expressly provided for in this Agreement as an Assumed
Liability.
5. LABOR AND EMPLOYMENT MATTERS.
(a) EMPLOYMENT. Attached hereto as SCHEDULE 5(a) is a list of all
active employees of the Business, on the payroll and available for duty on
the Closing Date (the "SCHEDULED EMPLOYEES"). Purchaser agrees to offer
employment, effective from the Closing, to all of the Scheduled Employees.
In addition, Purchaser agrees to provide Scheduled Employees with group
health insurance benefits immediately after Closing and to waive, and to
cause its appropriate insurer to waive, any pre-existing illness
limitations. Purchaser agrees to provide each Scheduled Employee with past
service credit for the period of time that the Scheduled Employee has been
employed by Seller under Purchaser's group health plan and Purchaser's
401(k) plan and/or any other defined contribution or defined benefit
pension plan maintained by the Purchaser. Subject to the foregoing two
sentences, Purchaser agrees to provide the Scheduled Employees with
medical, dental, 401(k) retirement and other benefits in accordance with
Purchaser's standard employee benefit plans.
(b) EMPLOYMENT TRANSITION PROVISIONS. (i) Seller shall furnish its
employees, their representatives and appropriate governmental authorities
such notice as may be required of Seller by and in accordance with
applicable laws and regulations, including, without limitation, any mass
lay-off laws for events that occur prior to Closing which require such
notices; Purchaser shall be responsible for all such notices for events
which occur on or after Closing. Seller shall be solely responsible for
providing continuation coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") to
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Scheduled Employees and their dependents who are qualified beneficiaries
(as defined in Section 4980B(g)(1) of the Code) and Seller shall
indemnify Purchaser for any and all loss, cost, or expense relating to
any and all outstanding obligations, liabilities and claims arising under
COBRA and relating to Seller's employment of Scheduled Employees. Each
person employed by Seller in the Business and to be employed after the
Closing by Purchaser in accordance with Section 5(a) hereof shall cease
to be an employee of Seller effective immediately following the Closing.
In addition, except for those items set forth in Section 4(a) hereof,
Seller shall pay or provide for all other employee benefits maintained by
Seller for all periods prior to and including the Closing Date, all in
accordance with applicable law.
(ii) Purchaser and Seller agree to use their commercially reasonable
efforts to enable the Scheduled Employees to transfer their aggregate
account balances from Seller's 401(k) plan to Purchaser's 401(k) plan.
Seller shall amend its 401(k) plan to transfer an amount equal to the
account balances of the Scheduled Employees in the Seller's 401(k) plan
valued at the most recent valuation date preceding the date the transfer
is made to Buyer's 401(k) plan. The transfer will be accomplished by way
of a single transfer of plan assets, except that any outstanding
participant loans from the Seller's 401(k) plan to Scheduled Employees
that are not in default may be transferred in kind to the extent not
repaid prior to the transfer. Seller and Purchaser agree to cooperate
fully and to file in a timely manner whatever reports, forms, and notices
(including, without limitation, Form 5310-A) as necessary or appropriate
under applicable law as a result of, and to effect, the transfer. Seller
agrees to provide to Purchaser in a timely manner all information and
documentation concerning its 401(k) plan that Purchaser reasonably
requests in order to ensure that Seller's 401(k) plan and the transfer
described herein are in compliance with applicable law, including without
limitation ERISA and the Code. Seller also agrees to provide to Purchaser
in a timely manner all information for each Scheduled Employee, including
without limitation the account balances under the Seller's 401(k) plan as
of the date of transfer, vesting service, and any other employee
information reasonably required by Purchaser to determine the status of
each such Scheduled Employee's account under the 401(k) plans of Buyer
and Seller.
(iii) Seller shall be solely responsible for providing any and all
severance benefits owed to Scheduled Employees (and, as applicable, their
beneficiaries) under the terms of any severance, separation or retention
plan, policy or arrangement maintained by Seller or relating to the
Seller's employment of a Scheduled Employee and Seller shall indemnify
Buyer for any and all loss, cost or expense arising under any severance,
separation or retention plan, policy or arrangement maintained by Seller
or relating to Seller's employment of a Scheduled Employee.
(c) CONSTRUCTION. Sections 5(a) and 5(b) hereof are solely for the
purpose of defining the obligations between Purchaser and Seller concerning
the Scheduled Employees and shall in no way be construed as creating any
employment contract or other contract between Purchaser or Seller and any
employee.
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6. CLOSING.
(a) LOCATION AND TIME. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of
Haynes and Boone, LLP, 901 Main Street, Dallas, Texas 75202, at 9:30
a.m., local time, on March 9, 2000 (the "CLOSING DATE"), or at such other
time and place as is mutually agreed to by the parties.
(b) COSTS. Except as provided in Section 12(f) hereof, Purchaser and
Seller shall each bear their respective expenses, costs and fees
(including attorneys and accountants fees and expenses) in connection
with the transactions contemplated hereby, including the negotiation,
preparation, execution and delivery of this Agreement and compliance
herewith, whether or not the transactions contemplated hereby are
consummated.
(c) SELLER'S CLOSING DOCUMENTS. On the Closing Date, Seller shall
deliver to Purchaser the following (collectively, "SELLER'S CLOSING
DOCUMENTS"):
(1) bills of sale, in form and substance satisfactory to
Purchaser, for all personal property constituting a part of the
Purchased Assets and Seller shall deliver actual possession of the
Purchased Assets, free and clear of all encumbrances (except
Permitted Encumbrances (as hereinafter defined));
(2) assignments, in form and substance reasonably satisfactory
to Purchaser, of all intangibles constituting a part of the Purchased
Assets and all Assumed Contracts, licenses, appurtenances and rights
relating to the Business, except to the extent consent from a third
party is required to assign such Assumed Contracts, licenses,
appurtenances and rights and such consent has not been obtained;
(3) an assignment of the Facility Lease duly executed by Seller
evidencing the assignment and assumption of the Facility Lease by
Purchaser;
(4) such other instrument or instruments of transfer as shall
be necessary or appropriate to vest in Purchaser all rights and title
to the Purchased Assets;
(5) such keys, lock and safe combinations and other similar
items as Purchaser shall require to obtain full occupation,
possession and control of the Facility and the Purchased Assets;
(6) duly certified copies of the resolutions adopted by
Seller's board of directors authorizing the execution, delivery and
due performance of this Agreement and all transactions contemplated
hereby;
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(7) good standing or similar certificates from the Secretaries
of State and the appropriate taxing authorities of the States of
Delaware and Texas with respect to Seller;
(8) the license agreement relating to the license of Seller's
Voyager technology in the form set forth as Exhibit 6(c)(1) (the
"LICENSE AGREEMENT") duly executed by Seller;
(9) the Purchase Price Escrow Agreement (defined below) duly
executed by Seller;
(10) such other documents, certificates, instruments or
agreements which Seller is required to deliver to Purchaser or the
Scheduled Employees pursuant to this Agreement; and
(11) Seller shall prepare and deliver to Purchaser, at least
three business days before the Closing Date, the Current Balance
Sheet.
(d) PURCHASER'S CLOSING DOCUMENTS. On the Closing Date, Purchaser
shall deliver to Seller the following (collectively, "PURCHASER'S CLOSING
DOCUMENTS");
(1) payment of the Cash Purchase Price as provided in Section
3(c);
(2) duly certified copies of the resolutions adopted by
Purchaser's board of directors authorizing the execution, delivery,
and due performance of this Agreement and all transactions
contemplated hereby and all documents to be executed and delivered
hereunder by Purchaser at Closing;
(3) instruments executed by Purchaser, in form and substance
satisfactory to Seller, whereby Purchaser agrees to assume the
Assumed Liabilities;
(4) an assignment of the Facility Lease duly executed by Seller
evidencing the assignment and assumption of the Facility Lease by
Purchaser;
(5) such further instruments as any person to whom Seller is
obligated with respect to any Assumed Liability may timely and
reasonably request in order to effect the assumption by Purchaser of
Seller's obligations thereunder;
(6) the License Agreement duly executed by Purchaser;
(7) the Purchase Price Escrow Agreement duly executed by
Purchaser; and
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(8) such other documents, certificates, instruments,
agreements, which Purchaser is required to deliver to Seller or the
Scheduled Employees pursuant to this Agreement.
(e) FURTHER ASSURANCES. Seller and Purchaser agree that, at and
after the Closing Date:
(1) at the request of Purchaser, Seller shall execute and
deliver such further instruments of transfer and assumption as may be
necessary or appropriate, and shall take all commercially reasonable
action as may be necessary or appropriate (A) to vest in Purchaser
title to the Purchased Assets, (B) to transfer to Purchaser all
licenses, agreements and permits necessary for the operation of the
Business (other than the Excluded Assets) and to the extent that
consents to the assignment of such licenses, agreements and permits
have not been obtained prior to Closing, to secure the benefits and
liabilities of such licenses, agreement and permits in some other
manner and (c) to aid and assist Purchaser in collecting and reducing
to possession any or all of the Purchased Assets; and
(2) each will at any time and from time to time after the
Closing, upon the request of the other, execute, acknowledge,
deliver, and perform, or cause to be executed, acknowledged,
delivered, and performed, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney, assumption agreements,
and assurances as may reasonably be required in connection with the
transactions contemplated by this Agreement.
Notwithstanding anything in this Agreement to the contrary, this
Agreement shall not constitute an agreement to assign any agreement,
license, approval, authorization, contract, lease or other commitment
if an attempted assignment thereof without the consent of a third
party thereto would constitute a breach thereof.
(f) PRORATIONS. At Closing, Seller and Purchaser shall prorate as
of the Closing Date:
(1) all rent payable on the Facility Lease or any leases of
equipment which are being assumed by Purchaser;
(2) all utility bills for utilities provided to the Facility;
and
(3) all personal property taxes levied or assessed against any
of the Purchased Assets for the current tax year.
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(g) PURCHASE PRICE ESCROW. Purchaser shall deliver to Bank One,
Texas, NA (the "ESCROW AGENT") $800,000.00 by wire transfer of immediately
available funds at the Closing (the "PURCHASE PRICE ESCROW FUNDS").
Purchaser and Seller shall enter into an escrow agreement in the form of
EXHIBIT 6(g) (the "PURCHASE PRICE ESCROW AGREEMENT") with the Escrow Agent
that provides the following:
(1) Purchaser shall deliver to the Escrow Agent the Purchase
Price Escrow Funds by wire transfer of immediately available funds at
the Closing.
(2) The Purchase Price Escrow Funds shall remain in the escrow
account for 365 days (the "PURCHASE PRICE ESCROW PERIOD"). If no
claims against Seller exist at the end of the Purchase Price Escrow
Period, the Purchase Price Escrow Funds shall be paid to Seller on
the day after the end of the Purchase Price Escrow Period. Interest
income shall accrue to the benefit of Seller. The Purchase Price
Escrow Funds shall be placed in an interest bearing account
acceptable to Seller, Purchaser and the Escrow Agent. Purchaser and
Seller shall each pay 50% of all of the costs and expenses of the
Escrow Agent in connection with the Purchase Price Escrow Funds.
(3) The Purchase Price Escrow Funds shall be released only as
set forth in the Purchase Price Escrow Agreement.
(h) WORKING CAPITAL ADJUSTMENT. The Purchase Price shall be subject
to adjustment in accordance with the following:
(1) On a date not more than twenty (20) days after the Closing
Date, Seller shall prepare and deliver to Purchaser a "CLOSING DATE
BALANCE SHEET" (herein so called) consisting of an unaudited balance
sheet of the Business as of the Closing Date which shall reflect the
Current Assets (defined below) and Current Liabilities (defined
below) as of the Closing Date. Such Closing Date Balance Sheet
shall be prepared by the Seller. If within ten (10) days following
delivery of the Closing Date Balance Sheet, Purchaser has not given
Seller notice of its objection to the Closing Date Balance Sheet
(such notice must contain a statement of the basis of Purchaser's
objection), then the Closing Date Balance Sheet prepared by Seller
shall be used in computing the Adjustment Amount (defined below).
If Purchaser gives such notice of objection, then Ernst & Young LLP,
Seller's certified public accountants and PricewaterhouseCoopers
LLP, Purchaser's certified public accountants, shall use their best
efforts to resolve the issues in dispute. If such accounting firms
are unable to resolve the issues in dispute within twenty (20) days
thereafter, then the issues in dispute shall be submitted to
mutually agreed upon certified public accountants (the
"ACCOUNTANTS"), for resolution. If issues in dispute are submitted
to the Accountants for resolution, (i) each party shall furnish to
the Accountants such work papers and
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other documents and information relating to the disputed issues as
the Accountants may request and are available to that party, and
shall be afforded the opportunity to present to the Accountants any
material relating to the determination and to discuss the
determination with the Accountants; (ii) the determination by the
Accountants, as set forth in a notice delivered to both parties by
the Accountants, shall be binding and conclusive on the parties; and
(iii) Purchaser and Seller shall each bear 50% of the fees of the
Accountants for such determination. The Accountants shall use their
best efforts to resolve any disputes within thirty (30) days after
submission.
"CURRENT ASSETS" means the cash, consolidated inventory, accounts
receivable, prepaid expenses and other current assets of the
Business, and noncurrent investments, in each case determined in a
manner consistent with the presentation in the Current Balance
Sheet. "CURRENT LIABILITIES" means the consolidated accounts
payable, accrued expenses, customer deposits, and other current
liabilities of the Business, in each case determined in accordance
with the presentation in the Current Balance Sheet.
(2) On the tenth business day following the final resolution of
any disputes with respect to the Closing Date Balance Sheet if the
Closing Date Balance Sheet shows the Working Capital (defined below)
of the Business on the Closing Date is less than $300,000.00, Seller
shall pay the difference to Purchaser. If the Closing Date Balance
Sheet shows the Working Capital of the Business on the Closing Date
exceeds $300,000, Purchaser shall pay the excess to the Seller. The
amount owed or owing shall constitute the "ADJUSTMENT AMOUNT" (herein
so called). To the extent any amounts are owed by Seller, it is
understood and agreed that Purchaser shall be entitled to receive
such amount from the Escrow Funds, to the extent then available.
"WORKING CAPITAL" shall mean the difference between Current Assets
and Current Liabilities as shown on the Closing Date Balance Sheet.
(i) EMPLOYEE RETENTION FUNDS. At the Closing, $270,000 (the
"EMPLOYEE RETENTION FUNDS") shall be deducted from the Purchase Price paid
to Seller. The Employee Retention Funds shall be used by Purchaser solely
to make payments to the Scheduled Employees for the purpose of retaining
such employees in the employment of Purchaser.
7. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants to Purchaser as follows (each such representation and warranty
being qualified in its entirety by the disclosures set forth on the Disclosure
Schedule of Seller attached hereto) (the "DISCLOSURE SCHEDULE"):
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(a) ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Seller has the requisite corporate power and authority to own its property
and assets and to carry on its business as now being conducted. Seller is
duly qualified, registered or licensed to do business as a foreign
corporation in each other jurisdiction wherein the nature of its activities
or of its properties owned or leased makes such qualification necessary and
failure to be so qualified, registered or licensed could have a material
adverse effect upon the Business or the Purchased Assets. No stockholder,
officer, director or employee of Seller or any affiliated entity is
currently a party to any transaction with Seller relating to any aspect of
the Business.
(b) AUTHORIZATION OF AGREEMENT. Seller has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Seller and the performance by Seller of its obligations
hereunder have been duly authorized by all necessary action on the part of
Seller, including without limitation approval by Seller's board of
directors. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
conflict with, or result in a breach of, or constitute a default under, the
terms or conditions of Seller's Certificate of Incorporation, Bylaws, any
court or administrative order, judgment or decree, any agreement or
instrument to which Seller is a party or by which Seller or any of its
assets is bound (subject to obtaining consents to the assignment of the
agreements set forth on SCHEDULE 7(j)) or, to the knowledge of Seller, any
statute or regulation of any governmental agency. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby do not require the consent of any third party. This
Agreement and all other instruments required hereby to be executed and
delivered by Seller are, or when delivered will be, valid and binding
obligations of Seller, enforceable against Seller in accordance with their
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting
the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceedings
therefor may be brought.
(c) BUSINESS FINANCIAL STATEMENTS. Schedule 7(c) sets forth the
Seller's unaudited balance sheet for the Business as of December 31, 1999
(the "CURRENT BALANCE SHEET"). The Current Balance Sheet is correct in all
material respects and has been prepared in accordance with GAAP
consistently applied on a basis consistent throughout the periods indicated
and consistent with each other (except as set forth therein and except that
it does not contain footnotes and other presentation items that may be
required by GAAP). The Current Balance Sheet presents fairly the financial
condition, of the Business as of the date indicated therein, subject to
normal year-end adjustments, which are not material in amount or
significance in any individual case or in the aggregate.
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(d) TAX MATTERS.
(1) Seller has duly and timely filed all Tax Returns with the
appropriate governmental or taxing authority and has duly completed
and correctly reported in all material respects all income and all
other amounts and information required to be reported thereon.
(2) Seller has duly and timely paid, accrued or properly
provided for all Taxes, including all installments on account of Taxes
for the current year, that are due and payable or collectible by it.
(3) Neither Seller nor any member of any affiliated group
(within the meaning of Section 1504 of the Code), combined group,
consolidated or unitary group (any such affiliated, combined,
consolidated or unitary group hereinafter referred to as an
"AFFILIATED GROUP") of which Seller is or was a member has received
notice of any deficiency or assessment from any federal, state, local
or foreign governmental authority with respect to any liability for
Taxes attributable to the Business or the Purchased Assets. No
administrative, judicial or other proceeding is presently pending with
respect to any Taxes or Tax Returns of Seller or any member of an
Affiliated Group of which Seller is or was a member or otherwise with
respect to the Business or the Purchased Assets.
(4) There are no actions, suits, proceedings, investigations,
audits or claims now pending or threatened in a writing delivered to
Seller against Seller relating to the Business in respect of any Taxes
and there are no matters under discussion, audit or appeal with any
governmental authority relating to Taxes.
(5) There are no liens for Taxes upon the Purchased Assets,
except for liens for Taxes not yet due.
(6) None of the Purchased Assets transferred pursuant to this
Agreement is property that is or will be required to treat as being
owned by another person pursuant to the provisions of Section 168(f)
of the Code (as in effect prior to the amendment by the Tax Reform Act
of 1986) or is "tax-exempt use property" within the meaning of Section
168 of the Code.
(7) Seller has timely deducted and withheld and will deduct and
withhold from any amount paid or credited or deemed paid or credited
up to and including the Closing Date by it to or for the account or
benefit of any person, including, without limitation, any of its
employees, officers or directors, the amount of all Taxes and other
deductions required by any applicable law to be deducted or withheld
from any
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such amount and has duly and timely collected and remitted and will
collect and remit the same to the appropriate governmental authority.
(e) ACTIONS, SUITS, PROCEEDINGS. There are no actions, suits or
proceedings (including, without limitation, condemnation proceedings and
actions, suits or proceedings in respect of product liability claims)
pending or, to the knowledge of Seller, threatened against Seller or any of
its properties or business in any court or before any federal, state,
municipal, foreign or other governmental agency relating to the Purchased
Assets or the Business or the consummation of the transactions contemplated
hereby. Neither Seller, the Business nor the Purchased Assets are subject
to any order, writ, injunction or decree of any court or governmental
agency relating to the Business or the Purchased Assets.
(f) COMPLIANCE WITH APPLICABLE LAWS AND OTHER INSTRUMENTS. The
Business is being, and since its inception has been, conducted in all
material respects in compliance with all applicable laws, rules or
regulations of all governmental authorities. Seller is not in violation of
its Certificate of Incorporation or Bylaws.
(g) FACILITY LEASE. The Facility Lease is the only lease or sublease
of real property relating to real property used or occupied by Seller in
connection with the Business. All payments required to be made by Seller
pursuant to the Facility Lease have been duly paid and Seller is not
otherwise in default in meeting its obligations under the Facility Lease or
in violation of any provision of the Facility Lease.
(h) TITLE TO THE PURCHASED ASSETS. Seller has good and marketable
title to all of the personal property included in the Purchased Assets,
free and clear of all security interests, liens, mortgages, encumbrances
and restrictions, except encumbrances listed and described in SCHEDULE 7(h)
hereto (the "PERMITTED ENCUMBRANCES"). To the extent that any Permitted
Encumbrances contain covenants or obligations by which Seller is bound,
Seller is not in default under such covenants or obligations.
(i) INTELLECTUAL PROPERTY RIGHTS. SCHEDULE 7(i) hereto contains a
complete and accurate list as of the date hereof of (1) all patents,
registered trademarks, trade names, registered service marks and registered
copyrights (and all applications therefor) owned by Seller that are
reasonably necessary to conduct the Business in the manner and to the
extent presently conducted by Seller, and (2) all agreements relating to
the Intellectual Property which Seller is licensed or authorized to use by
others and included in the Purchased Assets. Seller owns or has the right
to use all Intellectual Property included in the Purchased Assets. Other
than with respect to the agreements listed in SCHEDULE 7(i), Seller is not
a party to any agreement or contract which obligates Seller to pay
royalties, fees or other payments to any owner of, licensor of, or other
claimant to, any Intellectual Property included in the Purchased Assets.
Seller has not transferred or conveyed any rights to others in the
Intellectual Property of Seller included in the Purchased Assets other than
rights to use that
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are expressly granted in connection with customer licenses. No claims
have been asserted in writing and delivered to Seller by any person to
the use in the conduct of the Business of any Intellectual Property
included in the Purchased Assets or challenging or questioning the
validity or effectiveness of any such Intellectual Property. To the
Seller's knowledge, there exists no valid basis for any such claim,
except for such claims an adverse determination of which, in the
aggregate, could not have a material adverse effect on the Business;
and, to the knowledge of Seller, the use of the Intellectual Property
included in the Purchased Assets in the conduct of the Business does not
infringe on the rights of any person. Except for the Excluded Assets,
the Intellectual Property included in the Purchased Assets constitute
all of the Intellectual Property reasonably necessary to conduct the
Business in the manner and to the extent presently conducted.
(j) CONTRACTS, LEASES, COMMITMENTS AND AGREEMENTS. All material
contracts, leases, agreements and commitments relating to the Business or
the Purchased Assets that exist as of the date hereof are set forth on
SCHEDULE 1(c). For the purpose of the foregoing sentence, material
contracts, leases, agreements or commitments are contracts, leases,
agreements or commitments providing for payment or receipt of $5,000 or
more over the life of the contract or which may not be terminated without
penalty with notice of 30 days or less. Seller and each other party
thereto have in all respects substantially performed all obligations
required to be performed by them to date, and are not in default under any
of the Assumed Contracts. Each of the Assumed Contracts is in full force
and effect and is assignable to Purchaser without the consent of third
parties, and Seller has not waived or assigned to any other person any of
its rights thereunder.
(k) COMPOSITION AND CONDITION OF PURCHASED ASSETS. The Purchased
Assets comprise all material property and assets currently employed by
Seller in the Business, except for the Excluded Assets. Except for the
Excluded Assets, the Purchased Assets are all assets that are reasonably
necessary to conduct the Business in the manner and to the extent presently
conducted by Seller.
(l) INSURANCE. Seller maintains and will maintain prior to the
Closing such policies of insurance, issued by responsible insurers, as are
appropriate to the Business and the Purchased Assets, in such amounts and
against such risks as it believes are adequate. All such policies of
insurance are in full force and effect and Seller is not in default, as to
the payment of premiums or otherwise, under the terms of any such policy.
(m) MAJOR SUPPLIERS AND CUSTOMERS. SCHEDULE 7(m) lists each
supplier of goods and services related to the Business to whom Seller paid
in excess of $15,000 in the aggregate, and each customer related to the
Business to whom Seller billed in excess of $25,000 in the aggregate,
during the 12 month period ending December 31, 1999. No material supplier
or customer has expressed, either orally or in writing, any intention to
change its relationship or the terms upon which it conducts business with
respect to the
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Business as a result of the transfer of the Purchased Assets as
contemplated in this Agreement.
(n) EMPLOYEE PLANS.
(1) The requirements of Section 4980B of the Code and Part 6 of
Subtitle B of Title I of ERISA relating to COBRA continuation of
health coverage have been materially satisfied with respect to each
"group health plan" (within the meaning of Section 4980B(g)(2) of the
Code) of Seller in which any employee whose last employment was with
respect to the assets sold pursuant to this Agreement participated.
(2) Neither Seller nor any ERISA Affiliate maintains or has ever
maintained a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA.
(o) LABOR MATTERS.
(1) Seller is not a party to any collective bargaining
agreement, and no union or association of employees has been certified
or recognized as the collective bargaining representative of any of
Seller's employees or has attempted to engage in negotiations with
Seller regarding terms and conditions of employment.
(2) Seller is in compliance in all material respects with
applicable federal, state and local laws and regulations governing
employee relations, including but not limited to anti-discrimination
laws, wage/hour laws, labor relations laws and occupational safety and
health laws, and no suits, charges or administrative proceedings
relating to any such law or regulation are pending, and no suit,
charge or administrative investigation alleging a violation of any
such law or regulation has been threatened orally to Seller or in a
writing delivered to Seller.
(p) GOVERNMENT LICENSE AND REGULATION. Set forth on SCHEDULE 1(g) is
a list of all material domestic and foreign governmental and third party
licenses, permits, certificates, consents, approvals, waivers,
authorizations, and registrations (collectively, "APPROVALS") as of the
date hereof which Seller has obtained, which are all of the material
Approvals necessary to conduct the Business as presently conducted and to
own and use the Purchased Assets, and such Approvals are in full force and
effect. All of the rights of Seller under such Approvals are transferable
to Purchaser under applicable law solely upon the assignment of such
Approvals by Seller to Purchaser hereunder and will be exercisable by
Purchaser after the consummation of the transactions contemplated by this
Agreement. No proceeding is pending or threatened regarding the revocation
or limitation of any such Approvals and there is no basis or grounds for
any such revocation or limitation.
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(q) LOCATION OF THE ASSETS. All of the tangible Personal Property
included in the Purchased Assets will be located at the Facility at the
Closing Date.
(r) YEAR 2000. All computer hardware and software included in the
Purchased Assets and material to the operations of the Business that were
created by Seller and, to the knowledge of Seller, were not created by
Seller are Year 2000 Complaint (defined below). "YEAR 2000 COMPLIANT" means
that the hardware and software will not materially fail to operate
according to their specifications as a result of the use of properly
formatted date data, before and after the year 2000, for dates within the
normal operating life of such hardware and software.
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants to Seller as follows:
(a) CORPORATE ORGANIZATION. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Delaware.
Purchaser has the corporate power and authority to own its property and
assets and to carry on its business as now conducted.
(b) CORPORATE AUTHORITY. Purchaser has the requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and performance by Purchaser of its obligations hereunder have
been duly authorized by all necessary corporate action on the part of
Purchaser. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
conflict with, or result in a breach of, or constitute a default under, the
terms and conditions of the Certificate of Incorporation or Bylaws of
Purchaser, any court or administrative order, judgment or decree any
agreement or instrument to which Purchaser is a party or by which it or any
of its assets is bound or, to the knowledge of Purchaser, any statute or
regulation of any governmental agency. This Agreement and all other
instruments required hereby to be executed and delivered by Purchaser are,
or when delivered will be, valid and binding obligations of Purchaser
enforceable against Purchaser in accordance with their terms, except to the
extent that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of
the court before which any proceedings therefor may be brought. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby do not require the consent of any third
party.
(c) LITIGATION AND OTHER PROCEEDINGS. There is no litigation,
action, suit, investigation or proceeding pending or, to Purchaser's
knowledge, threatened against or affecting Purchaser's business before any
court, agency or other governmental body that
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would result in any material adverse effect upon Purchaser's ability to
perform its obligations under this Agreement.
9. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE. The obligations of
Purchaser to effect the closing of the transactions contemplated by this
Agreement is subject to the satisfaction prior to or at the Closing of the
following conditions (each of which is acknowledged to be included for the
exclusive benefit of Purchaser and may be waived by Purchaser in whole or in
part):
(a) REPRESENTATIONS AND WARRANTIES. There shall be no failure of the
representations and warranties of Seller to be true and correct at the
Closing Date that would have a material adverse effect on the Purchaser,
except as otherwise expressly contemplated by this Agreement and except for
such representations and warranties made as of a particular date.
(b) OBSERVANCE AND PERFORMANCE. Seller shall have performed and
complied in all material respects with all covenants, obligations and
agreements required by this Agreement to be performed and complied with by
it prior to or as of the Closing Date.
(c) VIOLATIONS OF LAWS AND ORDINANCES. On or before the Closing
Date, Seller shall not have received any notice or have knowledge of any
injunction or lawsuit pending or threatened, any violation or alleged
violation of any city ordinance, state law, rule or regulation of any
governmental authority, with respect to Seller's use and operation of any
of the Purchased Assets or Assumed Liabilities that could materially
interfere with, or materially adversely affect, the Business, the Purchased
Assets or Seller's ability to consummate the transactions contemplated by
this Agreement.
(d) OFFICER'S CERTIFICATE. Seller shall have delivered to Purchaser
a certificate, dated the Closing Date, executed by a duly authorized
executive officer of Seller and certifying to the satisfaction of the
conditions specified in Sections 9(a), (b), and (c) hereof.
(e) CHANGE IN ASSETS. There shall have been no material adverse
change in the nature of the Purchased Assets between the date hereof and
the Closing;
(f) KEY EMPLOYEES. All employees designated as key employees on
Schedule 5(a) shall have accepted employment offers with Purchaser.
(g) SEARCHES. Purchaser shall have received, as of a date no more
than 15 days prior to the Closing Date, Uniform Commercial Code searches
against Seller from the Secretaries of State of the States of Delaware and
Texas and from such other jurisdictions as Purchaser shall reasonably
request, together with tax lien and judgment searches, disclosing no liens
or security interests against the Purchased Assets other than the Permitted
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Encumbrances and liens and security interests for which Seller shall have
obtained releases on or before the Closing Date.
(h) CONSENTS. Purchaser shall have received duly executed copies of
all material consents and agreements necessary to effect (i) the transfer
of the Purchased Assets to Purchaser, including, without limitation, the
assignment to Purchaser of the Assumed Contracts, and (ii) the assumption
of the Assumed Liabilities. Purchaser hereby agrees to use commercially
reasonable efforts to assist Seller in obtaining such consents and
agreements.
(i) CLOSING DOCUMENTS. Purchaser shall have received duly executed
copies of the Seller's Closing Documents and such other bills of sale,
assignments and other documents of transfer reasonably required to transfer
to Purchaser the interests of Seller in the Purchased Assets and the
Business, and to assume the Assumed Liabilities, consistent with the terms
of this Agreement.
(j) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
and actions taken in connection with the transactions contemplated hereby
and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transaction shall be reasonably
satisfactory in form and substance to Purchaser and its counsel.
(k) HIRING OF EMPLOYEES. Purchaser shall have offered at-will
employment to all Scheduled Employees and before the Closing eighty-five
percent (85%) of such individuals shall have accepted employment with
Purchaser.
10. CONDITIONS TO OBLIGATION OF SELLER TO CLOSE. The obligation of
Seller to effect the transactions contemplated by this Agreement is subject
to the satisfaction prior to or at the Closing of the following conditions
(each of which is acknowledged to be included for the exclusive benefit of
Seller and may be waived by Seller in whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. There shall be no failure of the
representations and warranties of Purchaser to be true and correct at the
Closing Date that would have a material adverse effect on the Seller,
except as expressly contemplated by this Agreement.
(b) OBSERVANCE AND PERFORMANCE. Purchaser shall have performed and
complied in all material respects with all covenants and agreements
required by this Agreement to be performed and complied with by it prior to
or as of the Closing Date.
(c) VIOLATIONS OF LAWS AND ORDINANCES. On or before the Closing
Date, Purchaser shall not have received any notice or have knowledge of any
injunction or lawsuit pending or threatened, any violation or alleged
violation of any city ordinance, state law, rule
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or regulation of any governmental authority that could materially
interfere with, or materially adversely affect, the Purchaser's ability
to consummate the transactions contemplated by this Agreement.
(d) OFFICER'S CERTIFICATE. Purchaser shall have delivered to Seller
a certificate, dated the Closing Date, executed by a duly authorized
executive officer of Purchaser and certifying to the satisfaction of the
conditions specified in Sections 10(a), (b) and (c) hereof.
(e) CLOSING DOCUMENTS. Seller shall have received the Purchaser's
Closing Documents and such assumption agreements and other documents of
transfer reasonably required to transfer to Purchaser all obligations of
Seller with respect to the Assumed Contracts and the Assumed Liabilities
consistent with the terms of this Agreement.
(f) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
and actions taken in connection with the transactions contemplated hereby
and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transaction which are to be
prepared and delivered by Purchaser shall be reasonably satisfactory in
form and substance to Seller and its counsel.
(g) PURCHASE ORDER. Seller shall have entered into a purchase order
with Motorola, Inc. with respect to services that are being performed as of
the date hereof on the premises of Motorola, Inc., a consultant of Seller.
11. GOVERNMENTAL FILINGS. Seller and Purchaser shall cooperate with
respect to, and diligently pursue completion of, all filings with or approvals
of governmental agencies required in connection with the transactions
contemplated by this Agreement, if any.
12. COVENANTS OF SELLER.
(a) OPERATION OF BUSINESS PRIOR TO CLOSING. Seller covenants and
agrees that, except with the prior written consent of Purchaser, from and
after the date hereof to the Closing Date:
(1) Seller shall use commercially reasonable efforts to preserve
intact the business organization rights and privileges pertinent to
the Business, to preserve for Purchaser the good will of suppliers,
customers and others having business relationships with the Business,
to preserve intact its credit arrangements with banks, other financial
institutions and its creditors, and to preserve its relationship with
its officers, directors, and employees, consultants and independent
contractors;
(2) Seller shall maintain its books and records during such
period in a manner consistent with past practice;
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(3) Seller shall not sell, transfer, dispose of or abandon any
portion of the Purchased Assets, except inventory sold in the ordinary
course of business and consistent with past practice in an amount less
than $5,000;
(4) Seller shall not permit any of the Purchased Assets to
become subject to any lien, pledge, security interest, conditional
sale agreement, license agreement, charge or encumbrance, other than
Permitted Encumbrances;
(5) Seller shall not modify or amend any of the Assumed
Contracts or waive or assign to any third party any of its rights
thereunder;
(6) Seller shall maintain and keep all tangible Purchased Assets
in good condition and repair, ordinary wear and tear excepted, and
will continue to perform all usual and normal maintenance of and upon
the Purchased Assets in accordance with Seller's past practice;
(7) Seller shall pay accounts payable and other obligations of
the Business when they become due and payable in the ordinary course
of business consistent with prior practice;
(8) Seller shall not disclose any confidential information
related to the Business to any person or entity unless such person is
employed by Seller or Purchaser;
(9) Except as contemplated by this Agreement, Seller shall not
grant any salary increase or bonus to any Scheduled Employee, or enter
into any new, or amend or alter any existing, employment-related
agreement with any Scheduled Employee, or provide other compensatory
benefits to any Scheduled Employee (except normal wage or salary
payments consistent with past practices).
(10) Without limiting the generality of the foregoing, Seller
shall in all other respects operate the Business in the usual, regular
and ordinary course and consistent with past practice in compliance
with all applicable laws, rules and regulations.
(b) NOTICES TO EMPLOYEES; CONTINUATION OF BENEFITS. Upon cessation
of employment of the Scheduled Employees hereunder by Seller, Seller shall
give each of the Scheduled Employees all required notices and information
with respect to the continuation of certain health insurance benefits by
Seller. Seller agrees to provide continuation health care coverage, if
any, required pursuant to Section 4980B of the Code on behalf of any
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Scheduled Employee (or any spouse or dependent of such Scheduled Employee)
who elects not to accept employment with Purchaser or any of its
affiliates.
(c) ACCESS AND INFORMATION. Prior to the Closing Date, Seller will
(and will cause each of its accountants, counsel, consultants, employees
and agents) give the Purchaser and the Purchaser's accountants, counsel,
consultants, employees and agents ("PURCHASER'S REPRESENTATIVES"), full
access during normal business hours to, and furnish them with all
documents, records, course templates, work papers and information with
respect to, all of Seller's properties, assets, books, contracts,
commitments, reports and records relating to the Business, as the Purchaser
shall reasonably request. In addition, prior to the Closing Date, Seller
will permit Purchaser's Representatives reasonable access to such personnel
of Seller during normal business hours as may be necessary or useful to the
Purchaser in its review of the assets and business affairs of the Business
and will keep the Purchaser generally informed as to the affairs of the
Business.
(d) PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, except as
required by applicable law, the Seller shall not, and it shall not permit
any affiliate or representative to, make any public announcement in respect
of this Agreement or the transactions contemplated hereby without the prior
written consent of the Purchaser.
(e) NOTICE OF CHANGES. At all times prior to the Closing, Seller
will, promptly upon becoming aware of such information, notify Purchaser in
writing of any fact, condition, event or occurrence that will or may
reasonably be likely to result in a failure of any of the conditions
contained in Sections 9(a), (b), or (c) to be satisfied.
(f) TRANSFER TAXES. Seller shall be responsible for the timely
payment of, and shall indemnify and hold harmless the Purchaser against,
all sales, use, value added, documentary, stamp, gross receipts,
registration, transfer, conveyance, excise, recording, license and other
similar taxes and fees ("TRANSFER TAXES"), arising out of or in connection
with or attributable to the transactions effected pursuant to this
Agreement. Seller shall prepare and timely file all tax returns required
to be filed in respect of any Transfer Taxes; PROVIDED that Purchaser shall
be permitted to prepare any such tax returns that are the primary
responsibility of Purchaser under applicable law. Purchaser's preparation
of any such tax returns shall be subject to Seller's approval, which
approval shall not be unreasonably withheld.
(g) NO SOLICITATIONS. The Seller shall not, directly or indirectly,
through any officer, director, employee, stockholder, representative or
agent of the Seller, solicit or encourage the initiation or submission of
any inquiries, proposals or offers regarding the acquisition of all or any
portion of the Purchased Assets, whether in writing or not, or similar
transactions involving the Purchased Assets (any of the foregoing referred
to herein as an "ACQUISITION PROPOSAL"). Seller further agrees that it
will not, and that none of its officers
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will, and that Seller will direct and cause its employees, agents and
representatives (including any investment banker, attorney or accountant
retained by any of them) not to, directly or indirectly, engage in any
negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. Seller shall promptly notify Purchaser
after receipt of any Acquisition Proposal or any request for information
relating to Purchased Assets in connection with an Acquisition Proposal
or for access to the Purchased Assets that informs the Board of Directors
of Seller that a third party is considering making, or has made, an
Acquisition Proposal. Seller shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
(h) FURTHER ACTIONS. Seller shall take all other actions prior to,
on, or after the Closing Date as shall be reasonably required to comply
with all other covenants of this Agreement or which shall be reasonably
required to put Purchaser in actual possession and operating control of the
Purchased Assets. Subject to the terms and conditions of this Agreement,
Seller shall use its commercially reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement, including, but not limited to (1) Seller
using its commercially reasonable efforts to obtain, prior to the Closing
Date, all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to
contracts with Seller as are necessary to the consummation of the
transactions contemplated hereby, (2) Seller using its commercially
reasonable efforts to effect all necessary registrations and filings, and
(3) Seller using its commercially reasonable efforts to furnish Purchaser
such information as is reasonably requested in connection with the
foregoing.
(i) COVENANT NOT TO SUE. Seller hereby agrees that Seller shall not
institute, prosecute or in any way aid in the institution or prosecution of
any claim, suit, or cause of action against Purchaser for the Purchaser's
use of the assets listed on Schedule 2(n).
13. COVENANT NOT TO COMPETE. In consideration of the payment by Purchaser
of the Purchase Price and the assumption of the Assumed Liabilities, Seller
hereby agrees that, for a period of two years from the Closing Date, it shall
not, through any person controlling, controlled by or under common control with
Seller, alone or in association with any other person, firm, corporation,
partnership or other business organization, except as expressly provided for
herein:
(a) Directly engage in, or own or acquire any controlling interest in
any company whose primary business is to engage in, electronics
manufacturing yield and productivity improvement through development,
application, and support of factory monitoring and control software
solutions (a "COMPETITIVE BUSINESS"). For purposes of this Section 13(a),
Seller may acquire any interest which arises solely from the ownership of
less than a 5%
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equity interest in a corporation whose stock is regularly traded on any
national securities exchange or in the over-the-counter market.
(b) Seller acknowledges that the failure or threatened failure to
comply with the provisions of this Section 13 will result in irreparable
and continuing damage to Purchaser for which there will be no adequate
remedy at law and that, notwithstanding any other provision of this
Agreement, in the event of such failure or threatened failure, Purchaser
and its successors and assigns shall be entitled to injunctive relief and
to such other and further relief as may be proper and necessary to ensure
compliance with the provisions of this Section 13.
14. COVENANTS OF PURCHASER.
(a) PUBLIC ANNOUNCEMENTS. Prior to the Closing, except as required
by applicable law, Purchaser shall not, and it shall not permit any
affiliate or representative to, make any public announcement in respect of
this Agreement or the transactions contemplated hereby without the prior
written consent of Seller.
(b) NOTICE OF CHANGE. At all times prior to the Closing, Purchaser
will, promptly upon becoming aware of such information, notify Seller in
writing of any fact, condition, event or occurrence that will reasonably be
likely to result in a failure of any of the conditions contained in
Sections 10(a), (b) or (c) to be satisfied.
(c) FURTHER ACTIONS. Purchaser agrees to use reasonable good faith
efforts to take actions and to do those things reasonably necessary, proper
or advisable to consummate the transactions contemplated hereby by the
Closing Date. Subject to the terms and conditions of this Agreement,
Purchaser shall use commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
(d) USE OF NAMES. It is expressly agreed that the Purchaser is not
purchasing or acquiring any right, title, or interest in any trade names,
trademarks, logos or service marks employing the words "ObjectSpace" or
"Voyager" (the "SELLER NAMES"). Except as set forth in the License
Agreement and as promptly as practicable, but in no event later than three
months following the Closing Date, the Purchaser shall remove, strike or
otherwise obliterate all Seller Names from all materials constituting their
properties and assets, including any buildings, vehicles, business cards,
schedules, stationery, displays, signs, promotional materials, manuals,
forms and other materials.
15. INDEMNIFICATION.
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(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made herein by Purchaser or Seller shall survive the
execution and delivery of this Agreement and, other than the
representations and warranties contained in Section 7(d), which shall
survive for the period of the applicable statutes of limitation, shall
remain in full force and effect for a period of eighteen months following
the Closing Date, and shall be deemed to have been relied upon by each
other party hereto, notwithstanding any investigation made by or on behalf
of such party. Actions for a breach of a representation or warranty may be
commenced only during the period in which such representation or warranty
survives.
(b) INDEMNIFICATION BY SELLER. Seller shall indemnify and hold
harmless Purchaser and its affiliates and each of their directors,
officers, employees, advisors, agents and stockholders at all times from
and after the Closing Date against and with respect to any and all claims,
demands, lawsuits, proceedings, losses, assessments, taxes, fines,
penalties, administrative orders, obligations, costs, expenses,
liabilities, damages, interest, reasonable attorneys' fees and costs of
investigation (all of the foregoing hereinafter referred to collectively as
"CLAIMS") which arise or result from and to the extent they are
attributable to:
(1) the Excluded Liabilities and/or the Excluded Assets;
(2) the untruth or breach of any representation or warranty made
by Seller pursuant to this Agreement or any other agreement or
document executed and delivered by Seller in connection with the
transactions contemplated hereby;
(3) the breach of, or failure to perform, any of the covenants,
commitments, obligations or agreements on the part of Seller under
this Agreement or any other agreement or document executed and
delivered by Seller in connection with the transactions contemplated
hereby;
(4) the operation by Seller of the Business prior to the Closing
(except with respect to Assumed Liabilities relating to such
pre-Closing operation); and
(5) any and all demands, claims, actions, suits, proceedings,
assessments, judgments, costs and legal and other expenses incident to
any of the foregoing.
Seller shall have no liability with respect to the matters described in
Sections 15(b)(2), (3) and (5) until the aggregate of all claims for which
an indemnity would otherwise be payable by Seller exceeds $50,000 in the
aggregate (the "BASKET"), and in such event, Seller shall be responsible
only for the amount in excess of the Basket, but in no case shall the
liability of Seller with respect to the matters described in
Sections 15(b)(2), (3) and (5) exceed $4,000,000 (the "CAP"). This
limitation on indemnification, however, will not apply to, and Seller's
liability shall be unlimited for any breach of any of the Seller's
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representations and warranties of which the Seller had knowledge as defined
in Section 19(f) at any time prior to the date on which such representation
and warranty is made or any intentional breach by Seller of any covenant or
obligation pursuant to this Agreement or any other agreement or document
executed and delivered by Seller in connection with the transactions
contemplated hereby.
(c) INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and hold
harmless Seller and its directors, officers, employees, advisors,
affiliates, agents and stockholders at all times from and after the Closing
Date against and with respect to any and all Claims which arise or result
from and to the extent that are attributable to:
(1) the Assumed Liabilities and the Assumed Contracts;
(2) the untruth or breach of any representation or warranty made
by Purchaser pursuant to this Agreement or any other agreement or
document executed and delivered by Purchaser in connection with the
transactions contemplated hereby;
(3) the breach of, or failure to perform, any of the covenants,
commitments, obligations or agreements on the part of Purchaser under
this Agreement or any other agreement or document executed and
delivered by Purchaser in connection with the transactions
contemplated hereby;
(4) the operation by Purchaser of the Business after the
Closing;
(5) any and all demands, claims, actions, suits or proceedings,
assessments, judgments, costs and legal and other expenses incident to
any of the foregoing:
(d) PROCEDURES FOR INDEMNIFICATION. Promptly after receipt by an
indemnified party pursuant to the provisions of Sections (b) or (c) of this
Section 15 of notice of a Claim, such indemnified party shall promptly
notify such indemnifying party of the commencement thereof; but the
omission to so notify such indemnifying party will not relieve it from any
liability which it may have to the indemnified party otherwise than
hereunder unless the indemnified party is materially prejudiced thereby.
In case such action is brought against an indemnified party and it notifies
the indemnifying party of the commencement thereof, the indemnifying party
shall have the right to participate in, and, to the extent that it may
wish, to assume the defense thereof, with counsel reasonably satisfactory
to such indemnified party; provided, however, if the defendants in any
action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
legal defenses available to it which are different from or additional to
those available to the indemnifying party, or if there is a conflict of
interest which would prevent counsel for the indemnifying party from also
representing the indemnified party, the
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indemnified party shall have the right to select separate counsel to
participate in the defense of such action on behalf of such indemnified
party. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to the indemnified party pursuant to the
provisions of such Sections 15(b) or (c) for any legal or other expense
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless (1)
the indemnified party shall have promptly employed counsel in accordance
with the proviso of the preceding sentence, (2) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after
the notice of the commencement of the action, or (3) the indemnifying
party has authorized the employment of counsel for the indemnified party
at the expense of the indemnifying party. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent
of each indemnified party (such consent not to be unreasonably withheld),
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the release from all liability
in respect to such claim or litigation.
(e) SOLE REMEDY. This Article 15 is intended to set forth the
exclusive and entire remedy of Seller and Purchaser against each other in
respect of any losses that are in the nature of those subject to
indemnification under this Article 15; the limitations on survival and
commencement of actions in Section 15(a), the limitations on Seller's
liability through the Cap and the Basket, and the other provisions of this
Article 15, are intended to apply to all claims, actions and losses covered
in substance by this Article 15, regardless of form, whether based on
contract, tort, statute or any other theory or basis of liability, and
whether of a legal, equitable or other nature.
16. TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date:
(a) by the written agreement of Purchaser and Seller;
(b) by either Purchaser or Seller by written notice to the other
party if the transactions contemplated hereby shall not have been
consummated by 5:00 p.m. Dallas, Texas time on March 31, 2000, unless such
date shall be extended by the mutual written consent of Purchaser and
Seller;
(c) by Purchaser by written notice to Seller if (i) a non-curable
breach of a representation or warranty of Seller occurs that would have a
material adverse effect on the Purchased Assets or the ability of the
parties to consummate the transactions contemplated by this Agreement, or
(ii) any of the conditions set forth in Section 9 shall not have been, or
if it become apparent that any of such conditions will not be, fulfilled by
5:00 p.m. Dallas, Texas time on March 31, 2000, unless such failure shall
be due to the failure of Purchaser
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<PAGE>
to perform or comply with any of the covenants, agreements or conditions
hereof to be performed or complied with by it prior to the Closing; or
(d) by Seller by written notice to Purchaser if (i) a non-curable
breach of a representation or warranty of Purchaser occurs that would have
a material adverse effect on the Purchased Assets or the ability of the
parties to consummate the transactions contemplated by this Agreement, or
(ii) any of the conditions set forth in Section 10 shall not have been, or
if it become apparent that any of such conditions will not be, fulfilled by
5:00 p.m. Dallas, Texas time on March 31, 2000, unless such failure shall
be due to the failure of Seller to perform or comply with any of the
covenants, agreements or conditions hereof to be performed or complied with
by it prior to the Closing.
Each party's right of termination under Section 16 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of such
right of termination will not be an election of remedies. If the obligations of
the parties to effect the transactions contemplated by this Agreement are
terminated pursuant to Section 16, all further obligations of the parties under
this Agreement will terminate, except that the obligations in this paragraph of
Section 16, Section 18(a) and Section 19(b) will survive; PROVIDED, HOWEVER,
that if obligations under this Agreement are terminated by a party because of
the breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
17. DISPUTE RESOLUTION.
(a) ARBITRATION. The parties agree that (except as expressly set
forth herein) all actions, claims, controversies or disputes of any kind
(E.G. whether in contract or in tort, statutory or common law) ("DISPUTES")
between them relating, directly or indirectly, to this Agreement or the
transactions contemplated hereby, whether now existing or hereafter
arising, are to be resolved by arbitration as provided in this Agreement.
This agreement to arbitrate will survive the termination of this Agreement.
All arbitration will be conducted pursuant to and in accordance with the
following order of priority (1) the terms of this Agreement, (2) the
Commercial Arbitration Rules of the American Arbitration Association, (3)
the Federal Arbitration Act and (4) to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of Texas.
The arbitrator used will be selected from impartial arbitrators designated
by the American Arbitration Association who are familiar with the nature of
the subject matter of the Dispute. Any hearing regarding arbitration will
be held in Dallas, Texas, or at another location mutually acceptable to
Purchaser and Seller. The arbitrator will use his/her best efforts to
conduct the arbitration hearing no later than three (3) months from the
date of the arbitrator's appointment and will use best efforts to render a
decision within four (4) months from such date.
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(b) DISCOVERY. Each party may submit in writing to the other party,
and the other party shall respond to a maximum of any combination of
thirty-five (35) (none of which may be subparts) of the following:
interrogatories, demands to produce documents and requests for admissions.
Each party is also entitled to take the oral deposition of no more than
five (5) individuals. Additional discovery may be permitted upon mutual
agreement of the parties. The arbitrator will resolve any discovery
disputes by such pre-hearing conferences as may be needed. All parties
agree that the arbitrator will have the power of subpoena process as
provided by law. Disputes concerning the scope of depositions or document
production, its reasonableness and enforcement of discovery requests will
be subject to agreement by the parties or will be resolved by the
arbitrator. All discovery requests will be subject to the proprietary
rights and rights of privilege and other protections granted by applicable
law to the parties and the arbitrator will adopt procedures to protect such
rights. With respect to any Dispute, each party agrees that all discovery
activities will be expressly limited to matters directly relevant to the
Dispute and the arbitrator will be required to fully enforce this
requirement.
(c) COURT PROCEEDINGS. Except for proceedings seeking equitable
remedies, an arbitration proceeding commenced pursuant to this Section 17
is a condition precedent to and is a complete defense to the commencement
of any suit, action or proceeding in any court or before any tribunal with
respect to any Dispute. Either party may bring an action in court to
compel arbitration. Any party who fails or refuses to submit to binding
arbitration following demand by the other party shall, if the dispute is
within the scope of this Section 17, bear all costs and expenses incurred
by the opposing party in compelling arbitration.
(d) RULINGS. The arbitrator is empowered to resolve Disputes by
summary rulings substantially similar to summary judgments and motions to
dismiss. The arbitrator will resolve all Disputes in accordance with the
applicable substantive law. The arbitrator may grant any remedy or relief
deemed just and equitable and within the scope of this Agreement and may
also grant such ancillary relief as is necessary to make effective any
award.
(e) FINDINGS OF FACT. The arbitrator will be required to make
specific, written findings of fact and conclusions of law, and the parties
will have the right to appeal or seek vacation or modification of an award
only (1) if that award is based in whole, or in part, upon fraud or a
failure to follow the procedures set forth in this Section 17 or (2) to
the extent otherwise allowed by applicable law. Subject to the foregoing,
the determination of the arbitrator shall be binding on all parties and
shall not be subject to further review or appeal. Any judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The decision of the arbitrator will be enforceable in
any court of competent jurisdiction. To the extent permitted by applicable
law, the arbitrator will have
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the power to award recovery of all costs and fees (including attorneys'
fees, administrative fees, and arbitrators' fees) to the prevailing party.
(f) AUTHORITY. The arbitrator will be limited to interpreting the
applicable provisions of this Agreement and will not have the authority or
power to alter, amend, modify, revoke or suspend any condition or provision
of this Agreement or to create, draft or form a new agreement between the
parties, or to render an award which, by its terms, has the effect of
altering or modifying any condition or provision of this Agreement. The
arbitrator will have the sole authority to resolve issues regarding whether
Disputes are subject to arbitration, including the applicability of any
statute of limitations.
(g) EQUITABLE REMEDIES. No provision of, nor the exercise of any
rights under, this Agreement will limit the right of any party, during any
Dispute, to seek, use, and employ ancillary or provisional equitable
remedies. Such rights may be exercised at any time except to the extent
such action is contrary to an award or decision of the arbitrator. The
pursuit of provisional or ancillary equitable remedies will not constitute
a waiver of the right of any party, including the plaintiff, to submit a
Dispute to arbitration, nor render inapplicable the compulsory arbitration
provisions of this Section 17.
(h) SELECTION OF ARBITRATOR. The arbitrator will be chosen by mutual
agreement of Purchaser and Seller. If they cannot agree within 30 days
upon the selection of the arbitrator, the arbitrator will be selected by
the Dallas, Texas office of the American Arbitration Association in
accordance with its rules and procedures. Subject to the provisions of
Section 15 and any other indemnification obligation set forth in this
Agreement, (1) each party will be responsible for one-half of the expenses
and fees of the arbitrator and (2) each party will bear its own attorney's
and expert's fees.
(i) OTHER ARBITRATION PROVISIONS.
(1) All arbitration proceedings will be conducted in the English
language and all monetary awards will be denominated in and will be
payable in United States Dollars.
(2) The statute of limitations applicable to any Dispute shall
be tolled upon the initiation of arbitration under this Agreement and
shall remain tolled until the arbitration process is completed.
(3) Except to the extent necessary to enforce the rights of the
parties or as required by law, the parties agree to keep confidential
the existence, content and results of any arbitration proceeding
conducted pursuant to this Section 17.
18. ADDITIONAL AGREEMENTS
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(a) CONFIDENTIAL INFORMATION. From and after the date of this
Agreement, Purchaser shall not (and shall take all reasonably necessary
steps to ensure that its respective officers, directors, employees, agents
and other representatives do not), without the prior written consent of
Seller, use, disclose, publish, copy, distribute or furnish to any person
or entity any list, summary, schedule, description, record, document or
data storage device, describing, containing, or relating to, or any
information about, any Seller Confidential Information (as defined below).
From and after the date of this Agreement, Seller shall not (and shall take
all reasonably necessary steps to ensure that its respective officers,
directors, employees, agents and other representatives do not), without the
prior written consent of Purchaser, use, disclose, publish, copy,
distribute or furnish to any person or entity any list, summary, schedule,
description, record, document or data storage device, describing,
containing, or relating to, or any information about, any Purchaser
Confidential Information (as defined below).
(1) As used herein, "PURCHASER CONFIDENTIAL INFORMATION" shall
mean, the various trade secrets and other proprietary and
confidential information (except as such pertain to the Excluded
Assets) of the Business which is of a special and unique nature and
value relating to such matters as, but not limited to, the Business'
prior business operations, financial affairs, programs, software,
systems, procedures, manuals, confidential reports and marketing
methods which consist of compilations of information, records, and
similar items relating to the Business and included in the Purchased
Assets. As used herein, "SELLER CONFIDENTIAL INFORMATION" shall mean,
with respect to information owned by Seller, any non-public
information concerning Seller which was obtained by Purchaser in
connection with the transactions contemplated by this Agreement, other
than information pertaining to the Purchased Assets.
(2) A party's obligations under this Section 18(a) with respect
to any portion of the Seller Confidential Information or Purchaser
Confidential Information will terminate if such party can document
that (i) such confidential information was in the public domain as of
the date hereof, (ii) such confidential information entered the public
domain subsequent to the date hereof (but prior to the use or public
disclosure of such confidential information by the disclosing party)
through no fault of the disclosing party, or (iii) the communication
of such confidential information is in response to a valid order by a
court or other governmental body or was otherwise required by law (but
only to the extent of such order or requirement).
(3) Either party may disclose the terms of this Agreement to
those its employees who have a need to know such information.
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(4) Seller's obligations under this Section 18(a)(x) will not
limit Seller's ability to use the Purchaser Confidential Information
in the normal course of business, consistent with past practices, in
order to operate the Business from the date hereof through the Closing
Date and (y) will terminate upon the termination of this Agreement in
accordance with Article 16.
(b) TRANSITION SERVICES. For three months after the Closing Date,
Seller shall maintain the information technology systems and support that
were in effect before the Closing Date that relate solely to electronic
mail, Internet access, and system accounts related to these services.
Purchaser shall reimburse Seller for the reasonable cost or reasonable
allocated share of such information technology systems and support on the
same basis as it was calculated before the Closing Date.
19. MISCELLANEOUS
(a) AMENDMENTS AND WAIVER. This Agreement may be amended only by an
agreement in writing by the parties hereto. The failure of any party to
insist, in any one or more instances, upon performance of any of the terms
and conditions of this Agreement shall not be construed as a waiver or
relinquishment of any rights granted hereunder or of the future performance
of any such term, covenant or condition. If any provision, clause or part
of this Agreement, or the application thereof under certain circumstances,
is held invalid, the remainder of this Agreement, or the application of
each provision, clause or part under other circumstances, shall not be
affected thereby.
(b) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO CHOICE OF LAW PRINCIPLES. TO THE MAXIMUM EXTENT
PRACTICABLE, THIS AGREEMENT IS PERFORMABLE IN SANTA CLARA COUNTY,
CALIFORNIA.
(c) NOTICES. Any notice to be given hereunder shall be deemed given
and sufficient if either (1) delivered by hand messenger or (2) mailed via
an overnight "express mail" service with a telecopy being sent within two
days of such "express mail" notice, in the case of Purchaser, to:
KLA-Tencor
160 Rio Robles
San Jose, CA 95134
Attention: Vice President, General Counsel
Fax: 408-875-2002
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with a copy to: KLA-Tencor
160 Rio Robles
San Jose, CA 95134
Attention: Chief Operating Officer
Fax: 408-875-2002
or in the case of Seller to: ObjectSpace, Inc.
14850 Quorum Drive
Suite 500
Dallas, Texas 75240
Attention: David Norris, Chief Executive
Officer
Fax: (972) 726-4200
with a copy to: Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attention: Gregory R. Samuel, Esq.
Fax: (214) 651-5940
Each party may designate by notice in writing a new address to which any notice,
claim, instruction or communication may thereafter be so given, served or sent.
(d) BENEFIT. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by Purchaser and Seller and their respective
successors and permitted assigns. This Agreement may not be assigned without
the written consent of the other party or parties hereto, except that Purchaser
may assign this Agreement to an affiliate of Purchaser upon written notice to
Seller but any such assignment shall not release Purchaser from its obligations
hereunder.
(e) ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits attached hereto, constitutes the entire agreement and understanding
among Purchaser and Seller with respect to the sale and purchase of the
Purchased Assets and the other transactions contemplated by this Agreement and
supercedes any prior understandings or written or oral agreements.
(f) DEFINITIONS. The qualification of a statement made in this Agreement
by the phrase "to the knowledge of Seller," "to Seller's knowledge", or a
similar phrase shall indicate that no information that would give any officer,
director or manager of Seller actual knowledge of the inaccuracy of such
statement has come to the attention of any such person, but that such persons
have not undertaken any independent investigation to determine the accuracy of
such statement.
(g) BROKERS. Purchaser and Seller represent and warrant to each other
that there are no brokerage or finder's fees in connection with the transactions
contemplated hereby resulting from any actions taken by them and they hereby
indemnify, save and hold each other harmless from and
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against any claims by any broker or finder for a fee or expense which is
based in any way on an agreement, arrangement or understanding made or
alleged to have been made by them relating to the transactions contemplated
hereby.
(h) DISCLOSURE SCHEDULE. Disclosure of any fact or item in any Schedule
hereto referenced by a particular paragraph or section in this Agreement shall,
should the existence of the fact or item or its contents be relevant to any
other paragraph or section, be deemed to be disclosed with respect to that other
paragraph or section whether or not an explicit cross-reference appears.
(i) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed to be an original and all of which
will be deemed to be a single agreement.
[The remainder of this page has intentionally been left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day, month and year first above written.
KLA-TENCOR CORPORATION
By: /s/ SAM HARRELL
---------------------------------------
Name: Sam Harrell
----------------------------------
Title: Senior Vice President
---------------------------------
OBJECTSPACE, INC.
By: /s/ DAVID NORRIS
---------------------------------------
David Norris, Chief Executive Officer
<PAGE>
EXHIBIT 6(c)(i)
LICENSE AGREEMENT
<PAGE>
EXHIBIT 6(g)
ESCROW AGREEMENT
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
VALTECH S.A.
AND
OBJECTSPACE, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. PURCHASE AND SALE OF SHARES.........................................................1
(a) Purchase and Sale...............................................................1
(b) Purchase Price..................................................................1
2. CLOSING.............................................................................2
(a) Location and Time...............................................................2
(b) Costs...........................................................................2
(c) Closing Deliveries by Seller....................................................2
(d) Closing Deliveries by Purchaser.................................................3
3. Labor and Employment Matters........................................................4
(a) Employment......................................................................4
(b) Construction....................................................................4
(c) Additional Covenants............................................................4
4. REPRESENTATIONS AND WARRANTIES OF SELLER............................................5
(a) Organization....................................................................5
(b) Capitalization..................................................................5
(c) Authorization of Agreement......................................................5
(d) Tax Matters.....................................................................6
(e) Actions, Suits, Proceedings.....................................................7
(f) Compliance with Applicable Laws and Other Instruments...........................7
(g) Contributor of Assets to NewCo..................................................7
(h) Title to the Operating Assets...................................................8
(i) Intellectual Property Rights....................................................8
(j) Contracts, Leases, Commitments and Agreements...................................9
(k) Composition and Condition of Operating Assets...................................9
(l) Major Suppliers and Customers...................................................9
(m) Financial Statements............................................................9
(n) Business Changes................................................................9
(o) Employee Benefit Matters; ERISA................................................11
(1) Pension Plans.............................................................11
(2) Multiemployer Plans.......................................................11
(3) Welfare Plans.............................................................12
(4) Benefit Arrangements......................................................12
(5) Fiduciary Duties and Prohibited Transactions..............................12
(6) Litigation................................................................12
(7) Unpaid Contributions......................................................13
(8) Change of Control Payments and Compensation Deduction Limitations.........13
(9) Copies of Documentation...................................................13
(p) Labor Matters..................................................................14
(q) Government License and Regulation..............................................15
(r) Liabilities of Newco...........................................................15
(s) Location of Operating Assets...................................................15
(t) Year 2000......................................................................15
(u) Employee Matters...............................................................15
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................15
(a) Corporate Organization.........................................................15
(b) Corporate Authority............................................................16
(c) Litigation and Other Proceedings...............................................16
(d) Investment Intent..............................................................16
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<PAGE>
6. COVENANT NOT TO COMPETE............................................................16
7. INDEMNIFICATION....................................................................17
(a) Survival of Representations and Warranties.....................................17
(b) Indemnification by Seller......................................................17
(c) Indemnification by Purchaser...................................................18
(d) Procedures for Indemnification.................................................19
(e) Sole Remedy....................................................................20
8. DISPUTE RESOLUTION.................................................................20
(a) Negotiation....................................................................20
(b) Arbitration....................................................................20
(c) Scope..........................................................................20
(d) Discovery......................................................................21
(e) Court Proceedings..............................................................21
(f) Rulings........................................................................21
(g) Findings of Fact...............................................................21
(h) Authority......................................................................22
(i) Equitable Remedies.............................................................22
(j) Selection of Arbitrator........................................................22
(k) Other Arbitration Provisions...................................................22
9. ADDITIONAL AGREEMENTS..............................................................23
(a) Confidential Information.......................................................23
(b) Continuing Support.............................................................23
(c) Employee List..................................................................24
(d) Governmental Filings...........................................................24
(e) Further Assurances.............................................................24
10. DEFINITION OF CERTAIN TERMS........................................................25
11. MISCELLANEOUS......................................................................35
(a) Further Assurances.............................................................35
(b) Amendments and Waiver..........................................................35
(c) Governing Law..................................................................35
(d) Notices........................................................................35
(e) Benefit........................................................................36
(f) Entire Agreement...............................................................36
(g) Brokers........................................................................37
(h) Disclosure Schedule............................................................37
(i) Counterparts...................................................................37
</TABLE>
-iii-
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Schedule
- --------
3(a)(i) Newco Employees
3(a)(ii) Terms and Conditions of Employment
4(h) Permitted Encumbrances
4(i) Intellectual Property Rights
4(j) Contracts, Leases, Commitments and Agreements
4(l) Major Suppliers and Customers
4(m) Financial Statements
4(o)(9) ObjectSpace Employee Plans
4(q) Licenses
10(g) Courses
10(o) Intellectual Property
10(v)(1) Personal Property
10(v)(5) Prepaid Assets
10(v)(8) Licenses and Permits
10(v)(9) Logistics Support System
10(w) Contracts
10(aa)(1) Voyager and Catalyst Product Lines
10(aa)(10) Enterprise-wide Licensed Software
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made and entered
into as of this 23rd day of September, 1999 by and between VALTECH S.A., a
French SOCIETE ANONYME ("PURCHASER"), and OBJECTSPACE, INC., a Delaware
corporation ("SELLER").
RECITALS
A. Seller has previously directly engaged in, among other things, the business
of providing instructor-led training services dedicated to preparing companies
and their information technology staffs for the development of advanced
technology, other than Seller-owned technology currently existing or developed
in the future (the "BUSINESS").
B. Seller has formed VT Educational Services Corporation, a Delaware corporation
("NEWCO") in order to conduct the Business and, in connection with the formation
of Newco, Seller has contributed substantially all of the assets of Seller
associated with the Business to Newco.
C. Seller owns all of the issued and outstanding common stock of Newco, par
value $0.01 per share (the "COMMON STOCK").
D. Seller desires to sell to Purchaser and Purchaser desires to purchase and
acquire from Seller the Shares upon the terms and conditions set forth herein,
as a result of which Newco will become a wholly-owned subsidiary of Purchaser.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties agree as follows:
1. PURCHASE AND SALE OF SHARES
(a) PURCHASE AND SALE. On the terms and subject to the conditions
of this sells, assigns, transfers and delivers to Purchaser, and
Purchaser hereby purchases, one thousand (1,000) shares of Common Stock
(the "SHARES"), free and clear of any and all Liens.
(b) PURCHASE PRICE. The aggregate purchase price for the Shares
shall be Two Million Nine Hundred Thirty-One Thousand Dollars
($2,931,000) (the "PURCHASE PRICE"). All references to "$" and
"dollars" herein shall mean United States dollars. Purchaser hereby
delivers the Purchase Price to Seller concurrent with the execution
hereof as part of the Closing (as hereinafter defined) by wire
transfer of immediately available funds to an account specified by
Seller.
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2. CLOSING.
(a) LOCATION AND TIME. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the
offices of Winstead Sechrest & Minick P.C., 1201 Elm Street, 5400
Renaissance Tower, Dallas, Texas 75270, simultaneously with the
execution of this Agreement (the "CLOSING DATE").
(b) COSTS. Purchaser and Seller shall each bear their respective
expenses, costs and fees (including attorneys and accountants fees and
expenses) in connection with the transactions contemplated hereby,
including the negotiation, preparation, execution and delivery of this
Agreement and compliance herewith.
(c) CLOSING DELIVERIES BY SELLER. At the Closing, Seller shall
deliver or cause to be delivered to Purchaser:
(1) all documents, certificates and agreement necessary to
transfer to Purchaser title to the Shares, including without
limitation, a certificate or certificates representing the Shares, duly
endorsed for transfer;
(2) duly certified copies of the resolutions adopted by
Seller's board of directors authorizing the execution, delivery and due
performance of this Agreement and all transactions contemplated hereby;
(3) a copy of the Consulting and Training Teaming Agreement,
between Seller and Valtech Technologies, duly executed by Seller (the
"TEAMING AGREEMENT");
(4) a copy of the bill of sale, assignment and assumption
agreement between Seller and Newco whereby Seller contributed the
Operating Assets to Newco, duly executed by Seller and Newco;
(5) copies of all assignments from Seller to Newco of all
intangibles constituting a part of the Operating Assets and the
Operating Contracts, licenses, appurtenances and rights relating to the
Business;
(6) duly executed UCC-3 termination (or partial termination,
if appropriate) statements showing termination (or partial termination)
of all UCC-1 financing statements and any other security interests
filed against the Operating Assets;
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(7) evidence that all Liens encumbering the Operating Assets
(other than the Permitted Encumbrances) have been paid as of the
Closing;
(8) copies of all consents and agreements (duly executed by
Seller and Newco) necessary to effect (i) the contribution of the
Operating Assets from Seller to Newco, including, without limitation,
the assignment to Newco of the Operating Contracts, (ii) the assumption
of the Assumed Liabilities by Newco and (iii) the sale of the Shares to
Purchaser;
(9) copies of tax statements from all taxing authorities
showing taxes due for 1998 (and 1999, if available) against or with
respect to the Operating Assets;
(10) an amendment to Seller's Lease, duly executed by Seller
and executed by the Landlord, evidencing the exclusion of the Training
Facility from Seller's Lease;
(11) good standing or similar certificates from the
Secretaries of State and the appropriate taxing authorities of the
States of Delaware and Texas with respect to Seller and Newco;
(12) duly executed resignations of the officers and directors
of Newco, effective immediately following the Closing, from all
positions held by such persons with Newco;
(13) the Certificate of Incorporation, Bylaws and original
minutes of Newco and all other documents relating to the organization,
maintenance and existence of Newco as a corporation; and
(14) such other documents, certificates, instruments or
agreements which Seller is required to deliver to Purchaser or the
Newco Employees pursuant to this Agreement.
(d) CLOSING DELIVERIES BY PURCHASER. At the Closing, Purchaser shall
deliver or cause to be delivered to Seller:
(1) payment of the Purchase Price as provided in Section 1(b);
(2) duly certified copies of the resolutions adopted by
Purchaser's board of directors or similar governing body authorizing
the execution, delivery, and due performance of this Agreement and all
transactions contemplated hereby and all documents to be executed and
delivered hereunder;
(3) a copy of the Teaming Agreement duly executed by Valtech
Technologies; and
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(4) such other documents, certificates, instruments or
agreements which Purchaser is required to deliver to Seller pursuant to
this Agreement.
3. LABOR AND EMPLOYMENT MATTERS.
(a) EMPLOYMENT. Attached hereto as SCHEDULE 3(a)(i) is a list of
all active employees of Newco on the payroll and available for duty on
the Closing Date (the "NEWCO EMPLOYEES"). Such Newco Employees were
previously employed by the Seller in connection with the Business and
ceased to be employed by Seller on the Contribution Date. Effective
from the Closing, Purchaser shall cause Newco (or an affiliate thereof)
to continue the employment of the Newco Employees upon the terms and
conditions for such Newco Employees described on SCHEDULE 3(a)(ii).
(b) CONSTRUCTION. Section 3(a) above is solely for the purpose of
defining the obligations between Purchaser and Seller concerning the
Newco Employees and shall in no way be construed as creating any
employment contract or other contract between Purchaser, Newco, Seller
and/or any employee.
(c) ADDITIONAL COVENANTS. Seller shall:
(1) enter into an amendment to each Newco Employee's existing
option agreements which provide for the purchase of equity securities
of Seller to provide that (i) no such options will terminate as a
result of the Newco Employee's continued employment with Newco
following the Closing, and (ii) any unvested options held by such Newco
Employee shall vest on the earlier of (x) one year anniversary date of
the Closing Date (the "ANNIVERSARY DATE") if such Newco Employee does
not terminate his or her employment with Newco or an affiliate or
successor of Newco on or prior to the Anniversary Date, or (y) the date
on which such Newco Employee ceases to be an employee of Newco, or an
affiliate or successor of Newco, by reason of such Newco Employee's
employment being terminated by Newco or an affiliate or successor of
Newco for any reason other than Cause; and
(2) pay to each such Newco Employee, within thirty days
following December 31, 1999, a "stay in place bonus" in an amount equal
to 25% of such Newco Employee's annual base salary, excluding bonus and
commissions, if any, prior to the Closing if such Newco Employee is
continuously employed by Newco, or an affiliate or successor of Newco,
between the Closing and December 31, 1999; and
(3) on the Closing Date, or as soon as practicable thereafter,
pay each Newco Employee all accrued wage, salary, bonus and commission
for all periods prior to and including the Closing Date to which such
person is entitled; and
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(4) pay or provide for all other employee benefits maintained
by Seller for all periods prior to and including the Closing Date, all
in accordance with applicable law; and
(5) as soon as possible after the Closing Date, but in no
event later than thirty (30) days after the Closing Date, deliver to
Newco copies of amendments to the employment agreements between Seller
and the Newco Employees which evidence certain modifications to the
employment agreements between Seller and the Newco Employees (as former
employees of Seller).
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants to Purchaser as follows, each such representation and warranty
being qualified in its entirety by the disclosures set forth on the disclosure
schedule of Seller attached hereto (the "DISCLOSURE SCHEDULE"):
(a) ORGANIZATION. Each of Seller and Newco are
corporations duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of Seller and Newco
has the requisite corporate power and authority to own its property
and assets and to carry on its business as now being conducted.
Each of Seller and Newco is duly qualified, registered or licensed
to do business as a foreign corporation in each other jurisdiction
wherein the nature of its activities or of its properties owned or
leased makes such qualification necessary and failure to be so
qualified, registered or licensed would have a material adverse
effect upon the Business. Except as contemplated by this Agreement,
no stockholder, officer, director or employee of Seller or Newco or
any affiliated entity is currently a party to any transaction with
Seller or Newco relating to any aspect of the Business.
(b) CAPITALIZATION. Newco's entire authorized capital
stock consists of 1,000 shares of Common Stock, of which 1,000
shares are issued and outstanding. All of the Shares have been duly
authorized and are validly issued, fully paid and nonassessable and
have not been issued in violation of any pre-emptive rights. There
are no outstanding or authorized options, rights, warrants, calls,
convertible securities, rights to subscribe, conversion rights or
other agreements or commitments to which Newco or Seller is a party
or which are binding upon Newco providing for the issuance or
transfer by Newco of additional shares of its capital stock, nor
are there any outstanding stock option rights, phantom equity or
similar rights with respect to Newco. There are no voting trusts or
any other agreements or understandings with respect to the voting
of Newco's capital stock. Upon consummation of the transactions
contemplated by this Agreement, Purchaser will own a one hundred
percent (100% ) equity interest in Newco. Seller owns all of the
Shares free and clear of all Liens.
(c) AUTHORIZATION OF AGREEMENT. Seller has the requisite
corporate power and authority to execute and deliver this Agreement
and each of Seller and Newco has the
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requisite power and authority to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement
by Seller and the performance by Seller of its obligations
hereunder have been duly authorized by all necessary action on the
part of Seller. The execution and delivery of this Agreement by
Seller and the consummation of the transactions contemplated hereby
do not and will not conflict with, or result in a breach of, or
constitute a default under, the terms or conditions of the
Certificate of Incorporation or Bylaws of Seller, any court or
administrative order, judgment or decree, any agreement or
instrument to which Seller or Newco is a party or by which Seller,
Newco or any of their assets are bound or, to the knowledge of
Seller, any statute or regulation of any governmental agency. The
execution and delivery of this Agreement by Seller and the
consummation of the transactions contemplated hereby do not require
the consent of any third party. This Agreement and all other
instruments required hereby to be executed and delivered by Seller
are, or when delivered will be, valid and binding obligations of
Seller, enforceable against Seller in accordance with their terms,
except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally and except
that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which
any proceedings therefor may be brought.
(d) TAX MATTERS.
(1) Seller does not have any liabilities for Taxes.
(2) Seller has duly and timely filed all Tax Returns
with the appropriate governmental or taxing authority and
has duly completed and correctly reported all income and
all other amounts and information required to be reported
thereon.
(3) Seller has duly and timely paid, accrued or
properly provided for all Taxes, including all
installments on account of Taxes for the current year,
that are due and payable or collectible by Seller.
(4) Neither Seller nor any member of any
affiliated group (within the meaning of Section 1504 of
the Code), combined group, consolidated or unitary group
(any such affiliated, combined, consolidated or unitary
group hereinafter referred to as an "AFFILIATED GROUP")
of which Seller is or was a member has received notice of
any deficiency or assessment from any federal, state,
local or foreign governmental authority with respect to
any liability for Taxes attributable to the Business,
Newco or the Operating Assets. No administrative,
judicial or other proceeding is presently pending with
respect to any Taxes or Tax Returns of Seller or any
member of an Affiliated Group of which Seller is or was a
member or otherwise with respect to the Business, Newco
or the Operating Assets.
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(5) There are no actions, suits, proceedings,
investigations, audits or claims now pending or, to the
knowledge of Seller, threatened against Seller or Newco
in respect of any Taxes and there are no matters under
discussion, audit or appeal with any governmental
authority relating to Taxes.
(6) There are no liens for Taxes upon the assets
of Seller or Newco, including, but not limited to the
Operating Assets, except for liens for Taxes not yet due.
(7) None of the Operating Assets is property
that is or will be required to be treated as being owned
by another person pursuant to the provisions of Section
168(f) of the Code (as in effect prior to the amendment
by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Section 168 of the Code.
(8) Seller has timely deducted and withheld and
will deduct and withhold from any amount paid or credited
or deemed paid or credited up to and including the
Closing Date by it to or for the account or benefit of
any person, including, without limitation, any of its
employees, officers or directors, the amount of all Taxes
and other deductions required by any applicable law to be
deducted or withheld from any such amount and has duly
and timely collected and remitted and will collect and
remit the same to the appropriate governmental authority.
(e) ACTIONS, SUITS, PROCEEDINGS. There is no litigation
action, suit, investigation or proceeding (including, without
limitation, condemnation proceedings and actions, suits or
proceedings in respect of product liability claims) pending or, to
the knowledge of Seller, threatened against Seller or any of its
properties or business in any court or before any federal, state,
municipal, foreign or other governmental agency relating to Newco,
the Operating Assets or the Business or the consummation of the
transactions contemplated hereby. Neither Seller, Newco, the
Business nor the Operating Assets are subject to any order, writ,
injunction or decree of any court or governmental agency relating
to Newco, the Business or the Operating Assets.
(f) COMPLIANCE WITH APPLICABLE LAWS AND OTHER INSTRUMENTS.
Prior to the Contribution Date, Seller conducted the Business in
all material respects in compliance with all applicable laws, rules
or regulations of all governmental authorities. Subsequent to the
Contribution Date, Newco has conducted and is conducting the
Business in all material respects in compliance with all applicable
laws, rules or regulations of all governmental authorities. Neither
Seller nor Newco is in violation of their respective Certificates
of Incorporation or Bylaws.
(g) CONTRIBUTION OF ASSETS TO NEWCO. In connection with
the formation of Newco, Seller contributed all of Seller's right,
title and interest in and to the Operating
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Assets to Newco, free and clear of any Liens, other than the Permitted
Encumbrances (as defined below).
(h) TITLE TO THE OPERATING ASSETS. Newco has good and
marketable title to all of the Operating Assets, free and clear of
all Liens that will continue after the Closing Date, except
encumbrances listed and described in SCHEDULE 4(h) hereto (the
"PERMITTED ENCUMBRANCES"). To the extent that any Permitted
Encumbrances contain covenants or obligations by which Newco is
bound, Newco is not in default under such covenants or obligations
and has no knowledge of any material default on the part of any
other party to such Permitted Encumbrances.
(i) INTELLECTUAL PROPERTY RIGHTS. SCHEDULE 4(i) hereto
contains a complete and accurate list of (1) all patents,
registered or material trademarks, trade names, registered or
material service marks and registered copyrights (and all
applications therefor) used in the conduct of the Business
(indicating whether or not such patent, trademark, trade name,
service mark or registered copyright is owned by Newco), (2) all
computer programs, software, and software licenses used primarily
in the conduct of the Business, and (3) all agreements relating to
technology, know-how or processes which Newco is licensed or
authorized to use by others in the conduct of the Business. Newco
(i) owns or has the right to use all patents, registered or
material trademarks, trade names, registered or material service
marks and registered copyrights (and all applications therefor) and
all trade secrets, inventions, know-how, ideas, designs, processes,
specifications and formulas included in the Operating Assets and
embodied in or related to the Business, subject to the provisions
of any license agreement by which Newco has received rights in
connection with such intellectual property, and (ii) to the
knowledge of Seller, Newco is not using any confidential
information or trade secrets of others in the operation of the
Business. Neither Seller nor Newco is a party to any agreement or
contract which obligates Seller or Newco to pay royalties, fees or
other payments to any owner of, licensor of, or other claimant to,
any Intellectual Property included in the Operating Assets. Neither
Seller nor Newco has transferred or conveyed any rights to others
in the Intellectual Property included in the Operating Assets other
than rights to use that are incidental to sales of products
included within the Business. To the knowledge of Seller, no claims
have been asserted by any person to the use in the conduct of the
Business of any Intellectual Property included in the Operating
Assets challenging or questioning the validity or effectiveness of
any such Intellectual Property included in the Operating Assets
and, to the knowledge of Seller, there exists no valid basis for
any such claim, except for such claims an adverse determination of
which, in the aggregate, would not have a material adverse effect
on the Business; and, to the knowledge of Seller, the use of the
Intellectual Property included in the Operating Assets in the
conduct of the Business does not infringe on the rights of any
person. Newco owns, or is otherwise licensed or has the right to
use, all Intellectual Property included in the Operating Assets
used in or necessary for the conduct of the Business and, subject
to obtaining necessary consents, the consummation of the
transactions contemplated by this Agreement will not alter or
impair any such rights.
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(j) CONTRACTS, LEASES, COMMITMENTS AND AGREEMENTS.
SCHEDULE 4(j) hereto sets forth and describes all material
contracts, leases, agreements and commitments (i.e., a contract,
lease, agreement or commitment providing for payment or receipt of
$5,000 or more over the life of the contract or which may not be
terminated without penalty with notice of 30 days or less) to which
Seller or Newco is a party or by which either of them is bound with
respect to the Business or the Operating Assets. Seller, Newco and
each other party thereto have in all respects substantially
performed all obligations required to be performed by them to date,
and are not in default under any of the Operating Contracts. Each
of the Operating Contracts is in full force and effect, and neither
Seller nor Newco have assigned to any other person any of their
rights thereunder, other than the assignment of the Operating
Contracts from Seller to Newco.
(k) COMPOSITION AND CONDITION OF OPERATING ASSETS. The
Operating Assets comprise all material property and assets employed
by Seller immediately prior to the Contribution Date and currently
employed by Newco in the Business, except for the Retained Assets.
All tangible personal property included in the Operating Assets is
mechanically sound with no known material defects (ordinary wear
and tear excepted) and are in good and normal operating condition
and repair.
(l) MAJOR SUPPLIERS AND CUSTOMERS. Attached hereto as
SCHEDULE 4(l) is a comprehensive listing of each supplier of goods
and services to the Business to whom Seller paid in excess of
$3,000 in the aggregate, and each customer of the Business to whom
Seller billed in excess of $5,000 in the aggregate, during the 12
month period ending December 31, 1998; provided, however, that
SCHEDULE 4(l) may list suppliers or customers that have not been
paid or billed in excess of such amounts. To the knowledge of
Seller, no material supplier or customer has any intention to
change its relationship or the terms upon which it conducts
business with respect to the Business as a result of the
transactions contemplated by this Agreement.
(m) FINANCIAL STATEMENTS. Attached to this Agreement as
SCHEDULE 4(m) are net income statements of Seller relating to the
Business for the year ended December 31, 1998 and the interim
period ended June 30, 1999. Such net income statements (1) were
prepared from the books and records of Seller; (2) present fairly
the financial condition of the Business at the dates indicated in
all respects; and (3) have, in all material respects, been prepared
in accordance with generally accepted accounting principles applied
on a basis consistent with Seller's financial statements for the
year ended December 31, 1998 and the interim period ended June 30,
1999, subject, in the case of the net income statements for the
interim period, to normal recurring year end adjustments.
(n) BUSINESS CHANGES. Except for the transactions
contemplated by this Agreement and the Bill of Sale, Assignment and
Assumption between Seller and Newco (the "BILL OF SALE"), since
June 30, 1999, there has not been:
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(1) any material adverse change in the business,
financial condition, operations or results of operations
of the Business, or material damage, destruction or loss
(whether or not covered by insurance) affecting the
Business or the Operating Assets;
(2) any sale, lease, abandonment or other
disposition of any material equipment or other operating
property associated with the Business except for
dispositions in the ordinary course of business;
(3) any material transfer or other disposition
or purchase or other acquisition of any properties or
assets used in the Business (real, personal or mixed,
tangible or intangible), except in the ordinary course of
business and consistent with past practice;
(4) any deviation from the ordinary and usual
course by Seller in the conduct of the Business,
including, without limitation, any payment to any
stockholder, former stockholder, officer, director or
affiliated party other than regular compensation paid in
the ordinary course of business, or any increase in
compensation of any officer, director or employee
(including, without limitation, any increase pursuant to
any bonus, pension, profit sharing or other plan or
commitment) or the adoption of any new benefit program,
plan or other arrangement for officers, directors or
employees;
(5) any change in accounting methods or
practices followed by Seller in connection with the
Business;
(6) any increase in any obligations or
liabilities (whether absolute, accrued, contingent or
otherwise and whether due or to become due), except items
incurred in the ordinary course of business, in excess of
$5,000 individually or $20,000 in the aggregate;
(7) except for Permitted Encumbrances, any
Operating Asset which has been subjected to any Lien of
any kind, except for liens for current taxes not yet due;
(8) any disposition of or lapse of any rights to
the use of the Intellectual Property included in the
Operating Assets or disclosure to any person other than
representatives of Newco of any material trade secret,
formula, process or know-how included in the Operating
Assets not theretofore a matter of public knowledge; or
(9) any agreement in writing to take any action
described in clauses (1) through (8) of this Section 4(n).
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(o) EMPLOYEE BENEFIT MATTERS; ERISA. Except as
specifically set forth in the schedules numbered to correspond to
the applicable representation or warranty and attached hereto,
Seller represents and warrants as follows:
(1) PENSION PLANS.
(i) No Employee Plan is a Pension Plan which is
subject to Title IV of ERISA or the minimum funding
requirements of the Code.
(ii) No Pension Plan is "top heavy" within the
meaning of Section 416 of the Code.
(iii) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument which
is intended to be qualified and tax exempt under the
provisions of Code Sections 401(a) and 501(a), as applicable,
has received from the Internal Revenue Service a favorable
determination letter considering the Tax Reform Act of 1986,
as amended, or application for such determination has been
made within the applicable remedial amendment period and is
currently pending.
(iv) Each Pension Plan, related trust agreement,
annuity contract or other funding instrument, for which
Purchaser or Newcom could reasonably be expected to have any
liability, is in material compliance with its terms and, both
as to form and in operation, with the requirements prescribed
by any and all Laws which are applicable to such Pension Plan,
including without limitation ERISA and the Code.
(2) MULTIEMPLOYER PLANS. There are no Multiemployer Plans, and
neither Seller nor any ERISA Affiliate has ever maintained, contributed
to, or participated or agreed to participate in any Multiemployer Plan.
Neither Seller nor any ERISA Affiliate has ever withdrawn, partially or
completely, or instituted steps to withdraw, whether partially or
completely, from any Multiemployer Plan, nor has any event occurred
which could enable a Multiemployer Plan to give notice of and demand
payment of any withdrawal liability with respect to any of Seller or
any ERISA Affiliate.
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(3) WELFARE PLANS.
(i) Each Welfare Plan for which Purchaser or Newco
could reasonably be expected to have any liability is in
material compliance with its terms and, both as to form and
operation, with the requirements prescribed by any and all
Laws which are applicable to such Welfare Plan, including
without limitation ERISA and the Code. No Welfare Plan
provides for retiree medical or life insurance.
(ii) Each Welfare Plan which is a "group health
plan," as defined in Section 607(1) of ERISA, has been
operated in material compliance with provisions of Part 6 and
7 of Title I, Subtitle B of ERISA and Sections 4980B,
9801-9803, 9811, 9812, and 9831-9833 of the Code at all times.
(iii) No Welfare Plans are self-insured "multiple
employer welfare arrangements" as such term is defined in
Section 3(40) of ERISA.
(4) BENEFIT ARRANGEMENTS. Each Benefit Arrangement is in
material compliance with its terms and with the requirements prescribed
by any and all Laws which are applicable to such Benefit Arrangement,
including without limitation the Code, for which Purchase or Newco
could reasonably be expected to be liable.
(5) FIDUCIARY DUTIES AND PROHIBITED TRANSACTIONS. To the
knowledge of Seller, neither Seller nor any ERISA Affiliate has any
liability with respect to any transaction which relates to any Pension
Plan or any Welfare Plan and which is in violation of Sections 404 or
406 of ERISA or constitutes a "prohibited transaction," as defined in
Section 4975(c)(1) of the Code, and for which no exemption exists under
Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code for which
Purchase or Newco could reasonably be expected to be liable. To the
knowledge of Seller, neither Seller nor any ERISA Affiliate has
participated in a violation of Part 4 of Title I, Subtitle B of ERISA
by any plan fiduciary of any Welfare Plan or Pension Plan or has any
unpaid civil penalty under Section 502(1) of ERISA for which Purchase
or Newco could reasonably be expected to be liable.
(6) LITIGATION. There is no material action, order, writ,
injunction, judgment or decree outstanding or claim, suit, litigation,
proceeding, arbitral action, governmental audit or investigation
(including, without limitation, any such audit or investigation by the
Internal Revenue Service, Department of Labor,
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or PBGC) relating to or seeking benefits under any Employee Plan
that is pending or, to the knowledge of Seller, threatened or
anticipated against any of Seller or any ERISA Affiliate other than
routine claims for benefits. To the best knowledge of Seller, no
Newco Employee has any material claim against Seller (whether under
federal or state law, any employment agreement, or otherwise) on
account of or for (i) overtime pay, other than overtime pay for the
current payroll period; (ii) wages or salary for any period other
than the current payroll period; (iii) vacation, time off, sick
time or pay in lieu of any of the foregoing, other than that earned
in respect of the current fiscal year of the Seller; or (iv) any
violation of any statute, ordinance or regulation relating to
minimum wages or maximum hours of work. To the best knowledge of
Seller, no Newco Employee has any material claim, or basis for any
material action or proceeding against Seller, arising under any
statute, ordinance or regulation relating to discrimination in
employment or employment practices, occupational safety and health
standards or workers' compensation for which Purchase or Newco
could reasonably be expected to be liable.
(7) UNPAID CONTRIBUTIONS. Neither Seller nor any ERISA
Affiliate has any material liability for unpaid contributions required
to be made pursuant to the plan's terms with respect to any Employee
Plan for which Purchase or Newco could reasonably be expected to be
liable.
(8) CHANGE OF CONTROL PAYMENTS AND COMPENSATION DEDUCTION
LIMITATIONS. Except in accordance with the terms of the applicable
Employee Plan or as disclosed on SCHEDULE 4(o)(8), the execution of
this Agreement and the consummation of the transactions contemplated
hereby will not result in any payment (whether of separation pay or
otherwise), cancellation of indebtedness, or other obligation becoming
due from any of Seller or any ERISA Affiliate to any current or former
employee, director, or consultant, or result in the vesting,
acceleration of payment or increase in the amount of any benefit
payable to or in respect of any such current or former employee,
director, or consultant of any of Seller or any ERISA Affiliate. There
is no contract, agreement, plan or arrangement covering any current or
former employee, director, or consultant of Seller or any ERISA
Affiliate that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to the
terms of Sections 162(a)(1), 162(m), and/or 280G of the Code or would
require the payment of an excise tax imposed by Section 4999 of the
Code or of any "gross up" of any such excise tax for which Purchase or
Newco could reasonably be expected to be liable.
(9) COPIES OF DOCUMENTATION. SCHEDULE 4(o)(9) sets forth a
true and complete list of all Employee Plans of Seller and/or Newco.
Seller has delivered to Purchaser pursuant to this Agreement, or shall
provide to Purchaser within ten (10) business days after the date
hereof, a true and complete set of copies of (i) all
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Employee Plans and related trust agreements, annuity contracts or
other funding instruments as in effect immediately prior to the
Closing Date, together with all amendments thereto which shall
become effective at a later date; (ii) the latest Internal Revenue
Service determination letter obtained with respect to any such
Employee Plan qualified or exempt under Section 401 or 501 of the
Code; (iii) annual reports (Form 5500 series or the alternative
filing, if applicable, under ERISA Regulation Section 2520.104-23)
and certified financial statements for the most recently completed
three fiscal years for each Employee Plan required to file such
form, together with the most recent actuarial report, if any,
prepared by the Employee Plan's enrolled actuary; (iv) all summary
plan descriptions for each Employee Plan required to prepare, file
and distribute summary plan descriptions; (v) copies of all
documentation relating to the correction of Pension Plan defects
under the IRS Employee Plans Compliance Resolution System or any
predecessor or similar IRS program; (vi) all summaries furnished or
made available to employees, officers and directors of any of
Seller or their ERISA Affiliates of all incentive compensation,
other plans and fringe benefits for which a summary plan
description is not required; (vii) the names of all salaried
employees involved in the Business, together with a statement as to
the full amount paid or payable to each such employee for services
rendered during the last or current fiscal year and the current
aggregate base salary rate for each such person; (viii) the names
of all Newco Employees; (ix) amounts of current and deferred
compensation due the Newco Employees (including vacation pay,
holiday pay, sick pay and similar compensation earned by and/or
accrued to the Newco Employees); (x) FICA, unemployment and other
payroll taxes payable with respect to the Newco Employees; and (xi)
the seniority and current compensation levels of all Newco
Employees, vendors, agents and independent contractors as of the
Closing Date.
(p) LABOR MATTERS.
(1) Neither Seller nor Newco is a party to any
collective bargaining agreement (the "LABOR AGREEMENTS"), and
no union or association of employees has been certified or
recognized as the collective bargaining representative of any
of Seller's or Newco's employees or has attempted to engage in
negotiations with Seller or Newco regarding terms and
conditions of employment.
(2) Seller and Newco are in compliance in all
material respects with all requirements of applicable federal,
state and local laws and regulations governing employee
relations, including but not limited to anti-discrimination
laws, wage/hour laws, labor relations laws and occupational
safety and health laws, and no suits, charges or
administrative proceedings relating to any such law or
regulation are pending, and, to the knowledge of Seller, no
suit, charge or administrative investigation alleging a
violation of any such law or regulation has been threatened.
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(q) GOVERNMENT LICENSE AND REGULATION. Set forth on
SCHEDULE 4(q) is a list of all material domestic and foreign
governmental and third party licenses, permits, certificates,
consents, approvals, waivers, authorizations, and registrations
(collectively, "APPROVALS") which Seller obtained and transferred
to Newco which, to Seller's knowledge, are all of the Approvals
necessary to conduct the Business as presently conducted and to own
and use the Operating Assets, and such Approvals are in full force
and effect. No proceeding is pending or threatened regarding the
revocation or limitation of any such Approvals and there is no
basis or grounds for any such revocation or limitation.
(r) LIABILITIES OF NEWCO. Newco has no responsibility for
any liabilities other than the Assumed Liabilities. Other than the
Assumed Liabilities, Newco did not assume and has not assumed, and
is not responsible for, any liabilities or obligations of Seller,
including without limitation the Excluded Liabilities, and Seller
remains liable for and will discharge the Excluded Liabilities.
(s) LOCATION OF OPERATING ASSETS. All of the tangible
personal property included in the Operating Assets is located at
the Training Facility.
(t) YEAR 2000. All computer software, hardware, programs
and technical systems ("TECHNOLOGY") included within the Operating
Assets is "Year 2000 compliant," which means that each all such
Technology will (i) not fail to function and operate prior to,
during and after the calendar Year 2000 in accordance with its
specifications as a result of the use of a valid date; (ii) will
provide the output specified in such Technology's specifications
without experiencing abnormal ending dates and/or invalid or
incorrect years, and (iii) will incorporate century recognition
date data, calculations that use same century and multi-century
formulas and date values that reflect the current century in all
transactions.
(u) EMPLOYEE MATTERS. On or prior to the Closing Date,
Seller has furnished or shall furnish to the Newco Employees, their
representatives and appropriate governmental authorities such
notices as may be required of Seller by and in accordance with
applicable laws and regulations, including, without limitation, any
mass lay-off laws. Seller has complied with all legal obligations,
if any, it may have to bargain with the collective bargaining
representatives of the Newco Employees concerning the decision to
contribute the Operating Assets to Newco and the effects thereof.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants to Seller as follows:
(a) CORPORATE ORGANIZATION. Purchaser is a SOCIETE ANONYME
duly organized and validly existing under the laws of France. Purchaser
has the power and authority to own its property and assets and to carry
on its business as now conducted.
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(b) CORPORATE AUTHORITY. Purchaser has the requisite power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and performance by Purchaser of its obligations hereunder
have been duly authorized by all necessary action on the part of
Purchaser. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not and will
not conflict with, or result in a breach of, or constitute a default
under, the terms and conditions of Purchaser's organizational
documents, any court or administrative order or process, any agreement
or instrument to which Purchaser is a party or by which it or any of
its assets is bound or, to the knowledge of Purchaser, any statute or
regulation of any governmental agency. The execution and delivery of
this Agreement by Purchaser and the consummation of the transactions
contemplated hereby by Purchaser do not require the consent of any
third party. This Agreement and all other instruments required hereby
to be executed and delivered by Purchaser are, or when delivered will
be, valid and binding obligations of Purchaser enforceable against
Purchaser in accordance with their terms, except to the extent that
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceedings therefor may be
brought.
(c) LITIGATION AND OTHER PROCEEDINGS. There is no litigation,
action, suit, investigation or proceeding pending or, to Purchaser's
knowledge, threatened against or affecting Purchaser's business before
any court, agency or other governmental body that would result in any
material adverse effect upon Purchaser's ability to perform its
obligations under this Agreement.
(d) INVESTMENT INTENT. Purchaser is acquiring the Shares for
its own account and not with a view to their distribution within the
meaning of Section 2(11) of the Securities Act of 1933, as amended.
6. COVENANT NOT TO COMPETE. In consideration of the payment by
Purchaser of the Purchase Price, Seller hereby agrees that, for a period of
three years from the Closing Date, it shall not directly or indirectly,
through any person controlling, controlled by or under common control with
Seller, alone or in association with any other person, firm, corporation,
partnership or other business organization, except as expressly provided for
herein:
(a) Engage in, or own or acquire any controlling interest in
any business which is engaged in, advanced software technology training
(a "COMPETITIVE BUSINESS"). For purposes of this Section 6(a), there
shall be disregarded any interest which arises solely from the
ownership of less than a 10% equity interest in a corporation whose
stock is regularly traded on any national securities exchange or in the
over-the-counter market. Notwithstanding the foregoing, Purchaser and
Seller agree Seller may provide training
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services (1) solely for internal purposes, and (2) to third parties
in connection with Seller-owned technology whether now existing or
developed in the future.
(b) In any way, directly or indirectly, for the purpose of
conducting or engaging in any Competitive Business, (1) call upon,
solicit, advise or otherwise do, or attempt to do, business relating to
the Competitive Business with any former customers of Seller or Newco
or (2) take away or interfere or attempt to interfere with any former
customer, trade, business or patronage of Seller or Newco relating to
the Competitive Business.
(c) Seller acknowledges that the failure or threatened failure
to comply with the provisions of this Section 6 will result in
irreparable and continuing damage to Purchaser for which there will be
no adequate remedy at law and that, notwithstanding any other provision
of this Agreement, in the event of such failure or threatened failure,
Purchaser and its successors and assigns shall be entitled to
injunctive relief and to such other and further relief as may be proper
and necessary to ensure compliance with the provisions of this
Section 6.
7. INDEMNIFICATION.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made herein by Purchaser or Seller shall
survive the execution and delivery of this Agreement and, other than
the representations and warranties contained in Section 4(d), which
shall survive for the period of the applicable statutes of limitation,
shall remain in full force and effect for a period of twelve months
following the Closing Date, and shall be deemed to have been relied
upon by each other party hereto, notwithstanding any investigation made
by or on behalf of such party. Actions for a breach of a representation
or warranty may be commenced only during the period in which such
representation or warranty survives.
(b) INDEMNIFICATION BY SELLER. Seller shall indemnify and hold
harmless Purchaser, Newco and their affiliates and each of their
directors, officers, employees, advisors, agents and stockholders at
all times from and after the Closing Date against and with respect to
any and all claims, demands, lawsuits, proceedings, losses,
assessments, taxes, fines, penalties, administrative orders,
obligations, costs, expenses, liabilities and damages, interest,
reasonable attorneys' fees and costs of investigation (all of the
foregoing hereinafter referred to collectively as "CLAIMS") which arise
or result from and to the extent they are attributable to:
(1) the Excluded Liabilities and/or the Retained
Assets;
(2) the untruth or breach of any representation or
warranty made by Seller pursuant to this Agreement or any
other agreement or document executed and delivered by Seller
in connection with the transactions contemplated hereby;
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(3) the breach of, or failure to perform, any of the
covenants, commitments, obligations or agreements on the part
of Seller under this Agreement or any other agreement or
document executed and delivered by Seller in connection with
the transactions contemplated hereby;
(4) the operation by Seller and/or Newco of the
Business prior to the Closing (except with respect to Assumed
Liabilities relating to such pre-Closing operation); and
(5) any and all demands, claims, actions, suits,
proceedings, assessments, judgments, costs and legal and other
expenses incident to any of the foregoing.
Seller shall have no liability with respect to the matters described in
Section 7(b)(2) until the aggregate of all claims for which an
indemnity would otherwise be payable by Seller exceeds $50,000 in the
aggregate (the "BASKET"), and in such event, Seller shall be
responsible only for the amount in excess of the Basket, but in no case
shall the liability of Seller (i) with respect to the matters described
in Section 7(b)(2) (other than matters arising in respect of Sections
4(d), (e), (g), (h) and (i)) or the Bill of Sale and, to the extent
they apply to claims under Section 7(b)(2), the matters described in
Section 7(b)(5), exceed $850,000, and (ii) with respect to the matters
described in Section 7(b)(2) arising in respect of Sections 4(d), (e),
(g), (h) and (i) or with respect to any breach of any of the Seller's
representations and warranties of which the Seller had Knowledge at any
time prior to the date on which such representation and warranty is
made or any breach by Seller of any covenant or obligation pursuant to
this Agreement or any other agreement or document executed and
delivered by Seller in connection with the transactions contemplated
hereby, exceed the Purchase Price (collectively, the "CAP").
(c) INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify
and hold harmless Seller and its directors, officers, employees,
advisors, affiliates, agents and stockholders at all times from and
after the Closing Date against and with respect to any and all Claims
which arise or result from and to the extent that are attributable to:
(1) the Assumed Liabilities and the Operating
Contracts;
(2) the untruth or breach of any representation or
warranty made by Purchaser pursuant to this Agreement or any
other agreement or document executed and delivered by
Purchaser in connection with the transactions contemplated
hereby;
(3) the breach of, or failure to perform, any of the
covenants, commitments, obligations or agreements on the part
of Purchaser under this
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Agreement or any other agreement or document executed and
delivered by Purchaser in connection with the transactions
contemplated hereby;
(4) the operation by Purchaser and/or Newco of the
Business after the Closing;
(5) any material difference between the tax liability
of Seller if the Operating Assets had been purchased directly
by Purchaser in an asset purchase and the tax liability Seller
will incur as a result of the consummation of the transactions
as structured in this Agreement; provided, however, that
Purchaser shall have no liability with respect to the matters
set forth in this SECTION 15(C)(5) unless and until such
liability exceeds $500; and
(6) any and all demands, claims, actions, suits or
proceedings, assessments, judgments, costs and legal and other
expenses incident to any of the foregoing:
(d) PROCEDURES FOR INDEMNIFICATION. Promptly after receipt by
an indemnified party pursuant to the provisions of Sections (b) or (c)
of this Section 7 of notice of a third party claim or the commencement
of any third party action pursuant to the provisions of such Sections
7(b) or (c), such indemnified party shall promptly notify such
indemnifying party of the commencement thereof; but the omission to so
notify such indemnifying party will not relieve it from any liability
which it may have to the indemnified party otherwise than hereunder
unless the indemnified party is materially prejudiced thereby. In case
such action is brought against an indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
shall have the right to participate in, and, to the extent that it may
wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it which are
different from or additional to those available to the indemnifying
party, or if there is a conflict of interest which would prevent
counsel for the indemnifying party from also representing the
indemnified party, the indemnified party shall have the right to select
separate counsel to participate in the defense of such action on behalf
of such indemnified party. After notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to the indemnified
party pursuant to the provisions of such Sections 7(b) or (c) for any
legal or other expense subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation, unless (1) the indemnified party shall have promptly
employed counsel in accordance with the proviso of the preceding
sentence, (2) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the
commencement of the action, or (3) the indemnifying party has
authorized the employment of counsel for
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the indemnified party at the expense of the indemnifying party. No
indemnifying party, in the defense of any such claim or litigation,
shall, except with the consent of each indemnified party (such
consent not to be unreasonably withheld), consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the release from all liability in
respect to such claim or litigation.
(e) SOLE REMEDY. This Section 7 is intended to set forth the
exclusive and entire remedy of Seller and Purchaser against each other
in respect of any losses that are in the nature of the losses subject
to indemnification under this Section 7; the limitations on survival
and commencement of actions in Section 7(a), the limitations on
Seller's liability through the Cap and the Basket, and the other
provisions of this Section 7, are intended to apply to all claims,
actions and losses covered in substance by this Section or related to
the Bill of Sale, regardless of form, whether based on contract, tort,
statute or any other theory or basis of liability, and whether of a
legal, equitable or other nature.
8. DISPUTE RESOLUTION.
(a) NEGOTIATION. The parties acknowledge and agree that, in
connection with any and all actions, claims, controversies or disputes
of any kind (e.g. whether in contract or in tort, statutory or common
law) ("DISPUTES"), they shall first negotiate in good faith to resolve
any such Dispute for a minimum period of thirty (30) days following
receipt by a party of written notification of a Dispute. Any Dispute
which cannot be resolved by negotiation within such thirty (30) day
period shall be resolved according to the arbitration procedure set
forth in Sections 8(b) through 8(k).
(b) ARBITRATION. Except as expressly set forth in Section
8(a), the parties agree that (except as expressly set forth herein) all
Disputes between them relating, directly or indirectly, to this
Agreement or the transactions contemplated hereby, whether now existing
or hereafter arising, are to be resolved by arbitration as provided in
this Agreement. This agreement to arbitrate will survive the
termination of this Agreement. All arbitration will be conducted
pursuant to and in accordance with the following order of priority (1)
the terms of this Agreement, (2) the Commercial Arbitration Rules of
the American Arbitration Association, (3) the Federal Arbitration Act
and (4) to the extent the foregoing are inapplicable, unenforceable or
invalid, the laws of the State of Texas. The arbitrator used will be
selected from impartial arbitrators designated by the American
Arbitration Association who are familiar with the nature of the subject
matter of the Dispute. Any hearing regarding arbitration will be held
in Dallas, Texas, or at another location mutually acceptable to Newco
and Seller. The arbitrator will use his/her best efforts to conduct the
arbitration hearing no later than three (3) months from the date of the
arbitrator's appointment and will use best efforts to render a decision
within four (4) months from such date.
(c) SCOPE. Notwithstanding any other provision of this Section
8 no dispute regarding the ownership of intellectual property will be
subject to the dispute resolution
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provisions of this Section 8. Any such Dispute will be resolved by
negotiation or if the parties are unable to agree, by any court of
competent jurisdiction.
(d) DISCOVERY. Each party may submit in writing to the other
party, and the other party shall respond to a maximum of any
combination of thirty-five (35) (none of which may be subparts) of the
following: interrogatories, demands to produce documents and requests
for admissions. Each party is also entitled to take the oral deposition
of no more than five (5) individuals. Additional discovery may be
permitted upon mutual agreement of the parties. The arbitrator will
resolve any discovery disputes by such pre-hearing conferences as may
be needed. All parties agree that the arbitrator will have the power of
subpoena process as provided by law. Disputes concerning the scope of
depositions or document production, its reasonableness and enforcement
of discovery requests will be subject to agreement by the parties or
will be resolved by the arbitrator. All discovery requests will be
subject to the proprietary rights and rights of privilege and other
protections granted by applicable law to the parties and the arbitrator
will adopt procedures to protect such rights. With respect to any
Dispute, each party agrees that all discovery activities will be
expressly limited to matters directly relevant to the Dispute and the
arbitrator will be required to fully enforce this requirement.
(e) COURT PROCEEDINGS. Except for proceedings seeking
equitable remedies and issues regarding the ownership of intellectual
property, an arbitration proceeding commenced pursuant to this Section
8 is a condition precedent to and is a complete defense to the
commencement of any suit, action or proceeding in any court or before
any tribunal with respect to any Dispute. Either party may bring an
action in court to compel arbitration. Any party who fails or refuses
to submit to binding arbitration following demand by the other party
shall, if the dispute is within the scope of this Section 8, bear all
costs and expenses incurred by the opposing party in compelling
arbitration.
(f) RULINGS. The arbitrator is empowered to resolve Disputes
by summary rulings substantially similar to summary judgments and
motions to dismiss. The arbitrator will resolve all Disputes in
accordance with the applicable substantive law. The arbitrator may
grant any remedy or relief deemed just and equitable and within the
scope of this Agreement and may also grant such ancillary relief as is
necessary to make effective any award.
(g) FINDINGS OF FACT. The arbitrator will be required to make
specific, written findings of fact and conclusions of law, and the
parties will have the right to appeal or seek vacation or modification
of an award only (1) if that award is based in whole, or in part, upon
fraud or a failure to follow the procedures set forth in this Section 8
or (2) to the extent otherwise allowed by applicable law. Subject to
the foregoing, the determination of the arbitrator shall be binding on
all parties and shall not be subject to further review or appeal. Any
judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. The decision of the arbitrator
will be enforceable in any court of competent jurisdiction. To the
extent permitted by applicable
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law, the arbitrator will have the power to award recovery of all
costs and fees (including attorneys' fees, administrative fees, and
arbitrators' fees) to the prevailing party.
(h) AUTHORITY. The arbitrator will be limited to interpreting
the applicable provisions of this Agreement and will not have the
authority or power to alter, amend, modify, revoke or suspend any
condition or provision of this Agreement or to create, draft or form a
new agreement between the parties, or to render an award which, by its
terms, has the effect of altering or modifying any condition or
provision of this Agreement. The arbitrator will have the sole
authority to resolve issues regarding whether Disputes are subject to
arbitration, including the applicability of any statute of limitations.
(i) EQUITABLE REMEDIES. No provision of, nor the exercise of
any rights under, this Agreement will limit the right of any party,
during any Dispute, to seek, use, and employ ancillary or provisional
equitable remedies. Such rights may be exercised at any time except to
the extent such action is contrary to an award or decision of the
arbitrator. The pursuit of provisional or ancillary equitable remedies
will not constitute a waiver of the right of any party, including the
plaintiff, to submit a Dispute to arbitration, nor render inapplicable
the compulsory arbitration provisions of this Section 8.
(j) SELECTION OF ARBITRATOR. The arbitrator will be chosen by
mutual agreement of Newco and Seller. If they cannot agree within 30
days upon the selection of the arbitrator, the arbitrator will be
selected by the Dallas, Texas office of the American Arbitration
Association in accordance with its rules and procedures. Subject to the
provisions of Section 7 and any other indemnification obligation set
forth in this Agreement, (1) each party will be responsible for
one-half of the expenses and fees of the arbitrator and (2) each party
will bear its own attorney's and expert's fees.
(k) OTHER ARBITRATION PROVISIONS.
(1) All arbitration proceedings will be conducted in
the English language and all monetary awards will be
denominated in and will be payable in United States Dollars.
(2) The statute of limitations applicable to any
Dispute shall be tolled upon the initiation of arbitration
under this Agreement and shall remain tolled until the
arbitration process is completed.
(3) Except to the extent necessary to enforce the
rights of the parties or as required by law, the parties agree
to keep confidential the existence, content and results of any
arbitration proceeding conducted pursuant to this Section 8.
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9. ADDITIONAL AGREEMENTS.
(a) CONFIDENTIAL INFORMATION. From and after the date
of this Agreement, neither Seller nor Purchaser shall (and each
shall take all reasonably necessary steps to ensure that their
respective officers, directors, employees, agents and other
representatives do not), without the prior written consent of the
other party, use, disclose, publish, copy, distribute or furnish to
any person or entity any list, summary, schedule, description,
record, document or data storage device, describing, containing, or
relating to, or any information about, any Confidential Information
(as defined below) of the other party.
(1) As used herein, "CONFIDENTIAL INFORMATION" shall
mean, with respect to information owned by Purchaser or Newco,
the various trade secrets and other proprietary and
confidential information (except as such pertain to the
Retained Assets) of the Business which is of a special and
unique nature and value relating to such matters as, but not
limited to, the Business' prior business operations, financial
affairs, programs, software, systems, procedures, Courses,
Courseware, manuals, confidential reports and marketing
methods which consist of compilations of information, records
and specifications that have been assigned to Newco, including
without limitation, all contracts, agreements, financial
books, records, files, documents, customer and supplier lists,
memoranda, data, tapes, letters, research, drawings,
specifications, equipment and similar items relating to the
Business and included in the Operating Assets. As used herein,
"CONFIDENTIAL INFORMATION" shall mean, with respect to
information owned by Seller, any non-public information
concerning Seller which was obtained by Purchaser in
connection with the transactions contemplated by this
Agreement, other than information pertaining to the Operating
Assets or the acquisition of the Shares.
(2) A party's obligations under this Section 9(a)
with respect to any portion of the Confidential Information
will terminate if such party can document that such
Confidential Information was in the public domain as of the
date hereof, such Confidential Information entered the public
domain subsequent to the date hereof (but prior to the use or
public disclosure of such Confidential Information by the
disclosing party) through no fault of the disclosing party, or
the communication of such Confidential Information is in
response to a valid order by a court or other governmental
body or was otherwise required by law (but only to the extent
of such order or requirement).
(3) Either party may disclose the terms of this
Agreement to those employees who have a need to know such
information.
(b) CONTINUING SUPPORT. For a period of twelve months
following the Closing Date, Seller shall use its best efforts to
provide reasonable access to all of Seller's
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employees, other than the Newco Employees, who provided services to
the Business or in connection with the Business at any time during
the eighteen months prior to the Closing Date. Such access shall be
for the purpose of assisting Purchaser in the integration of Newco
and the Operating Assets into Purchaser's business. In no event
will Seller be obligated to provide access to such employees of
Seller if such access would result in occupation of greater than
one week of each such employee's time.
(c) EMPLOYEE LIST. On the Closing Date, Seller shall
provide Purchaser with a list of former employees of Seller who
provided services to the Business or in connection with the
Business at any time during the twenty-four months prior to the
Closing Date. Purchaser and Seller expressly acknowledge and agree
that Purchaser, Newco or an affiliate thereof may solicit such
persons for employment, notwithstanding any other agreement between
the parties.
(d) GOVERNMENTAL FILINGS. Seller and Purchaser shall
cooperate with respect to, and diligently pursue completion of, all
filings with or approvals of governmental agencies required in
connection with the transactions contemplated by this Agreement, if
any.
(e) FURTHER ASSURANCES. Seller and Purchaser agree
that, at and after the Closing Date:
(1) at the request of Purchaser or Newco, Seller
shall execute and deliver such further instruments of transfer
and assumption as may be necessary or appropriate, and shall
take all commercially reasonable action as may be necessary or
appropriate (A) to vest in Newco good and marketable title to
the Operating Assets, (B) to transfer to Newco all licenses,
agreements and permits necessary for the operation of the
Business, (C) to aid and assist Newco in collecting and
reducing to possession any or all of the Operating Assets, and
(D) to vest in Purchaser good and marketable title to the
Shares;
(2) each will at any time and from time to time after
the Closing Date, upon the request of the other, execute,
acknowledge, deliver, and perform, or cause to be executed,
acknowledged, delivered, and performed, all such further acts,
deeds, assignments, transfers, conveyances, powers of
attorney, assumption agreements, and assurances as may
reasonably be required in connection with the transactions
contemplated by this Agreement; and
(3) Seller will use its commercially reasonable
efforts to facilitate and secure the transfer of the software
licenses described in SECTION 10(aa)(16) from Seller to Newco;
provided, however, that in no event will Seller be required to
expend its own funds for such purposes.
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(f) 401(k) AMOUNTS. The parties hereto acknowledge
that, subsequent to the Closing Date, the parties may agree to
transfer the account balances of the Newco Employees in the
ObjectSpace, Inc. 401(k) Profit Sharing Plan to a
tax-qualified 401(k) plan sponsored by Purchaser or a
subsidiary of Purchaser within a reasonable period of time
after the Closing and in accordance with the Code, upon
receipt of evidence reasonably satisfactory to each party that
each such 401(k) plan is tax qualified. From and after the
date of the transfer of such accounts (the "TRANSFER DATE"),
Seller shall have no responsibility or liability with respect
to any claims or liabilities regarding the transferred
accounts which are attributable to the period following the
Transfer Date. Purchaser shall indemnify Seller with respect
to any claims or liabilities associated with the transferred
accounts which are attributable to the period prior to and
including the Transfer Date. These indemnities are in addition
to any other indemnity provided in this Agreement.
10. DEFINITION OF CERTAIN TERMS. Capitalized terms used in this
Agreement but not otherwise defined in the text of this Agreement shall have
the respective meanings indicated below for all purposes of this Agreement.
All financial terms used in this Agreement and not otherwise defined shall be
defined in accordance with generally accepted accounting principles. All
references herein to a Section, Article or Schedule are to a Section, Article
or Schedule of or to this Agreement, unless otherwise indicated.
(a) ASSUMED LIABILITIES shall mean (1) the obligations of
Seller assumed by Newco under the Operating Contracts, (2) the
pro-rated portion of all utility bills for utilities provided to the
Training Facility after the Closing Date, if any, and (3) the pro-rated
portion of all personal property taxes levied or assessed against any
of the Operating Assets for the current tax year as of the Closing
Date.
(b) BENEFIT ARRANGEMENT shall mean any employment, consulting,
severance or other similar contract, arrangement or policy and each
plan, arrangement, program, agreement or commitment providing for
insurance coverage (including without limitation any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life,
health, disability or accident benefits (including without limitation
any "voluntary employees' beneficiary association" as defined in
Section 501(c)(9) of the Code providing for the same or other benefits)
or for deferred compensation, profit-sharing bonuses, stock options,
restricted stock, phantom stock, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (i) is not a Welfare Plan,
Pension Plan or Multiemployer Plan, (ii) is entered into, maintained,
contributed to or required to be contributed to, as the case may be, by
any of Seller or any ERISA Affiliate, and (iii) covers any current or
former employee, director, or consultant of any of Seller or any ERISA
Affiliate (with respect to their relationship with such entities).
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(c) CAUSE shall mean with respect to each Newco Employee (1)
acts of fraud or dishonesty in the course of his or her employment with
or service to Newco or any of its affiliates, (2) substance abuse
causing harm to Newco or any of its affiliates or impairing the Newco
Employee's performance of his or her regular duties, (3) conviction of
a felony involving moral turpitude, (4) insubordination, dereliction of
duties, habitual absenteeism, materially deficient performance after
(solely in the case of this clause (4)) notice to the Newco Employee
and the Newco Employee's failure to correct same within the time period
specified in the notice, which shall be not less than 10 business days,
or (5) any event described as "cause" (or in any other term or phrase
having similar import) in any written employment agreement between the
Newco Employee and Newco or any affiliate.
(d) COBRA shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and the Regulations promulgated
thereunder.
(e) CODE shall mean the Internal Revenue Code of 1986, as
amended and the Regulations promulgated thereunder.
(f) CONTRIBUTION DATE shall mean the date on which the
Operating Assets were contributed by Seller to Newco.
(g) COURSES shall mean all training courses owned by Seller in
existence or under development as of the Contribution Date, including,
without limitation, the Courses described on SCHEDULE 10(G) hereto;
provided, however, the term Courses does not include any courses or
courseware which are described in Section 10(aa)(1).
(h) COURSEWARE shall mean all course materials, training
manuals, course templates, programs, documentation, computer software,
books, process documentation or other similar courseware owned by
Seller and related to the Courses.
(i) COURT shall mean any court, tribunal, or other judicial or
arbitral panel of the United States, any foreign country, or any
domestic or foreign state, and any political subdivision or agency
thereof.
(j) EMPLOYEE PLANS shall mean all Benefit Arrangements,
Multiemployer Plans, Pension Plans and Welfare Plans.
(k) ERISA shall mean the Employee Retirement Income Security
Act of 1974, as amended and the Regulations promulgated thereunder.
(l) ERISA AFFILIATE shall mean any entity which is (or at any
relevant time was) a member of a "controlled group of corporations"
with, under "common control" with, or a member of an "affiliated
service group" with Seller as such terms are defined in Section 414(b),
(c), (m) or (o) of the Code.
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(m) EXCLUDED LIABILITIES shall mean all liabilities of
Seller associated with the Business prior to the Contribution Date
including, without limitation, the following:
(1) Any liability or claim with respect to accidents
or occurrences arising on or before the Contribution Date.
(2) Any claim by a third party for personal injury,
injury or damage to property or economic loss, whether
sounding in tort, breach of warranty or any other theory of
recovery, seeking compensatory, special, exemplary, punitive
or consequential damages, or any other relief, relating,
directly or indirectly, to an alleged defective or unsuitable
product arising on or before the Contribution Date.
(3) Any liabilities and obligations to any officer,
director or stockholder of Seller or to any person affiliated
with an officer, director or stockholder of Seller or to any
company affiliated with Seller.
(4) Any claims (including severance claims) relating
to the termination by Seller of the employment of any of its
employees (including any such termination deemed to have
occurred upon the transfer of any such employee from Seller to
Newco).
(5) Any claim made by any employee or former employee
of Seller (which claim arises out of such employment) who is
not employed on or after the Closing Date by Newco or an
affiliate of Newco.
(6) The following claims relating to employees or
former employees of Seller or Newco:
(i) all liabilities incurred on or prior to
the Closing Date (including medical expenses)
resulting from workers' compensation claims brought
by employees or former employees of Seller, whether
or not such employee or former employee is later
employed by Newco;
(ii) all liabilities incurred on or prior to
the Closing Date to pay hospitalization, medical or
dental expenses of employees or former employees of
Seller for medical or dental services performed on or
prior to the Closing Date (whether or not such
employee or former employee is later employed by
Newco);
(iii) all liabilities relating to life
insurance claims for deaths on or prior to the
Closing Date;
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(iv) all liabilities and obligations of
Seller existing as of the Closing Date relating to
employee compensation (whether or not an employee or
former employee is later employed by Newco);
(v) all liabilities resulting from
employment-related claims brought by employees or
former employees of Seller (whether or not such
employee or former employee is later employed by
Newco) if such employment-related claims arise from
occurrences or omissions transpiring on or prior to
the Closing Date, including, without limitation,
claims alleging violations of the following: (a)
employment discrimination law; (b) labor law; (c)
affirmative action, government contract or contract
compliance law; (d) occupational safety or health,
safe work place or employee right-to-know law; (e)
unemployment compensation law; (f) workers'
compensation law; (g) laws (including statutory and
case law) prohibiting wrongful discharge of
employees, whether based on express or implied
contracts, public policy, bad faith, tort, illegal
retaliation or other theories; (h) laws governing
wage and hour matters; (i) immigration law; (j)
common law employment-related tort claims, including,
without limitation, defamation, invasion of privacy,
intentional infliction of emotional distress, fraud
and misrepresentation and negligent hiring; (k) plant
closing and mass lay-off laws; (l) laws relating to
an employee's right to continued coverage under a
group health insurance plan; (m) the Labor
Agreements; and (n) any employee benefit plan
maintained by Seller that is subject to ERISA;
(vi) post-retirement benefits arising out of
their employment by Seller on or before the Closing
Date; and
(vii) all liabilities of Seller existing as
of the Closing Date relating to unemployment
compensation taxes.
(7) Any unpaid liability for Taxes (as hereinafter
defined) incurred prior to the Closing Date, including without
limitation the following: any and all liabilities and
obligations, direct or indirect, fixed or contingent, for
Taxes (i) of Seller or any member of any affiliated group
(within the meaning of Section 1504(a) of the Code) or any
combined, consolidated or unitary group for state or other tax
purposes of which Seller is or has been a member, whenever
incurred; (ii) except as expressly set forth herein,
attributable to or incurred in connection with the Business or
the Operating Assets prior to or on the Closing Date,
including, without limitation, any AD VALOREM, real or
personal or intangible property, sales or other Taxes which
are not due or assessed until after the Closing Date but which
are attributable to any period (or portion thereof) ending on
the
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Closing Date and (iii) attributable to interest, fines,
additions to tax or penalties relating to Taxes.
(8) Any cause of action or judicial or administrative
action, suit, proceeding or investigation relating to periods
prior to the Closing Date.
(9) Any governmental compliance, enforcement or
regulatory action, suit or claim or any claim by any person or
entity based upon an actual or alleged failure of Seller to
comply on or prior to the Closing Date with, or an actual or
alleged violation by Seller on or prior to the Closing Date
of, any law, rule, regulation, statute, ordinance, permit,
permit requirement, judgment, injunction, order, decree,
license or other governmental authorization or approval
applicable to Seller or the Operating Assets.
(10) Any infringement of the rights of any other
person or entity arising out of the use of any of the
Operating Assets on or prior to the Closing Date.
(11) Any liability under any employee benefit plan
maintained or contributed to by Seller or any ERISA Affiliate
(as hereinafter defined).
(12) Any liabilities with respect to contracts of
Seller (other than the operating Contracts) and Excluded
Liabilities.
(13) Any liabilities or obligations of Seller
relating to casualty or liability claims attributable to the
period prior to the Contribution Date.
(14) Bank overdrafts and other liabilities of Seller
to banks for money borrowed.
(15) Any accounts payable of Seller.
(16) Any liabilities and obligations with respect to
Seller's Lease other than as may be contemplated by Section
10(a).
(17) Any and all other liabilities and/or obligations
not specifically included in the Assumed Liabilities.
(n) [Reserved].
(o) INTELLECTUAL PROPERTY shall mean all domestic and
foreign patents, licenses, registered and unregistered trademarks,
trade names, service marks, copyrights, proprietary computer software,
all third-party (or "off-the-shelf") computer programs, software or
licenses owned and held by Seller on the Contribution Date and used
primarily in connection with the Business (and applications for any of
the foregoing),
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including, without limitation, those items set forth on SCHEDULE 10(o)
hereto, and all designs, patterns, drawings, technology, technical
know-how, trade secrets, inventions, processes, formulas, ideas,
work product, work in process, confidential information and
other similar intangible assets, owned and held by Seller and used
primarily in connection with the Business and the intangible assets and
related limitations, if any, including, without limitation, those items
set forth on SCHEDULE 10(o) hereto, and the goodwill associated with
all of the foregoing.
(p) KNOWLEDGE shall mean the qualification of a statement made
in this Agreement by the phrase "to the knowledge of Seller" or a
similar phrase shall indicate that no information that would give any
officer or director of Seller actual knowledge of the inaccuracy of
such statement has come to the attention of any such person, but that
such persons have not undertaken any independent investigation to
determine the accuracy of such statement.
(q) LANDLORD shall mean CarrAmerica Realty L.P.
(r) LAWS shall mean all laws, statutes, ordinances, rulings
and Regulations of the United States, any foreign country, or any
domestic or foreign state, and any political subdivision or agency
thereof, including all decisions of Courts having the effect of law in
each such jurisdiction.
(s) LIENS shall mean any mortgage, liability, pledge,
hypothecation, right, claim, security interest, encumbrance, lease,
sublease, license, adverse claim or interest, covenant not to compete,
voting agreement, voting trust, option, lien, right of first refusal or
other restrictions or limitations of any nature whatsoever, including
but not limited to such as may arise under any contracts of Seller or
Newco.
(t) MULTIEMPLOYER PLAN shall mean any "multiemployer plan," as
defined in Sections 3(37) or 4001(a)(3) of ERISA, which (i) is (or was
within the six-year period ending on the Closing Date) entered into,
maintained, administered, contributed to or required to be contributed
to, as the case may be, by any of Seller or any ERISA Affiliate and
(ii) covers or covered any employee or former employee of any of Seller
or any ERISA Affiliate (with respect to their relationship with such
entities).
(u) NEWCO EMPLOYEES shall mean the employees of Newco
available for duty on the Closing Date.
(v) OPERATING ASSETS shall mean all of Seller's rights,
property and assets of every kind, character and description, whether
tangible or intangible, whether real, personal or mixed, whether
accrued, contingent or otherwise which were owned by Seller at the
Contribution Date and used or held for use primarily in connection with
the Business prior to the Contribution Date, wherever located and
whether or not reflected in
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Seller's books and records, other than the Retained Assets; including,
without limitation, the following:
(1) All machinery, equipment, records, inventories,
computer hardware, cabling, data viewers, improvements, tools,
fixtures, furniture, furnishings and other personal property,
including, without limitation, the material items of personal
property listed on SCHEDULE 10(v)(1) hereto, and such
additional personal property which was, at the Contribution
Date (i) owned by Seller and used or held for use primarily in
connection with the Business or subject to leases to which
Seller was a lessee, subject (in the case of leases) to
obtaining any required consents in connection with the
assignment and assumption of any leases or agreements to and
by Newco, with respect to or for use in connection with the
operation of the Business, and (ii) located in the Training
Facility or issued to the Newco Employees.
(2) The Courses and Courseware.
(3) Except as described in Section 10(aa), all
Intellectual Property of Seller related to the Business.
(4) All rights of Seller under the Operating
Contracts.
(5) All deposits, prepaid tuition, or other prepaid
items, including without limitation, courseware maintenance
fees, relating to training services conducted in the Business
which were accepted by Seller prior to the Contribution Date
but to be delivered on or subsequent to the Closing Date,
including without limitation those items set forth on SCHEDULE
10(v)(5) hereto.
(6) All customer lists, vendor or supplier lists,
prospect lists, database information, documents, records or
other information, whether in electronic form or otherwise,
owned and held by Seller and relating to existing or planned
sales or marketing operations of the Business as of the
Contribution Date.
(7) All copies of records, computer software and
documents, books, work orders, drawings, electronic art,
database information, program and process documentation owned
by Seller and related to the Business.
(8) All of Seller's rights in all government
licenses, permits and authorizations (and applications for any
of the foregoing) necessary for the operation of the Business,
to the extent such are transferable, including but not limited
to the licenses, permits and authorizations listed on SCHEDULE
10(v)(8) hereto.
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(9) Except for those software licenses or customized
software included in the Retained Assets, all of Seller's
rights in all software licenses or customized software which
are used directly for Seller's training logistics support
conducted in the Business, including, but not limited to, the
licenses or customized software listed on SCHEDULE 10(v)(9)
hereto.
(10) All marketing or advertising brochures,
pamphlets, documentation or other tangible material owned by
Seller and used in connection with the Business.
(11) All content and computer source code relating to
the Business which is incorporated into Seller's website.
(12) All rights of Seller in and to any Courseware
maintenance fees.
(13) All other property, assets, claims, rights and
entitlements of any kind, character and description
whatsoever, to the extent such are transferable, which were
owned by Seller on the Contribution Date and used, or
primarily used or held for use, in connection with the
Business or necessary for the continuation of the Business.
(w) OPERATING CONTRACTS shall mean (1) all contracts to
provide training services conducted in the Business entered into by
Seller in the ordinary course of business prior to the Contribution
Date which had not been performed prior to the Contribution Date; and
(2) the contracts set forth on SCHEDULE 10(w) hereto.
(x) PBGC shall mean the Pension Benefit Guaranty
Corporation.
(y) PENSION PLAN shall mean any "employee pension benefit
plan" as defined in Section 3(2) of ERISA (other than a Multiemployer
Plan) which (i) is (or was within the six-year period ending on the
Closing Date) entered into, maintained, administered, contributed to or
required to be contributed to, as the case may be, by any of Seller or
any ERISA Affiliate and (ii) which covers or covered any current or
former employee, director, or consultant of any of Seller or any ERISA
Affiliate (with respect to their relationship with such entities).
(z) REGULATION shall mean any rule or regulation of any
governmental authority having the effect of law.
(aa) RETAINED ASSETS shall mean all of Seller's right,
title and interest in and to the following:
(1) Seller's training courses and all course
materials, training manuals, course templates, programs,
documentation, computer software, books, process
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documentation or other similar courseware which are solely
related to Seller's Voyager and Catalyst families of products,
as more particularly described on SCHEDULE 10(aa)(1) hereto,
or with current or future products of Seller, and all rights,
title and interest in and thereto, including all associated
intellectual property rights.
(2) Any employee benefit plan (within the meaning of
Section 3(3) of ERISA) with respect to which Seller or any
entity which, together with Seller, would be deemed a "single
employer" (within the meaning of Sections 414(b), (c), (m) or
(o) of the Code, is a plan sponsor or would otherwise have any
potential liability.
(3) Any of Seller's causes of action, judgments,
claims and demands of whatever nature, except those related to
the Operating Assets and the Assumed Liabilities.
(4) All financial records of Seller relating to the
Business, including Seller's general ledger and related items,
tax returns and related work papers, other than those
described under Section 10(v)(7) above.
(5) All of Seller's cash (including cash received
after the Contribution Date for services relating to the
Business performed on or before the Contribution Date) and
cash equivalents, including all deposits and other prepaid
items not described in Section 10(v)(5) above.
(6) All of Seller's personnel records and other
records related to the Business that Seller is required by law
to retain in its possession and all of Seller's invoices,
expense reports and purchase orders related to the Business.
(7) All of Seller's claims for refunds of Taxes and
other governmental charges of whatever nature relating to
periods prior to the Contribution Date.
(8) All of Seller's general office equipment,
furniture and furnishings, unless located at the Training
Facility, except for the personal computers used by the Newco
Employees.
(9) Seller's telephone system and telephone
equipment.
(10) Seller's enterprise-wide licensed software,
other than the licensed software located on the personal
computers used by the Newco Employees, which is set forth on
SCHEDULE 10(aa)(10) hereto.
(11) All of Seller's rights in insurance policies and
insurance claims.
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(12) Copies of the Courses and Courseware for
Seller's internal use as permitted by Section 6(a)(1). Such
use of the Courses and Courseware is limited to a level which,
as a result of a merger, acquisition, consolidation or similar
transaction, does not materially increase the level of use
contemplated as of the Contribution Date.
(13) All trademarks, trade names, service marks and
other intellectual property relating to the name "ObjectSpace"
and "Voyager."
(14) All of Seller's rights with respect to that
certain Consulting Agreement dated October 11, 1995 between
Seller and Ernst & Young.
(15) Seller's rights under its export license.
(16) The software licenses of Seller in and to the
IBM Visual Age for Java 2.0, Iona's Orbix Web 3.0 Pro and
Imprise Visibroker for Java 3.1 computer programs.
(ab) TAXES shall mean any and all taxes, duties, premiums,
imposts, charges, fees, levies, excises, deductions, withholdings or
other like assessments (and all related interest, fines, additions to
tax and penalties), including, without limitation, those levied on, or
measured by, or referred to as income, transfer, gains, gross receipts,
profits, capital, excise, inventory, property (real, personal or
intangible), land transfer, value-added, goods and services, sales,
use, license, withholding, payroll, health, employment, stamp,
business, capital stock, franchise, social services, education and
social security taxes, all surtaxes, all customs duties and import and
export taxes, all license, franchise and registration fees and all
unemployment insurance, health insurance and other government pension
plan premiums, imposed by the United States or any state, local or
foreign government or subdivision or agency thereof, whether computed
on a consolidated, unitary, combined or any other basis.
(ac) TAX RETURNS shall mean any and all reports, returns
or other information filed with or required to be supplied to a taxing
authority in connection with Taxes.
(ad) TRAINING FACILITY shall mean the training facility
located at 14901 Quorum Drive, Suite 100, Dallas, Texas.
(ae) SELLER'S LEASE shall mean the lease agreement between
CarrAmerica Realty L.P., as landlord, and Seller, as tenant, dated
April 1997, relating to the office building located at 14901 Quorum
Drive, Dallas, Texas.
(af) VALTECH TECHNOLOGIES shall mean Valtech Technologies,
Inc., a Delaware corporation and wholly-owned subsidiary of Purchaser.
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(ag) WELFARE PLAN" shall mean any "employee welfare
benefit plan" as defined in Section 3(1) of ERISA, which (i) is (or
was within the six-year period ending on the Closing Date) entered
into, maintained, administered, contributed to or required to be
contributed to, as the case may be, by any of Seller or any ERISA
Affiliate and (ii) which covers or covered any current or former
employee, director, or consultant of any of Seller or any ERISA
Affiliate (with respect to their relationship with such entities).
11. MISCELLANEOUS.
(ag) FURTHER ASSURANCES. Upon reasonable request, from
time to time, each party agrees that it shall (or, if applicable, shall
direct its employees to) execute and deliver all documents, make all
rightful oaths, testify in any proceedings and do all other acts which
may be necessary or desirable in the reasonable opinion of the other
party to protect or record the right or title of Newco to the Operating
Assets or to aid in the prosecution or defense of any rights arising
therefrom, all without further consideration other than reimbursement
for reasonable out-of-pocket expenses.
(ag) AMENDMENTS AND WAIVER. This Agreement may be amended
only by an agreement in writing by the parties hereto. The failure of
any party to insist, in any one or more instances, upon performance of
any of the terms and conditions of this Agreement shall not be
construed as a waiver or relinquishment of any rights granted hereunder
or of the future performance of any such term, covenant or condition.
If any provision, clause or part of this Agreement, or the application
thereof under certain circumstances, is held invalid, the remainder of
this Agreement, or the application of each provision, clause or part
under other circumstances, shall not be affected thereby.
(ag) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF
TEXAS, WITHOUT GIVING EFFECT TO CHOICE OF LAW PRINCIPLES. TO THE
MAXIMUM EXTENT PRACTICABLE, THIS AGREEMENT IS PERFORMABLE IN DALLAS
COUNTY, TEXAS.
(ag) NOTICES. Any notice to be given hereunder shall be
deemed given and sufficient if either (1) delivered by hand messenger
or (2) mailed via an overnight "express mail" service with a telecopy
being sent within two days of such "express mail" notice, in the case
of Purchaser, to:
Valtech S.A.
c/o Valtech Technologies, Inc.
5080 Spectrum Drive
Suite 1010 West
Addison, Texas 75001
Attention: Frank Rodorigo
Fax: (972) 789-1340
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with a copy to:
Winstead Sechrest & Minick P.C.
1201 Elm Street
5400 Renaissance Tower
Dallas, Texas 75270
Attention: Christopher D. Williams, Esq.
Fax: (214) 745-5390
or in the case of Seller to:
ObjectSpace, Inc.
14850 Quorum Drive
Suite 500
Dallas, Texas 75240
Attention: David Norris, Chief Executive Officer
Fax: (972) 726-4200
with a copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attention: Gregory R. Samuel, Esq.
Fax: (214) 651-5940
Each party may designate by notice in writing a new address to which
any notice, claim, instruction or communication may thereafter be so
given, served or sent.
(ag) BENEFIT. This Agreement shall be binding upon and inure
to the benefit of and shall be enforceable by Purchaser and Seller and
their respective successors and permitted assigns. This Agreement may
not be assigned without the written consent of the other party or
parties hereto, except that Purchaser may assign this Agreement to an
affiliate of Purchaser upon written notice to Seller but any such
assignment shall not release Purchaser from its obligations hereunder.
(ag) ENTIRE AGREEMENT. This Agreement, including the schedules
and exhibits attached hereto, constitutes the entire agreement and
understanding among Purchaser and Seller with respect to the purchase
and sale of the Shares and the other transactions contemplated by this
Agreement and supercedes any prior understandings or written or oral
agreements, including the Letter of Intent dated July 9, 1999 between
Valtech Technologies and Seller, between the parties or their
affiliates with respect to the subject matter of this Agreement.
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(ag) BROKERS. Purchaser and Seller represent and warrant to
each other that there are no brokerage or finder's fees in connection
with the transactions contemplated hereby resulting from any actions
taken by them and they hereby indemnify, save and hold each other
harmless from and against any claims by any broker or finder for a fee
or expense which is based in any way on an agreement, arrangement or
understanding made or alleged to have been made by them relating to the
transactions contemplated hereby.
(ag) DISCLOSURE SCHEDULE. Disclosure of any fact or item in
any Schedule hereto referenced by a particular paragraph or section in
this Agreement shall, should the existence of the fact or item or its
contents be relevant to any other paragraph or section, be deemed to be
disclosed with respect to that other paragraph or section whether or
not an explicit cross-reference appears.
(ag) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed to be an original and all of
which will be deemed to be a single agreement.
[The remainder of this page has intentionally been left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day, month and year first above written.
VALTECH S.A.
By: /s/ FRANK RODORIGO
-----------------------------
Name: Frank Rodorigo
---------------------
Title: President
---------------------
OBJECTSPACE, INC.
By: /s/ DAVID NORRIS
-----------------------------
Name: David Norris
---------------------
Title: President
---------------------
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MASTER ESCROW AGREEMENT
MasterNumber 1502013-00001
This Agreement is effective NOVEMBER 11, 1998 among Data Securities
International, Inc. ("DSI") and ObjectSpace, Inc., a Delaware corporation with
offices at 14850 Quorum Drive, Suite 500, Dallas, Texas 75240 ("ObjectSpace"),
and any additional parties signing the Acceptance Form attached to this
Agreement ("Preferred Beneficiary") who collectively may be referred to in this
Agreement as "the parties."
A. ObjectSpace has entered or will enter into a license agreement,
development agreement, and/or other agreement with a third party (the
"Preferred Beneficiary") regarding certain proprietary technology of
ObjectSpace (the "License Agreement").
B. ObjectSpace desires to avoid disclosure of its proprietary technology
except under certain limited circumstances.
C. ObjectSpace desires to establish an escrow with DSI to provide for the
retention, administration and controlled access of certain proprietary
technology materials of ObjectSpace that are the subject of the License
Agreement.
D. The parties desire this Agreement to be supplementary to the License
Agreement pursuant to 11 United States [Bankruptcy] Code, Section
365(n).
ARTICLE I -- DEPOSITS
1.1 OBLIGATION TO MAKE DEPOSIT. Upon the signing of this Agreement by the
parties, including the signing of the Acceptance Form, ObjectSpace
shall deliver to DSI the proprietary information and other materials
("Deposit Materials") required to be deposited by the License
Agreement, or if the License Agreement does not identify the materials
to be deposited with DSI, then such materials will be identified on
Exhibit B as specified below.
1.2 IDENTIFICATION OF TANGIBLE MEDIA. Prior to the delivery of the Deposit
Materials to DSI, ObjectSpace shall conspicuously label for
identification each document, magnetic tape, disk, or other tangible
media upon which the Deposit Materials are written or stored.
Additionally, ObjectSpace shall complete a description of the Deposit
Materials ("Deposit Description") in the form of Exhibit B to this
Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The Deposit
Description must be signed by ObjectSpace and delivered to DSI with the
Deposit Materials. Unless and until ObjectSpace makes the initial
deposit with DSI, DSI shall have no obligation with respect to this
Agreement, except the obligation to notify the parties regarding the
status of the deposit account as required in Section 2.2 below.
1.3 DEPOSIT INSPECTION. When DSI receives the Deposit Materials and the
Deposit Description, DSI will conduct a deposit inspection by visually
matching the labeling of the tangible media containing the Deposit
Materials to the item descriptions and quantity listed on the Deposit
Description. In addition to the deposit inspection, Preferred
Beneficiary may elect to cause a verification of the Deposit Materials
in accordance with Section 1.6 below.
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<PAGE>
1.4 ACCEPTANCE OF DEPOSIT. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item
descriptions and quantity on Deposit Description, DSI will date and
sign the Deposit Description and mail a copy thereof to ObjectSpace and
Preferred Beneficiary. If DSI determines that the labeling does not
match the item descriptions or quantity on the Deposit Description, DSI
will (a) note the discrepancies in writing on the Deposit Description;
(b) date and sign the Deposit Description with the exceptions noted;
and (c) provide a copy of the Deposit Description to ObjectSpace and
Preferred Beneficiary. Dsrs acceptance of the deposit occurs upon the
signing of the Deposit Description by DSI. Delivery of the signed
Deposit Description to Preferred Beneficiary is Preferred Beneficiary's
notice that the Deposit Materials have been received and accepted by
DSL.
1.5 OBJECTSPACE'S REPRESENTATIONS. ObjectSpace represents as follows:
a. ObjectSpace lawfully possesses all of the Deposit Materials
deposited with DSI;
b. With respect to all of the Deposit Materials, ObjectSpace has
the right and authority to grant to DSI and Preferred
Beneficiary the rights as provided in this Agreement;
C. The Deposit Materials are not subject to any lien or other
encumbrance;
d. The Deposit Materials consist of the proprietary information
and other materials identified in Exhibit B; and
e. The Deposit Materials are readable and useable in their
current form or, if the Deposit Materials are encrypted, the
decryption tools and decryption keys have also been deposited.
1.6 VERIFICATION. Preferred Beneficiary shall have the right, at Preferred
Beneficiary's sole expense, to request and receive a verification of
any Deposit Materials. A verification determines, in different levels
of detail, the accuracy, completeness, sufficiency and quality of the
Deposit Materials. If a verification is elected after the Deposit
Materials have been delivered to DSI, then only an employee of DSI
under signed confidentiality obligations to DSI may perform the
verification. Any DSI employee performing the verification must
individually agree in writing to adhere to the confidentiality
restrictions and provisions of Section 2.1 of this Agreement.
1.7 DEPOSIT UPDATES. Unless otherwise provided by the License Agreement,
ObjectSpace shall update the Deposit Materials within 60 days of each
release of a new version of the product which is subject to the License
Agreement. Such updates will be added to the existing deposit. All
deposit updates shall be listed on a new Deposit Description and the
new Deposit Description shall be signed by ObjectSpace. Each Deposit
Description will be held and maintained separately within the escrow
account. An independent record will be created which will document the
activity for each Deposit Description. The processing of all deposit
updates shall be in accordance with Sections 1.2 through 1.6 above. All
references in this Agreement to the Deposit Materials shall include the
initial Deposit Materials and any updates. DSI shall provide
ObjectSpace with a written invoice (when applicable) and a copy of the
new Deposit Description within 30 days following DSI's receipt of a
deposit update.
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1.8 REMOVAL OF DEPOSIT MATERIALS. The Deposit Materials may be removed
and/or exchanged only on written instructions signed by ObjectSpace and
the Preferred Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 2 -- CONFIDENTIALITY AND RECORD KEEPING
2.1 CONFIDENTIALITY. DSI shall maintain the Deposit Materials in a secure,
environmentally safe, locked facility which is accessible only to
authorized representatives of DSI. DSI shall have the obligation to
protect the confidentiality of the Deposit Materials. Except as
provided in this Agreement, DSI shall not disclose, transfer, make
available, or use the Deposit Materials. DSI shall not disclose the
existence or content of this Agreement to any third party. If DSI
receives a subpoena or other order of a court or other judicial
tribunal pertaining to the disclosure or release of the Deposit
Materials, DSI will immediately notify the parties to this Agreement.
It shall be the responsibility of ObjectSpace and/or the Preferred
Beneficiary to challenge any such order; provided, however, that DSI
does not waive its rights to present its position with respect to any
such order. DSI will not be required to disobey any court or other
judicial tribunal order. (See Section 7.4 below for notices of
requested orders.)
2.2 STATUS REPORTS. DSI will issue to ObjectSpace and the Preferred
Beneficiary a report profiling the deposit history ("Escrow Account
History") at least semi-annually. DSI may provide copies of the Escrow
Account History pertaining to this Agreement upon the request of
ObjectSpace or the Preferred Beneficiary. However, DSI understands and
agrees that this Escrow Account History shall not contain any
information regarding the fee amounts, fee payment schedule or other
fee arrangements made between DSI and ObjectSpace related to this
Agreement. Under no condition will DSI disclose to the Preferred
Beneficiary or other third party any information regarding the fee
arrangements made in conjunction with this Agreement.
2.3 AUDIT RIGHTS. During the term of this Agreement, only ObjectSpace and
the Preferred Beneficiary shall have the right to inspect the written
deposit records of DSI pertaining to this Agreement. DSI understands
and agrees that this right shall not apply or extend to the examination
or inspection of any financial information or fee records by the
Preferred Beneficiary. Any inspection shall be held during normal
business hours and following reasonable prior notice.
2.4 USE OF NAMES. DSI recognizes and agrees that nothing in this Agreement
shall be construed as to grant any right or license to DSI to use the
name ObjectSpace, Inc. In particular, DSI understands and agrees that
the name ObjectSpace, Inc. will not be used by DSI for the purposes of
marketing or otherwise disclosing the existence of this Agreement.
ARTICLE 3 -- GRANT OF RIGHTS TO DSI
3.1 TITLE TO MEDIA. ObjectSpace hereby transfers to DSI the title to the
media upon which the proprietary information and materials are written
or stored. However, this transfer does not include the ownership of the
proprietary information and materials contained on the media
3
<PAGE>
such as any copyright, trade secret, patent or other intellectual
property rights to the works fixed on such media.
3.2 RIGHT TO MAKE COPIES. DSI shall have the right to make copies of the
Deposit Materials as reasonably necessary to perform this Agreement.
DSI shall copy all copyright, nondisclosure, and other proprietary
notices and titles contained on the Deposit Materials onto any copies
made by DSI. With all Deposit Materials submitted to DSI, ObjectSpace
shall provide any and all instructions as may be necessary to duplicate
the Deposit Materials including but not limited to the hardware and/or
software needed.
3.3 RIGHT TO TRANSFER UPON RELEASE. ObjectSpace hereby grants to DSI the
right to transfer Deposit Materials to the Preferred Beneficiary upon
the occurrence of a Release Condition as defined by and in accordance
with Article 4 for use by the Preferred Beneficiary. Except upon such a
release or as otherwise provided in this Agreement, DSI shall not
transfer the Deposit Materials.
ARTICLE 4 -- RELEASE OF DEPOSIT
4.1 RELEASE CONDITIONS. As used in this Agreement, "Release Conditions"
shall mean the following:
a. ObjectSpace becomes the subject of proceedings for its
liquidation pursuant to an order for relief entered in a case
under Chapter 7 of Title II of the United States [Bankruptcy]
Code; or
b. ObjectSpace voluntarily elects to cease conducting business
and wind up its affairs in accordance with the law of its
state of incorporation.
4.2 FILING FOR RELEASE. If the Preferred Beneficiary believes in good faith
that a Release Condition has occurred, the Preferred Beneficiary may
provide to DSI written notice of the occurrence of the Release
Condition and a request for the release of the Deposit Materials. Upon
receipt of such notice, DSI shall provide a copy of the notice to
ObjectSpace, by certified mail, return receipt requested, or by
commercial express mail.
4.3 CONTRARY INSTRUCTIONS. From the date DSI mails the notice requesting
release of the Deposit Materials, ObjectSpace shall have ten business
days to deliver to DSI Contrary Instructions. "Contrary Instructions"
shall mean the written representation by ObjectSpace that a Release
Condition has not occurred. Upon receipt of Contrary Instructions, DSI
shall send a copy to the Preferred Beneficiary by certified mail,
return receipt requested, or by commercial express mail. Subject to
Section 5.2, DSI will continue to store the Deposit Materials without
release pending (a) joint instructions from ObjectSpace and the
Preferred Beneficiary; or (b) order of a court.
4.4 RELEASE OF DEPOSIT. If DSI does not receive Contrary Instructions from
the ObjectSpace, DSI is authorized to release the Deposit Materials to
the Preferred Beneficiary or, if more than one beneficiary is
registered to the deposit, to release a copy of the Deposit Materials
to the Preferred Beneficiary. However, DSI is entitled to receive any
fees due DSI before making the release. This Agreement will terminate
upon the release of the Deposit Materials held by DSI.
4
<PAGE>
ARTICLE 5 -- TERM AND TERMINATION
5.1 TERM OF AGREEMENT. The initial term of this Agreement is for a period
of one year. Thereafter, this Agreement shall automatically renew from
year-to-year unless (a) ObjectSpace and the Preferred Beneficiary
jointly instruct DSI in writing that the Agreement is terminated; or
(b) the Agreement is terminated by DSI for nonpayment in accordance
with Section 5.2. If the Acceptance Form has been signed at a date
later than this Agreement, the initial term of the Acceptance Form will
be for one year with subsequent terms to be added to match the
anniversary date of this Agreement. If the Deposit Materials are
subject to another escrow agreement with DSI, DSI reserves the right,
after the initial one year term, to adjust the anniversary date of this
Agreement to match the then prevailing anniversary date of such other
escrow arrangements.
5.2 TERMINATION FOR NONPAYMENT. In the event of the nonpayment of fees owed
to DSI, DSI shall provide written notice of delinquency to ObjectSpace
and the Preferred Beneficiary. Any such party shall have the right to
make the payment to DSI to cure the default. If the past due payment is
not received in full by DSI within one month of the date of such
notice, then at any time thereafter DSI shall have the right to
terminate this Agreement to the extent it relates to the delinquent
party by sending written notice of termination to such affected
parties. DSI shall have no obligation to take any action under this
Agreement so long as any payment due to DSI remains unpaid.
5.3 DISPOSITION OF DEPOSIT MATERIALS UPON TERMINATION. Upon termination of
this Agreement by joint instruction of ObjectSpace and each Preferred
Beneficiary, DSI shall destroy, return, or otherwise deliver the
Deposit Materials in accordance with such instructions. Upon
termination for nonpayment, DSI may, at its sole discretion, destroy
the Deposit Materials or return them to ObjectSpace. DSI shall have no
obligation to return or destroy the Deposit Materials if the Deposit
Materials are subject to another escrow agreement with DSI.
5.4 SURVIVAL OF TERMS FOLLOWING Termination. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
a. ObjectSpace's Representations (Section 1.5);
b. The obligations of confidentiality with respect to the Deposit
Materials and the fee arrangements;
c. The rights granted in the sections entitled Right to Transfer
Upon Release (Section 3.3) and Right to Use Following Release
(Section 4.5), if a release of the Deposit Materials has
occurred prior to termination;
d. The obligation to pay DSI any fees and expenses due;
e. The provisions of Article 7; and
f. Any provisions in this Agreement which specifically state they
survive the termination or expiration of this Agreement.
5
<PAGE>
ARTICLE 6 -- DSI'S FEES
6.1 FEE SCHEDULE. DSI is entitled to be paid the fees and expenses set out
and described in a separate fee agreement signed by DSI and ObjectSpace
(the "Fee Arrangement") that references this Agreement. DSI reserves
the right to inflate the fees covering this Agreement and described in
the Fee Arrangement at an increase of no greater than 10% each year.
DSI shall notify ObjectSpace at least 90 days prior to any increase in
fees. DSI shall not disclose the existence or contents of this Fee
Arrangement to the Preferred Beneficiary or any other third party.
6.2 PAYMENT TERMS. DSI shall not be required to perform any service unless
the payment for such service and any outstanding balances owed to DSI
are paid in full. All other fees are due within 30 days upon receipt of
invoice. If invoiced fees are not paid, DSI may terminate this
Agreement in accordance with Section 5.2. Late fees on past due amounts
shall accrue at the rate of one and one-half percent per month (18% per
annum) from the date of the invoice.
ARTICLE 7 -- LIABILITY AND DISPUTES
7.1 RIGHT TO RELY ON INSTRUCTIONS. DSI may assume that any individual
designated by ObjectSpace or a Preferred Beneficiary either on Exhibit
D or the Acceptance Form, as the case may be, or in the list of
authorized personnel ("Authorized Personnel List") in the form of
Exhibit C who gives any written notice, request, or instruction on
behalf of either ObjectSpace or the Preferred Beneficiary has the
authority to do so. DSI may act in reliance upon any instruction,
instrument, or signature of an individual designated in the Authorized
Personnel List if DSI has a reasonable belief that the instruction,
instrument, or signature is genuine. ObjectSpace or a Preferred
Beneficiary may amend the list of individuals designated in the
Authorized Personnel List by having an already listed individual notify
DSI in writing of the amendment. DSI shall not be responsible for
failure to act as a result of causes beyond the reasonable control of
DSI.
7.2 INDEMNIFICATION. DSI shall be responsible to perform its obligations
under this Agreement and to act in a reasonable and prudent manner with
regard to this Agreement. Provided DSI has acted in the manner stated
in the preceding sentence, ObjectSpace and Prefer-red Beneficiary shall
agree to indemnify, defend and hold harmless DSI from any and all
claims, actions, damages, arbitration fees and expenses, costs,
attorney's fees and other liabilities incurred by DSI relating in any
way to this Agreement
7.3 CONTROLLING LAW. This Agreement is to be governed and construed in
accordance with the laws of the State of Texas, without regard to the
conflict of law provisions, principles, or statutes of this or any
jurisdiction. The parties agree to submit to the jurisdiction and venue
of the state and federal courts of Texas.
7.4 NOTICE OF REQUESTED Order. If any party intends to obtain an order from
a court of competent jurisdiction which may direct DSI to take, or
refrain from taking, any action, that party shall:
a. Give DSI reasonable prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's
obligation, DSI be paid in full for any past due fees and be
paid for the reasonable value of the services to be rendered
pursuant to such order; and
6
<PAGE>
c. Ensure that DSI not be required to deliver the original (as
opposed to a copy) of the Deposit Materials if DSI may need to
retain the original in its possession to fulfill any of its
other escrow duties.
ARTICLE 8 -- GENERAL PROVISIONS
8.1 ENTIRE AGREEMENT. This Agreement, which includes the Acceptance Form
and the Exhibits described herein, embodies the entire understanding
between all of the parties with respect to its subject matter and
supersedes all previous communications, representations or
understandings, either oral or written that are not referred to herein.
No amendment or modification of this Agreement shall be valid or
binding unless signed by all parties hereto, except that Exhibit B need
not be signed by Preferred Beneficiary, Exhibit C and Exhibit D need
not be signed, and the Acceptance Form and Fee Arrangement will be
signed by the parties identified therein.
8.2 NOTICES. All notices, invoices, payments, deposits and other documents
and communications shall be given to the parties at the addresses
specified in the list of designated contacts ("Designated Contact
Listing") in the form of Exhibit D. It shall be the responsibility of
the parties to notify each other as provided in this Section in the
event of a change of address. The parties shall have the right to rely
on the last known address of the other parties. Unless otherwise
provided in this Agreement, all documents and communications may be
delivered by First Class mail.
8.3 SEVERABILITY. In the event any provision of this Agreement is found to
be invalid, voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Agreement,
such invalidity, voidability or unenforceability shall affect neither
the validity of this Agreement nor the remaining provisions herein, and
the provision in question shall be deemed to be replaced with a valid
and enforceable provision most closely reflecting the intent and
purpose of the original provision.
8.4 SUCCESSORS. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI
shall have no obligation in performing this Agreement to recognize any
successor or assign of ObjectSpace or the Preferred Beneficiary unless
DSI receives clear, authoritative and conclusive written evidence of
the change of parties.
ObjectSpace, Inc. Data Securities International, Inc.
By: /s/ LAUREL W. FITZGERALD By: /s/ CHRISTIE WOODWARD
----------------------------- ------------------------------
Name: Laurel W. Fitzgerald Name: Christie Woodward
----------------------------- ------------------------------
Title: VP-Operations Title: Sr. Contract Administrator
----------------------------- ------------------------------
Date: 10/30/98 Date: 11/3/98
----------------------------- ------------------------------
7
<PAGE>
EXHIBIT C
AUTHORIZED PERSONNEL LIST
Account Number ____________
Name: Laurel W. Fitzgerald
-----------------------------
Title: VP - Operations
-----------------------------
Contact Information:
-----------------------------
-----------------------------
-----------------------------
8
<PAGE>
EXHIBIT D
DESIGNATED CONTACT LISTING
Account Number _________________
Notices, deposit material returns and Invoices to ObjectSpace should be
communications to ObjectSpace should addressed to:
be addressed to:
Company Name: Objectspace, Inc. Laurel Fitzgerald
------------------------------ ------------------------------
Address: 14850 Quorum Drive Objectspace, Inc.
------------------------------ ------------------------------
Suite 500 14850 Quorum Drive
------------------------------ ------------------------------
Dallas, TX 75240 Suite 500
------------------------------ ------------------------------
Designated Contact: Laurel Fitzgerald Dallas, TX 75240
------------------------ ------------------------------
Telephone: 972-726-4241
--------------------------------- ------------------------------
Facsimile: 972-715-9041
--------------------------------- ------------------------------
Requests from ObjectSpace to change the designated contact should be given in
writing by one of the individuals designated in the Authorized Personnel List in
the form of Exhibit C.
Contracts, Deposit Materials Invoice inquiries and fee
and notices to DSI remittances to
DSI should be addressed to: should be addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
Date: ______________________________
9
<PAGE>
LEASE AGREEMENT BETWEEN
CARRAMERICA REALTY L.P., AS LANDLORD,
AND
OBJECTSPACE, INC., AS TENANT
APRIL 29, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. USE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5.1 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5.2 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . 2
5.3 Parking Charge. . . . . . . . . . . . . . . . . . . . . . . . . 2
5.4 Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . . 3
5.5 Delinquent Payments.. . . . . . . . . . . . . . . . . . . . . . 3
5.6 Prepaid Rent. . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. CONSTRUCTION OF IMPROVEMENTS.. . . . . . . . . . . . . . . . . . . . . 3
6.1 General; ADA Compliance . . . . . . . . . . . . . . . . . . . . 3
6.2 Access by Tenant Prior to Commencement of Term. . . . . . . . . 4
6.3 Commencement Date; Adjustments to Commencement Date . . . . . . 4
7. SERVICES TO BE FURNISHED BY LANDLORD. . . . . . . . . . . . . . 5
7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 Keys. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.3 Tenant Identity . . . . . . . . . . . . . . . . . . . . . . . . 7
7.4 Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.5 Operating Hours . . . . . . . . . . . . . . . . . . . . . . . . 7
8. REPAIR AND MAINTENANCE.. . . . . . . . . . . . . . . . . . . . . . . . 8
8.1 By Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2 By Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9. TAXES ON TENANT'S PROPERTY . . . . . . . . . . . . . . . . . . . . . . 8
10. TRANSFER BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10.1 General.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10.2 Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.3 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
11. ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
12. SPECIFICALLY PROHIBITED USES.. . . . . . . . . . . . . . . . . . . . .11
13. ACCESS BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . .11
14. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
15. CASUALTY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
15.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
15.2 Acts of Tenant. . . . . . . . . . . . . . . . . . . . . . . . .12
16. SUBORDINATION AND ATTORNMENT.. . . . . . . . . . . . . . . . . . . . .13
16.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
16.2 Attornment. . . . . . . . . . . . . . . . . . . . . . . . . . .13
17. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
17.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
17.2 WAIVER OF SUBROGATION.. . . . . . . . . . . . . . . . . . . . .14
17.3 Landlord's Insurance. . . . . . . . . . . . . . . . . . . . . .14
18. INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
19. THIRD PARTIES; ACTS OF FORCE MAJEURE.. . . . . . . . . . . . . . . . .15
20. SECURITY INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . .15
21. CONTROL OF COMMON AREAS. . . . . . . . . . . . . . . . . . . . . . . .15
22. INTENTIONALLY DELETED. . . . . . . . . . . . . . . . . . . . . . . . .15
23. QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
24. DEFAULT BY TENANT. . . . . . . . . . . . . . . . . . . . . . . . . . .16
i
<PAGE>
24.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . .16
24.2 Remedies of Landlord. . . . . . . . . . . . . . . . . . . . . .16
24.3 Payment by Tenant.. . . . . . . . . . . . . . . . . . . . . . .17
24.4 Reletting . . . . . . . . . . . . . . . . . . . . . . . . . . .17
24.5 Landlord's Right to Pay or Perform. . . . . . . . . . . . . . .17
24.6 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . .18
25. DEFAULTS BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . .18
26. RIGHT OF REENTRY . . . . . . . . . . . . . . . . . . . . . . . . . . .18
27. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
27.1 Independent Obligations . . . . . . . . . . . . . . . . . . . .19
27.2 Time of Essence.. . . . . . . . . . . . . . . . . . . . . . . .19
27.3 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . .19
27.4 Assignment by Landlord. . . . . . . . . . . . . . . . . . . . .19
27.5 Commencement Date and Estoppel Certificates . . . . . . . . . .19
27.6 Signs, Building Name and Building Address.. . . . . . . . . . .19
27.7 Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
27.8 Entire Agreement, Amendment and Binding Effect. . . . . . . . .20
27.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . .20
27.10 Number and Gender, Captions and References. . . . . . . . . . .21
27.11 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . .21
27.12 Brokers.. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
27.13 Interest on Tenant's Obligations. . . . . . . . . . . . . . . .21
27.14 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . .21
27.15 Recording . . . . . . . . . . . . . . . . . . . . . . . . . . .21
27.16 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
27.17 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . .21
28. SPECIAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . .21
28.1 Roof Rights.. . . . . . . . . . . . . . . . . . . . . . . . . .21
28.2 Security Deposit: Letter of Credit. . . . . . . . . . . . . . .23
28.3 Rules and Regulations.. . . . . . . . . . . . . . . . . . . . .24
28.4 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
</TABLE>
ii
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "LEASE") is entered as of April 29, 1997,
between CarrAmerica Realty, L.P., a Delaware limited partnership ("LANDLORD"),
and ObjectSpace, Inc., a Texas corporation ("Tenant").
1. DEFINITIONS. The definitions of certain of the capitalized terms used in
this Lease are set forth in the Glossary of Defined Terms attached hereto as
EXHIBIT A.
2. PREMISES. Subject to the provisions of this Lease, Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, approximately 28,606
rentable square feet of space in the Building, which space is outlined on the
floor plan attached hereto as EXHIBIT B. In connection with such demise,
Landlord hereby grants to Tenant the non-exclusive right to use during the Term
all Common Areas designed for the use of all tenants in the Building, in common
with all tenants in the Building and their invitees, for the purposes for which
designed and in accordance with all Legal Requirements. By occupying the
Premises, Tenant accepts the Premises as being suitable for Tenant's intended
use of the Premises, but such acceptance shall not limit Landlord's obligations
specifically set forth hereinafter.
3. TERM. The Term of this Lease shall commence on the Commencement Date
(which is scheduled to be August 1, 1997) and shall expire at 5:00 p.m. March
31, 2003, unless earlier terminated as provided herein (the "Term"), subject to
Section 6.3.
4. USE. Tenant shall occupy and use the Premises solely for lawful, general
business office purposes in strict compliance with the Building Rules and
Regulations from time to time in effect and all other Legal Requirements.
Tenant's permitted use shall include non-retail kitchen and eating facilities,
computer and telecommunications facilities (which shall not include call
centers), data processing and transmission, including rooftop satellite
communications (to the extent permitted under Section 28.1), accounting
facilities, conference and meeting facilities, and copying facilities. Tenant's
intended uses will not cause insurance premiums for the Building to be
increased.
Tenant acknowledges the purpose of its first floor occupancy is as a
training facility and there exists limited parking surrounding the Building for
Tenant's contemplated trainees. Tenant hereby agrees to use commercially
reasonable efforts to encourage its trainees to locate alternative
transportation methods and parking sources. Tenant further acknowledges and
agrees to cause its trainees and students to comply with the Building Rules and
Regulations.
5. RENT.
5.1 BASE RENT. In consideration of Landlord's leasing the Premises to
Tenant, Tenant shall pay to Landlord as follows:
<TABLE>
<CAPTION>
Monthly Annual
Time Period Base Rent Base Rent
----------- --------- ---------
<S> <C> <C>
August 1, 1997 - September 30, 1999 $42,909.00 $514,908.00
October 1, 1999 - March 31, 2003 $48,868.58 $586,422.96
</TABLE>
In the event that the actual Commencement Date is a date other than
August 1, 1997, Landlord shall readjust the monthly Base Rent throughout the
Term of this Lease so that the effective monthly
Page 1
<PAGE>
rental rate of this Lease for the initial Term is $19.50 per rentable square
foot of space in the Premises. The Base Rent set forth in this Section 5.1 is
a negotiated figure and shall govern whether or not the actual gross rentable
square footage of the Premises is the same as set forth in Section 2 hereof
or changes pursuant to the standards set in the definition of Net Rentable
Area. Tenant shall have no right to withhold, deduct or offset any amount of
the monthly Base Rent or any other sum due hereunder even if the actual gross
rentable square footage of the Premises is less than that set forth in
Section 2 hereof or changes pursuant to the standards set forth in the
definition of Net Rentable Area.
5.2 ADDITIONAL RENT. For purposes of this Lease, Tenant's "ADDITIONAL
RENT" for any Fiscal Year (or portion thereof) shall mean the product of (a) Net
Rentable Area of the Premises MULTIPLIED BY (b) the difference between (i) the
Operating Expenses DIVIDED BY the Net Rentable Area of the Building MINUS (ii)
the Expense Stop, all as applicable for the period in question. By the
Commencement Date, Landlord shall estimate the Additional Rent to be due by
Tenant for the balance of the Fiscal Year in which the Commencement Date occurs.
Thereafter, unless Landlord delivers to Tenant a revision of the estimated
Additional Rent, Tenant shall pay to Landlord, coincident with Tenant's payment
of Base Rent, an amount equal to the estimated Additional Rent for the remainder
of such year divided by the number of months remaining in such year. From time
to time during any Fiscal Year, Landlord may estimate and re-estimate the
Additional Rent to be due by Tenant for that Fiscal Year and deliver a copy of
the estimate or re-estimate to Tenant. Thereafter, the monthly installments of
Additional Rent payable by Tenant shall be appropriately adjusted in accordance
with the estimation so that, by the end of the Fiscal Year, Tenant shall have
paid all of the Additional Rent as estimated by Landlord. After the conclusion
of each Fiscal Year during the Term, and after the termination or expiration of
the Term, Landlord shall deliver to Tenant a statement of actual Additional Rent
due by Tenant for the Fiscal Year (or, with respect to termination or
expiration, the portion of the Fiscal Year) just ended. Within thirty (30) days
thereafter, Tenant shall pay to Landlord or Landlord shall credit against the
next installment of Additional Rent due by Tenant (or Landlord shall refund to
Tenant, if the Term has expired and all payments due by Tenant to Landlord have
been paid in full) the difference between the actual Additional Rent due for
such year and the estimated Additional Rent paid by Tenant during such year. In
the event that Tenant is not satisfied with the statements of actual Additional
Rent submitted by Landlord, Tenant shall have the annual right, at Tenant's
expense and after giving twenty (20) days' prior written notice to Landlord, to
cause a nationally recognized firm of independent certified public accountants
reasonably acceptable to Landlord (similar to the "big six" firms as that term
is used on the date hereof) to make a special audit of all books and records
pertaining to the Operating Expenses and the statements of Additional Rent for
any periods within two (2) Fiscal Years prior to the review; provided, however,
no review shall extend to periods of time preceding the Fiscal Year within which
the Commencement Date falls. If any such audit reveals that Landlord overcharged
Tenant for Operating Expenses by more than five percent (5%) in any one year,
Landlord will pay the proportionate cost for such audit for the year(s) in which
Landlord was found to have overcharged Tenant in excess of five percent (5%). If
any such audit indicates that the statement submitted to Tenant is incorrect,
Landlord shall pay to Tenant any overpayment or Tenant shall pay to Landlord any
underpayment, as the case may be, which is established by any such audit. Any
payments required to be made by the parties pursuant to the preceding sentence
shall be due and payable within thirty (30) business days after receipt of such
audit by the party required to make such payment.
5.3 PARKING CHARGE. During the Term, Landlord will provide unassigned
surface parking to Tenant at no additional cost to Tenant in a ratio of one (1)
unassigned surface parking space for each 275 rentable square feet of space in
the Premises up to 20,000 rentable square feet, and one (1) unassigned covered
parking space for each 2,000 rentable square feet of space in the Premises up to
20,000 rentable square feet; thereafter, Landlord will provide unassigned
surface and covered parking to Tenant in a ratio of one (1) parking space for
each 333 rentable square feet of space in the Premises over 20,000 rentable
square feet, provided that unassigned covered parking shall not exceed a ratio
of one (1) parking space
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for each 2,000 rentable square feet of space in the Premises over 20,000
rentable square feet. For purposes of parking allocations, trainees and
students will be included in Tenant's overall usage calculations. All
parking, whether covered or uncovered, shall be used on a first-come,
first-served, basis. In the future, in the event Landlord institutes a parking
control system for the Complex, Tenant will use its best efforts to obtain a
completed registration form from Tenant's trainees, students and employees
with respect to vehicles driven onto the Complex by Tenant's trainees,
students and employees, returning same to Landlord, and cause such trainees,
students and employees to display Landlord's parking identification within
their vehicle(s). Contemporaneously with the payment of the first (1st)
installment of Rent, Landlord will issue to Tenant twenty-one (21) access
cards. Tenant shall pay to Landlord as Additional Rent an amount equal to
Twenty Dollars ($20.00) each for any additional and/or replacement access
card that Tenant needs to gain access to the Building.
5.4 PAYMENT OF RENT. Except as otherwise expressly provided in this
Lease, all Rent shall be due in advance monthly installments on the first day of
each calendar month during the Term. Rent shall be paid to Landlord at its
address recited in Section 27.7 or to such other person or at such other address
as Landlord may from time to time designate in writing. Rent shall be paid
without notice, demand, abatement, deduction or offset in legal tender of the
United States of America, except as expressly provided elsewhere in this Lease.
If the Term commences or ends on other than the first or the last day of a
calendar month, the Rent for the partial month shall be prorated on the basis of
the number of days during the month for which the Term was in effect. If the
Term commences or ends on other than the first or the last day of a Fiscal Year,
the Additional Rent for the partial Fiscal Year shall be prorated on the basis
of the number of days during the Fiscal Year for which the Term was in effect.
5.5 DELINQUENT PAYMENTS. All Rent and other payments required of
Tenant hereunder (minus the late charge) shall bear interest from the date due
until the date paid at the rate of interest specified in Section 27.13.
Alternatively, Landlord may charge Tenant, as additional Rent hereunder, a fee
equal to five percent (5%) of the delinquent payment to reimburse Landlord for
its cost and inconvenience incurred as a consequence of Tenant's delinquency
commencing on the fourth (4th) day after the due date for such payment. In no
event, however, shall the charges permitted under this Section 5.5 or elsewhere
in this Lease, to the extent the same are considered to be interest under
applicable law, exceed the maximum rate of interest allowable under applicable
law.
5.6 PREPAID RENT. Simultaneously with execution hereof, Landlord
hereby acknowledges receipt of $42,909.00, representing the first monthly
installment of Base Rent paid in advance, to be applied to the Rent for the
first month of the Term when due.
6. CONSTRUCTION OF IMPROVEMENTS.
6.1 GENERAL; ADA COMPLIANCE. Subject to events of Force Majeure,
Landlord shall install, furnish, perform and apply, at its expense, the
Landlord's Work as specified in the Work Letter. Performance of the Landlord's
Work shall constitute Landlord's sole construction obligation to Tenant under
this Lease. Tenant will assure that the plans and specifications for its
improvements, as well as its business operations within the Premises comply with
the Americans With Disabilities Act of 1990, as amended, and all related state
and local laws (collectively, the "ADA"). Landlord will be responsible for all
ADA compliance for the remainder of the Building (taking into account other
tenants' obligations to comply with the ADA and the fact that the Building was
constructed before the effective date of the ADA). Landlord shall be responsible
for ensuring the Common Areas of the Building comply with all accessibility
requirements and laws. Tenant shall have the fight to use any and all existing
improvements or equipment on the Premises. Tenant shall not be charged for any
existing improvements or equipment. Window blinds will remain as existing. Prior
to the Commencement Date, missing or damaged blinds will
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be replaced at cost paid from the Leasehold Improvements Allowance. Landlord
will repair any existing water leaks prior to the Commencement Date at its
expense and not as a deduction from the Leasehold Improvements Allowance.
Tenant shall be allowed to use existing communications conduits between the
floors of the Building and to install additional communications conduits
within floors on which the Premises are located, extending to the roof to the
extent permitted by Section 28.1. Tenant shall be allowed to use floor cores
so long as precautionary measures are taken during construction, and provided
the floor cores do not interfere with the structural integrity of the
Building. Within two (2) weeks after execution of this Lease, Landlord shall,
at its cost, and without reimbursement from Tenant or the Leasehold Improvements
Allowance, deliver to Tenant base building plans and specifications reflecting
existing conditions for Tenant's space planner/architect to prepare space
plans. The contractors and subcontractors employed to perform Landlord's
Work shall not be deemed to be Tenant's contractors or subcontractors, shall
be awarded contracts based on a competitively bid system involving at least
three (3) different contractors, and shall be subject to Tenant's approval,
not to be unreasonably withheld. No construction management fee shall be
payable to Landlord hereunder. Teant shall have the right to select any
architect, space planner, and engineer it desires, subject to Landlord's
approval, which shall not be unreasonably withheld. Landlord shall pay,
without reimbursement from Tenant, the costs incurred by Landlord to review
and approve plans and specifications.
6.2 ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Provided that
Tenant obtains and delivers to Landlord the certificates or policies of
insurance called for in Section 17.1, Landlord, in its reasonable discretion,
may permit Tenant and its employees, agents, contractors and suppliers to enter
the Premises before the Commencement Date [and such entry, alone, shall not
constitute Tenant's taking possession of the Premises for the purpose of Section
6.3(c)) to prepare the Premises for Tenant's occupancy. Tenant and each other
person or firm, who or which enters the Premises before the Commencement Date
shall conduct itself so as to not unreasonably interfere with Landlord or other
occupants of the Building. Landlord may withdraw any permission granted under
this Section 6.2 upon twenty-four (24) hours' notice to Tenant if Landlord, in
its reasonable discretion, determines that any such interference has been or may
be caused. Any prior entry shall be under all of the terms of this Lease (other
than the obligation to pay Base Rent and Additional Rent) and at Tenant's sole
risk. Landlord shall not be liable in any way for personal injury, death or
property damage (including damage to any personal property which Tenant may
bring into, or any work which Tenant may perform in, the Premises) which may
occur in or about the Complex by Tenant or such other person or firm as a result
of any prior entry.
6.3 COMMENCEMENT DATE; ADJUSTMENTS TO COMMENCEMENT DATE. For purposes
of this Lease, the "COMMENCEMENT DATE" shall mean the earliest of: (a) five (5)
days after Landlord notifies Tenant that Landlord has substantially completed
the Landlord's Work and the Tenant Improvements have passed final inspection by
the city of Addison, Texas; (b) the date on which Landlord would have
substantially completed the Landlord's Work and tendered possession of the
Premises to Tenant but for (i) the delay or failure of Tenant to furnish
information or other matters required in the Work Letter, (ii) Tenant's request
for changes in the Plans or non-Building Standard Items or (iii) any other
action or inaction of Tenant, or any person or firm employed or retained by
Tenant (collectively, items (i), (ii) and (iii) shall hereinafter be referred to
as "Tenant Delay"); (c) the date on which Tenant takes possession of the
Premises; and (d) August 1, 1997; provided that Landlord has made the Premises
available to Tenant's architect as provided in the Work Letter on or before June
15, 1997, that the Premises are made available to Tenant's architect as provided
in the Work Letter. If by the scheduled Commencement Date specified in Section
3 the Landlord's Work has not been substantially completed or Landlord is unable
to tender possession of the Premises to Tenant, through no Tenant Delay, and
such failure to substantially complete prevents Tenant from legally occupying
the Premises, thereby using the Premises for their intended purpose, all as
reasonably determined by Landlord, then the Commencement Date (and the
commencement of payment of Base Rent and Additional Rent) shall be postponed
until the Landlord's
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Work is substantially completed as reasonably determined by Landlord. Except
as otherwise provided hereinbelow, the postponement of the payment of Base
Rent and Additional Rent under this Section 6.3 shall be Tenant's exclusive
remedy for Landlord's delay in completing the Landlord's Work or tendering
possession of the Premises to Tenant. Notwithstanding the foregoing, in the
event Tenant has prepared and Landlord has approved the construction drawings
relating to Landlord's Work on or before June 15, 1997, and the actual
Commencement Date with respect to that portion of the Premises other than the
Ground Floor Premises has not occurred prior to December 15, 1997, and such
delay is not a result of Tenant Delay, special order materials or Force
Majeure, then Tenant shall have the option to terminate this Lease by giving
written notice to Landlord during the period commencing on December 16, 1997,
and ending on December 30, 1997. In the event Tenant does not give such
written notice to Landlord within such period, this Lease shall continue in
full force and effect and Tenant shall not have the right to terminate this
Lease pursuant to this Section 6.3. Failure by Tenant to deliver to Landlord
construction drawings relating to Landlord's Work by June 15, 1997, shall
void Tenant's termination option described above. In the event Tenant has
prepared and Landlord has approved the construction drawings relating to
Landlord's Work on or before June 15, 1997, and the actual Commencement Date
with respect to the Ground Floor Premises has not occurred prior to December
15, 1997, and such delay is not a result of Tenant Delay, special order
materials or Force Majeure, then Tenant shall not have the option to
terminate this Lease but instead Landlord shall give Tenant a credit against
the Base Rent allocable to the Ground Floor Premises in an amount equal to
two (2) days of base Rent allocable to the Ground Floor Premises for every
one (1) day that the actual Commencement Date occurs after December 15, 1997,
which rent credit shall be applied against Base Rent due and payable by
Tenant in respect of the Ground Floor Premises after the Commencement Date
occurs in respect thereof. In the event the Commencement Date does not occur
at the same time in connection with that portion of the Premises other than
the Ground Floor Premises and the Ground Floor Premises, then Base Rent and
Additional Rent due and payable by Tenant under this Lease shall be prorated
for such respective portions of the Premises based upon the rentable square
footage allocable to each of such portions of the Premises. Within thirty
(30) days after the actual Commencement Date with respect to the Premises,
or, in the event the actual Commencement Date for the portion of the Premises
other than the Ground Floor Premises differs from the Commencement Date for
such Ground Floor Premises, within thirty (30) days after the respective
Commencement Dates therefor, Landlord and Tenant shall execute a Commencement
Date agreement setting forth the exact Commencement Date and the expiration
date of this Lease.
7. SERVICES TO BE FURNISHED BY LANDLORD.
7.1 GENERAL. Landlord shall provide to Tenant, the cost for each
shall be included as Operating Expenses and not as an additional or separate
charge to Tenant, the level and quality of services generally provided by
landlords of office buildings of similar size, age and construction in the
Quorum, Addison, Texas, submarket. Subject to applicable Legal Requirements, and
repair and maintenance requirements from time to time, Landlord shall furnish
the following services:
(a) Air-conditioning and heating to the Premises during
Building Operating Hours, at such temperatures and in such amounts as are
described on EXHIBIT H. Tenant acknowledges that heat sources, such as
specialized data processing equipment and sophisticated telephone
systems, cannot be supported with standard air-conditioning service to be
provided to the Premises. The after hours rate for use of the existing
HVAC system is $45.00 per hour during the Term of this Lease. In the
event Tenant elects to use the HVAC system currently serving the Premises
after hours, Tenant agrees to notify Landlord at least eight (8) hours
prior to Tenants need for after hours usage on weekdays and prior to noon
on Fridays for any weekend usage. At Tenant's sole cost and expense,
Tenant shall have the right to install and thereafter maintain separate
self-contained ceiling-mounted HVAC equipment. At Tenant's sole cost and
expense,
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Tenant agrees to install electrical metering for such HVAC equipment and
thereafter to pay for electrical service provided to such HVAC equipment.
(b) Hot and cold water at those points of supply common to all
floors for lavatory and drinking purposes only twenty-four (24) hours per
day, 365/366 days per year;
(c) Janitor service and periodic window washing in and about
the Building and the Premises;
(d) Elevator service to provide access to and egress from the
Premises twenty-four (24) hours per day, 365/366 days per year;
(e) Electric current twenty-four (24) hours per day, 365/366
days per year for normal office machines and other machines of low
electrical consumption (such as typewriters, calculators, photocopiers,
personal computers, word processors, and specifically including laser
printers,) and fluorescent lighting (which shall exclude electric current
for commercial electronic data processing equipment, lighting in excess
of Building Standard or any other item of electrical equipment which
singly consumes more than 0.8 kilowatts per hour at rated capacity or
requires a voltage other than 120 volts single phase). At Tenant's sole
cost and expense, Tenant shall have the right to submeter electrical
usage for all or a portion of the Premises, in which event Operating
Expenses shall be prorated for the usage within the Premises until the
time such submetering goes into effect, and thereafter shall be prorated
to reflect any portion of the Premises not included in the submetering
and normal common area usage charges;
(f) Replacement of fluorescent lamps in Building Standard light
fixtures installed by Landlord and of incandescent bulbs or fluorescent
lamps in all public restrooms, stairwells and other common areas in the
Building; and
(g) Access control and security services as may from time to
time be generally standard for comparable buildings in the Quorum,
Addison, Texas, submarket. NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT LANDLORD IS NOT
WARRANTING THE EFFICIENCY OF ANY SUCH SECURITY PERSONNEL, SERVICE,
PROCEDURES OR EQUIPMENT AND THAT TENANT IS NOT RELYING AND SHALL NOT
HEREAFTER RELY ON ANY SUCH PERSONNEL, SERVICE, PROCEDURES OR EQUIPMENT.
LANDLORD SHALL NOT BE RESPONSIBLE OR LIABLE IN ANY MANNER FOR FAILURE OF
ANY SUCH SECURITY PERSONNEL, SERVICES, PROCEDURES OR EQUIPMENT TO
PREVENT, CONTROL, OR APPREHEND ANYONE SUSPECTED OF CAUSING PERSONAL
INJURY OR DAMAGE IN, ON OR AROUND THE COMPLEX. TENANT DOES NOT HEREBY
WAIVE ANY CLAIMS IT MAY HAVE DIRECTLY AGAINST ANY SUCH SECURITY PROVIDER.
If any of the services described above or elsewhere in this Lease are
interrupted, Landlord shall use reasonable diligence to promptly restore same.
However, neither the interruption or cessation of such services nor the failure
of Landlord to restore same shall render Landlord liable for damages to person
or property, or be construed as an eviction of Tenant, or work an abatement of
Rent or relieve Tenant from fulfilling any of its other obligations hereunder.
Notwithstanding the foregoing, in the event of a material interruption or
failure of services and such material interruption or failure of services
continues for seven (7) consecutive days, rendering the Premises untenantable,
Landlord shall abate the Base Rent on a per
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them basis retroactive to the first day of such failure and continuing until
such time as such services are restored.
7.2 KEYS. Landlord shall furnish Tenant, at Landlord's expense, with
ten (10) keys, and at Tenant's expense with such additional keys as Tenant may
request to unlock each corridor door entering the Premises. Tenant shall not
install, or permit to be installed, any additional lock on any door into or in
the Premises or make, or permit to be made, any duplicates of keys to the
Premises. Landlord shall be entitled at all times to possession of a duplicate
of all keys to all doors to or inside of the Premises. All keys referred to in
this Section 7.2 shall remain the property of Landlord. Upon the expiration or
termination of the Term, Tenant shall surrender all such keys and access cards
to Landlord and shall deliver to Landlord the combination to all locks on all
safes, cabinets and vaults which will remain in the Premises. Landlord shall be
entitled to install, operate and maintain security systems in or about the
Premises and the Complex which monitor, by closed circuit television or
otherwise, all persons leaving or entering the Complex, the Building and the
Premises. Tenant also shall have the right, at its sole cost and expense, to
install and operate such additional access control systems within the Premises
as it shall determine for the purpose of limiting access to or within the
Premises provided Landlord, its agents and employees are provided with
applicable keys and/or codes to the Premises guaranteeing access twenty-four
(24) hours per day, 365/366 days per year.
7.3 TENANT IDENTITY. Landlord shall provide and install, in Building
Standard graphics, letters or numerals identifying Tenant's name and suite
number on entrance doors to the Premises. Without Landlord's prior written
consent, no other signs, numerals, letters, graphics, symbols or marks
identifying Tenant shall be placed on the exterior, or on the interior if they
are visible from the exterior, of the Premises. Landlord shall install up to one
(1) directory strip for each ten thousand (10,000) net rentable square feet in
the Premises, listing the names and suite numbers of Tenant on the Building
directory board to be placed in the main lobby of the Building. Tenant shall
have the right, at its sole expense and subject to Landlord's prior written
approval of the design, size, location and method of installation, to install
Tenant's name on the multi-tenant monument sign currently existing at the
Complex. Tenant shall pay to Landlord, within ten (10) days after receipt of an
invoice for same, as Additional Rent, all costs and expenses incurred by
Landlord in connection with installing Tenant's name on such monument sign, and
Tenant's pro rata share (based upon the total number of tenant names included on
such monument sign) of all costs and expenses incurred by Landlord during the
Term of this Lease for the maintenance and repair such monument sign. Subject to
Landlord's prior approval, which approval shall not be unreasonably withheld,
Tenant may install non-Building Standard signage, including Tenant's logo, in
the elevator lobby on any single-tenant floors wholly occupied by Tenant.
7.4 CHARGES. Tenant shall pay to Landlord, monthly as billed, as
additional Rent, such charges as may be separately metered or as Landlord may
compute for (a) any utility services utilized by Tenant in excess of that agreed
to be furnished by Landlord pursuant to Section 7.1(e), (b) lighting installed
in the Premises in excess of Building Standard lighting, (c) air-conditioning,
heating and other services in excess of that stated in Section 7.1(a) or
provided at times other than Building Operating Hours and (d) janitorial
services required with respect to Non-Building Standard Items within the
Premises. Landlord may elect to estimate the charges to be paid by Tenant under
this Section 7.4 and bill such charges to Tenant monthly in advance, in which
event Tenant shall promptly pay the estimated charges. When the actual charges
are determined by Landlord an appropriate cash adjustment shall be made between
Landlord and Tenant to account for any underpayment or overpayment by Tenant.
Tenant shall pay all costs associated with providing separate utility meters to
the Leased Premises.
7.5 OPERATING HOURS. Subject to Building Rules and Regulations and
such security standards as Landlord may from time to time adopt, the Building
shall be open to the public during the Building Operating Hours and the
Premises shall be open to Tenant twenty-four (24) hours per day, 365/366 days
per year.
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8. REPAIR AND MAINTENANCE.
8.1 BY LANDLORD. Landlord shall maintain the Building (excluding
leasehold improvements which become fixtures thereto) in a good and operable
condition, and shall make such repairs and replacements as may be required to
maintain the Building in such condition. This Section 8.1 shall not apply to
damage resulting from a Taking (as to which Section 14 shall apply), or damage
resulting from a casualty (as to which Section 15.1 shall apply) or to damage
for which Tenant is otherwise responsible under this Lease. Landlord shall
maintain the Building, all base Building improvements, all mechanical,
electrical and plumbing facilities, subject to the provisions of Section 28.1,
the roof and roof membrane, and the Common Areas in a similar condition to other
office buildings of similar size, age and construction in the Quorum, Addison,
Texas, submarket.
8.2 BY TENANT. Tenant shall maintain the Premises in a clean, safe,
operable, attractive condition, and will not commit or allow to remain any waste
or damage to any portion of the Premises. Tenant shall repair or replace,
subject to Landlord's direction and supervision, any damage to the Complex
caused by Tenant or Tenant's agents, contractors or invitees. If Tenant fails to
make such repairs or replacements, Landlord may make same at Tenant's cost. Such
cost shall be payable to Landlord by Tenant on demand as additional Rent. All
contractors, workmen, artisans and other persons which or who Tenant proposes to
retain to perform work in the Premises (or the Complex, pursuant to the second
sentence of this Section 8.2) pursuant to this Section 8.2 or Section 11 shall
be approved by Landlord prior to the commencement of any such work.
9. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for and shall pay,
before their becoming delinquent, all taxes and assessments levied against any
personal property placed by Tenant in the Premises (even if same becomes a
fixture by operation of law or the property of Landlord by operation of this
Lease), including any additional Impositions which may be assessed, levied,
charged or imposed against Landlord or the Building by reason of Non-Building
Standard Items in the Premises. Tenant may withhold payments of any taxes and
assessments described in this Section 9 so long as Tenant contests its
obligation to pay in accordance with applicable law and the non-payment thereof
does not pose a threat of loss or seizure of the Building or any interest of
Landlord therein.
10. TRANSFER BY TENANT
10.1 GENERAL.
(a) Without the prior written consent of Landlord (which shall
not be unreasonably withheld or delayed), Tenant shall not effect or
suffer any Transfer. Any attempted Transfer without such consent shall be
void. If Tenant desires to effect a Transfer, it shall deliver to
Landlord written notice thereof in advance (in accordance with
subparagraph (b) below) of the date on which Tenant proposes to make the
Transfer, together with all of the terms of the proposed Transfer and the
identity of the proposed Transferee. Landlord shall have thirty (30) days
following receipt of the notice and information within which to notify
Tenant in writing whether Landlord elects (i) to refuse to consent to the
Transfer and to terminate this Lease as to the space proposed to be
Transferred as of the date so specified by Tenant, in which event Tenant
will be relieved of all further obligations hereunder as to such space;
however, Landlord will permit occupancy (subject to the terms and
conditions of this Lease, including, without limitation, Tenant' s
obligation to pay Rent) of such space by Tenant for ninety (90) days
following
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Landlord's notice of termination provided above, (ii) to refuse to
consent to the Transfer and to continue this Lease in full force as to
the entire Premises or (iii) to permit Tenant to effect the proposed
Transfer. If Landlord fails to notify Tenant of its election within said
thirty (30) day period, Landlord shall be deemed to have elected option
(ii). The consent by Landlord to a particular Transfer shall not be
deemed a consent to any other Transfer. If a Transfer occurs without the
prior written consent of Landlord as provided herein, Landlord may
nevertheless collect rent from the Transferee and apply the net amount
collected to the Rent payable hereunder, but such collection and
application shall not constitute a waiver of the provisions hereof or a
release of Tenant from the further performance of its obligations
hereunder.
(b) Landlord and Tenant hereby agree that the granting of
consent by Landlord, as to those assignments or subleases requiring
Landlord's consent, shall be preconditioned upon the fulfillment of the
following requirements of Landlord, as well as any other reasonable
requirements of Landlord including, without limitation, those set forth
in Section 10.2 hereof:
(1) Landlord shall be provided with at least twenty (20)
days written notice prior to any proposed assignment or
subletting;
(2) The Premises shall remain intact and shall not be
altered in any manner whatsoever unless Tenant and the prospective
assignee or sublessee shall pay the entire cost thereof, and
Landlord's prior written approval is obtained pursuant to Section
11;
(3) The tangible net worth of the proposed
subtenant/assignee must be reasonably sufficient for the
obligations to be assumed by such proposed subtenant/assignee;
(4) Any use of Premises permitted hereunder by the
proposed sublessee/assignee will not violate or create any
potential violation of any laws, nor will it violate any other
agreements affecting the Premises, the Building or Landlord;
(5) The proposed subtenant/assignee will not increase
traffic congestion above the existing traffic burden generated by
Tenant's invitees, or create an unreasonable burden on existing
parking above current parking allowances allocated to Tenant;
(6) Tenant shall pay any and all reasonable attorneys'
fees or other costs associated with Landlord's review and approval
of a prospective assignee or sublessee; and
(7) No assignment or sublease shall be to a person or
entity with whom Landlord is then negotiating, has negotiated
within the previous six (6) months or currently is a tenant within
the Building.
10.2 Conditions. Except as expressly provided below, the following
conditions shall automatically apply to each Transfer, without the necessity of
same being stated in or referred to in Landlord's written consent:
(a) Tenant shall execute, have acknowledged and deliver to
Landlord, and cause the Transferee to execute, have acknowledged and
deliver to Landlord, an instrument in form and substance acceptable to
Landlord in which (i) the Transferee adopts this Lease and agrees to
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perform, jointly and severally with Tenant, all of the obligations of
Tenant hereunder, as to the space transferred to it, (ii) the Transferee
grants Landlord an express first and prior security interest in its
personal property brought into the transferred space to secure its
obligations to Landlord hereunder, (iii) Tenant subordinates to
Landlord's statutory lien and security interest any liens, security
interests or other rights which Tenant may claim with respect to any
property of the Transferee, (iv) Tenant agrees with Landlord that, if the
rent or other consideration due by the Transferee exceeds the Rent for
the transferred space, then Tenant shall pay Landlord as additional Rent
hereunder all such excess rent and other consideration immediately upon
Tenant's receipt thereof after deduction by Tenant of all of the direct
costs incurred by Tenant in connection with entering into the Transfer,
reasonable marketing, accounting or legal costs incurred, fees charged by
Landlord for the cost of any improvements required to prepare the space
for the Transferee (not to exceed Five Dollars ($5.00) per rentable
square foot), and reasonable leasing commissions [not to exceed six and
one-half percent (6 1/2%)]; provided, however, such deduction shall only
be allowed against such excess rent and not against any portion of the
Rent, (v) Tenant and the Transferee agree to provide to Landlord, at
their expense, direct access from a public corridor in the Building to
the transferred space, (vi) the Transferee agrees to use and occupy the
transferred space solely for the purpose specified in Section 4 and
otherwise in strict accordance with this Lease and (vii) Tenant
acknowledges that, notwithstanding the Transfer, Tenant remains directly
and primarily liable for the performance of all the obligations of Tenant
hereunder (including, without limitation, the obligation to pay all
Rent), and Landlord shall be permitted to enforce this Lease against
Tenant or the Transferee, or both, without prior demand upon or
proceeding in any way against any other persons;
(b) Tenant may, without the consent of Landlord, Transfer this
Lease, in whole or in part, to: (i) a corporation into which or with
which Tenant is wholly merged or consolidated; or (ii) a corporation
acquiring this Lease and all or substantially all of the other property
of Tenant and assuming all or substantially all of the liabilities of
Tenant; or (iii) an entity that acquires all or substantially all of the
stock or other ownership interests in or of Tenant; or (iv) an Affiliate,
in which case, no excess consideration will be paid by Tenant to
Landlord, provided that such Transferee complies with the conditions set
forth in Section 10.2(a)(i), (ii), (iii), and (vi); and
(c) Tenant shall deliver to Landlord a counterpart of all
instruments relative to the Transfer executed by all parties to such
transaction (except Landlord).
10.3 LIENS. Without in any way limiting the generality of the
foregoing, Tenant shall not grant, place or suffer, or permit to be granted,
placed or suffered, against the Complex or any portion thereof, any lien,
security interest, pledge, conditional sale contract, claim, charge or
encumbrance (whether constitutional, contractual or otherwise) and if any of the
aforesaid does arise or is asserted, Tenant will, promptly upon demand by
Landlord and at Tenant's expense, cause same to be released.
11. ALTERATIONS. Tenant shall not make, or permit to be made, any alteration,
improvement or addition to, or install, or permit to be installed, any fixture
or equipment (other than desk top electrical equipment) in, the Premises without
the prior written consent of Landlord; which in the case of non-structural
alterations, improvements or additions shall not be unreasonably withheld or
delayed by Landlord; provided, however, Tenant shall have the right, without the
prior written consent of Landlord, to make non-structural, cosmetic alterations
with an aggregate cost of less than Ten Thousand Dollars ($10,000.00) provided
that Tenant notifies Landlord at least five (5) business days in advance of the
nature and extent of such proposed alterations, and provided further, that any
such alterations shall be made in a good and workmanlike manner and shall be
made in accordance with the terms and conditions of this Lease and shall not
affect any areas of the
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Building or the Complex other than the Premises. All such alterations,
improvements and additions shall become the property of Landlord and shall,
at Landlord's election, be (a) surrendered with the Premises as part thereof
at the termination or expiration of the Term, without any payment,
reimbursement or compensation therefor, or (b) removed by Tenant, at Tenant's
expense, with all damage caused by such removal repaired by Tenant.
Landlord's determination of Tenants obligation to remove any such
alterations, improvements and additions shall, within ten (10) business days
following comprehensive submission by Tenant to Landlord, be made by
Landlord, provided adequate specifications as to such alterations,
improvements and additions is submitted with Tenant's notification. Tenant
may remove Tenant's trade fixtures, office supplies, movable office furniture
and equipment provided such removal is made within five days after the
expiration of the Term, no uncured Event of Default exists and Tenant
promptly repairs all damage caused by such removal.
12. SPECIFICALLY PROHIBITED USES. Tenant will not (a) use, occupy or permit
the use or occupancy of the Premises for any purpose or in any manner which is
or may be, directly or indirectly, violate of any Legal Requirement, or
dangerous to life or property, or a public or private nuisance or disruptive or
obstructive of any other tenant of the Building, (b) keep, or permit to be kept,
any substance in or conduct, or permit to be conducted, any operation from the
Premises which might emit offensive odors or conditions into other portions of
the Building, or make undue noise or create undue vibrations, (c) commit or
permit to remain any waste to the Premises, (d) install or permit to remain any
improvements to the Premises (other than window coverings which have first been
approved by Landlord) which are visible from the outside of the Premises, or
exceed the structural loads of floors or walls of the Building, or adversely
affect the mechanical, plumbing or electrical systems of the Building or affect
the structural integrity of the Building in any way, (e) install any food, soft
drink or other vending machine (other than those for the exclusive,
non-commercial use of Tenant and its business invitees) in the Premises or (f)
commit, or permit to be committed, any action or circumstance in or about the
Building which, directly or indirectly, would or might justify any insurance
carrier in canceling or increasing the premium on the fire and extended coverage
insurance policy maintained by Landlord on the Building or contents, and if any
increase results from any act of Tenant, then Tenant shall pay such increase
promptly upon demand therefor by Landlord.
13. ACCESS BY LANDLORD. Landlord, its employees, contractors, agents and
representatives, shall have the right (and Landlord, for itself and such persons
and firms, hereby reserves the right) to enter the Premises at all hours (a) to
inspect, clean, maintain, repair, replace or alter the Premises or the Building,
(b) to show the Premises to prospective purchasers (or, during the last six (6)
months of the Term, to prospective tenants), (c) to determine whether Tenant is
performing its obligations hereunder and, if it is not, to perform same at
Landlord's option and Tenant's expense or (d) for any other purpose deemed
reasonable by Landlord. In an emergency, Landlord (and such persons and firms)
may use any means to open any door into or in the Premises without any liability
therefor. Entry into the Premises by Landlord or any other person or firm named
in the first sentence of this Section 13 for any purpose permitted herein shall
not constitute a trespass or an eviction (constructive or otherwise), or entitle
Tenant to any abatement or reduction of Rent or constitute grounds for any claim
(and Tenant hereby waives any claim) for damages for any injury to or
interference with Tenant's business, for loss of occupancy or quiet enjoyment or
for consequential damages.
14. CONDEMNATION. If all of the Complex is Taken, or if so much of the
Complex is Taken that, in Landlord's reasonable opinion, the remainder cannot be
restored to an economically viable, quality office building, or if the awards
payable to Landlord as a result of any Taking are, in Landlord's reasonable
opinion, inadequate to restore the remainder to an economically viable, quality
office building, Landlord may, at its election, exercisable by the giving of
written notice to Tenant within sixty (60) days after the date of the Taking,
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terminate this Lease as of the date of the Taking or the date Tenant is
deprived of possession of the Premises (whichever is later). Except in the
case of a temporary Taking, if any portion of the Premises or roof of the
Building shall be the subject of a Taking so as to render any portion of the
Premises unusable for Tenant's business, this Lease shall, at Tenants option,
terminate. If this Lease is not terminated as result of a Taking, Landlord
shall restore the Premises remaining after the Taking to the condition the
Premises were in upon completion of the Landlord's Work, wear and tear and
damages and alterations by the Tenant excepted, such restoration to be
completed by Landlord within two hundred seventy (270) days from the date of
the Taking; provided, however, in the event the Premises have not been
restored to a Building Standard condition within two-hundred seventy (270)
days, Tenant may, at its election, exercisable by the giving of written
notice to Landlord within ten (10) days after the expiration of such two
hundred seventy (270) day period, terminate this Lease. During the period of
restoration, Base Rent shall be abated to the extent the Premises are
rendered untenantable and, after the period of restoration, Base Rent and
Tenant's Share shall be reduced in the proportion that the area of the
Premises Taken or otherwise rendered untenantable bears to the area of the
Premises just prior to the Taking. All awards, proceeds, compensation or
other payments from or with respect to any taking of the Complex or any
portion thereof shall belong to Landlord, Tenant hereby assigning to Landlord
all of its right, title, interest and claim to same. Tenant may assert a
claim for and recover from the condemning authority, but not from Landlord,
such compensation as may be awarded on account of Tenant's moving and
relocation expenses, and depreciation to and loss of Tenant's moveable
personal property.
15. CASUALTY.
15.1 GENERAL. Tenant shall give prompt written notice to Landlord of
any casualty to the Complex of which Tenant is aware and any casualty to the
Premises. If the Complex or the Premises are totally destroyed, or if the
Complex or the Premises are partially destroyed but in Landlord's opinion, they
cannot be restored to an economically viable, quality office building within two
hundred seventy (270) days from the date of such casualty, or if the insurance
proceeds payable to Landlord as a result of any casualty are, in Landlord's
reasonable opinion, inadequate to restore the portion remaining to an
economically viable and quality office building, Landlord may, at its election
exercisable by the giving of written notice to Tenant within sixty (60) days
after the casualty, terminate this Lease as of the date of the casualty or the
date Tenant is deprived of possession of the Premises (whichever is later). If
this Lease is not terminated as a result of a casualty, Landlord shall (subject
to Section 15.2) restore the Premises to a Building Standard condition;
provided, however, in the event the Premises have not been restored to a
Building Standard condition within two hundred seventy (270) days, Tenant may,
at its election, exercisable by the giving of written notice to Landlord within
ten (10) days after the expiration of such two hundred seventy (270) days
period, terminate this Lease. During the period of restoration, Base Rent shall
be abated to the extent the Premises are rendered untenantable and, after the
period of restoration, Base Rent and Tenant's Share shall be reduced in the
proportion that the area of the Premises remaining tenantable after the casualty
bears to the area of the Premises just prior to the casualty.
15.2 ACTS OF TENANT. Notwithstanding any provisions of this Lease to
the contrary, if the Premises or the Complex are damaged or destroyed as a
result of a casualty arising from the acts or omissions of Tenant, or any of
Tenant's officers, directors, shareholders, partners, employees, contractors,
agents, invitees or representatives which constitute gross negligence or willful
misconduct, to the extent not waived pursuant to Section 17.2(a) Tenant's
obligation to pay Rent and to perform its other obligations under this Lease
shall not be abated, reduced or altered in any manner, (b) Landlord shall not be
obligated to repair or restore the Premises or the Complex, and (c) subject to
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Section 17.2, Tenant shall be obligated, at Tenant's cost, to repair and
restore the Premises or the Complex to the condition they were in just prior
to the damage or destruction under the direction and supervision of, and to
the satisfaction of, Landlord and any Landlord Mortgagee.
16. SUBORDINATION AND ATTORNMENT.
16.1 GENERAL. This Lease, Tenant's leasehold estate created hereby and
all of Tenant's rights, titles and interests hereunder and in and to the
Premises are subject and subordinate to any Mortgage presently existing upon all
or any portion of the Complex. However, Landlord and Landlord's Mortgagee may,
at any time upon the giving of written notice to Tenant and without any
compensation or consideration being payable to Tenant, make this Lease, and the
aforesaid leasehold estate and rights, titles and interests, superior to any
Mortgage. Upon the written request by Landlord or by Landlord's Mortgagee to
Tenant, and within five (5) days of the date of such request, and without any
compensation or consideration being payable to Tenant, Tenant shall execute,
have acknowledged and deliver a recordable instrument confirming that this
Lease, Tenant's leasehold estate in the Premises and all of Tenant's rights,
titles and interests hereunder are subject and subordinate (or, at the election
of Landlord or Landlord's Mortgagee, superior) to the Mortgage benefiting
Landlord's Mortgagee. Landlord shall use reasonable efforts to obtain a
non-disturbance agreement reasonably satisfactory to Tenant from all existing
deed of trust lienholders within thirty (30) days following the execution of
this Lease.
16.2 ATTORNMENT. Upon the written request of any person or party
succeeding to the interest of Landlord under this Lease, Tenant shall
automatically become the tenant of and attorn to such successor in interest
without any change in any of the terms of this Lease. No successor in interest
shall be (a) bound by any payment of Rent for more than one month in advance,
except payments of security for the performance by Tenant of Tenant's
obligations under this Lease, (b) subject to any offset, defense or damages
arising out of a default or any obligations of any preceding Landlord, or (c)
bound by any amendment of this Lease entered into after Tenant has been given
written notice of the name and address of Landlord's Mortgagee and without the
written consent of Landlord's Mortgagee or such successor in interest. The
subordination, attornment and mortgage protection clauses of this Section 16
shall be self-operative and no further instruments of subordination, attornment
or mortgagee protection need be required by any Mortgagee or successor in
interest thereto. Nevertheless, upon the written request therefor and without
any compensation or consideration being payable to Tenant, Tenant agrees to
execute, have acknowledged and deliver such instruments as may be requested to
confirm the same. Notwithstanding the foregoing, any instrument of
subordination, attornment and non-disturbance shall be satisfactory to
Landlord's Mortgagee, its successors and assigns.
17. INSURANCE
17.1 GENERAL. Tenant shall obtain and maintain throughout the Term the
following policies of insurance:
(a) fire and all risk insurance, with vandalism, malicious
mischief and sprinkler leakage endorsements, on all of Tenant's personal
property located in, and on all Non-Building Standard Items to, the
Premises in an amount not less than eighty percent (80%) of the
replacement cost thereof;
(b) comprehensive general and contractual liability insurance
against claims for personal injury, bodily injury, death and property
damage occurring in or about the Premises, such insurance to afford
protection to the limits of not less than $ 1,000,000 per occurrence;
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(c) insurance required hereunder shall be written by companies
licensed to do business in the State of Texas and shall have a minimum
rating of A:VIII by Best's Key Rating Guide; and
(d) such other policy or policies of insurance as Landlord may
reasonably require.
Tenant shall deliver to Landlord, prior to the Commencement Date, certificates
of such insurance and shall, at all times during the Term, deliver to Landlord
upon request true copies of such insurance policies. The policy described in
clause (b) shall (i) name Landlord as an addition insured, (ii) provide that it
will not be canceled, reduced or non-renewed without thirty (30) days' prior
written notice to Landlord, (iii) insure performance of the indemnities of
Tenant contained in Section 18 and elsewhere in this Lease and (iv) be primary
coverage, so that any insurance coverage obtained by Landlord shall be in excess
thereto. Tenant shall deliver to Landlord certificates of renewal at least
thirty (30) days before the expiration date of each such policy and copies of
new policies at least thirty (30) days before terminating any such policies. All
policies of insurance required to be obtained and maintained by Tenant shall be
subject to the approval of Landlord as to terms, coverage, deductibles and
issuer.
17.2 WAIVER OF SUBROGATION. LANDLORD AND TENANT HEREBY WAIVE ALL
CLAIMS, RIGHTS OF RECOVERY AND CAUSES OF ACTION THAT EITHER PARTY OR ANY PARTY
CLAIMING BY, THROUGH OR UNDER SUCH PARTY MAY NOW OR HEREAFTER HAVE BY
SUBROGATION OR OTHERWISE AGAINST THE OTHER PARTY OR AGAINST ANY OF THE OTHER
PARTY'S OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS OR EMPLOYEES FOR ANY LOSS OR
DAMAGE THAT MAY OCCUR TO THE COMPLEX, THE PREMISES, TENANT'S IMPROVEMENTS OR ANY
OF THE CONTENTS OF ANY OF THE FOREGOING BY REASON OF FIRE OR OTHER CASUALTY, OR
BY REASON OF ANY OTHER CAUSE (THUS INCLUDING SIMPLE NEGLIGENCE OF THE PARTIES
HERETO OR THEIR OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS OR EMPLOYEES), THAT
COULD HAVE BEEN INSURED AGAINST UNDER THE TERMS OF (A) IN THE CASE OF LANDLORD,
THE STANDARD FIRE AND EXTENDED COVERAGE INSURANCE POLICIES AVAILABLE IN THE
STATE WHERE THE COMPLEX IS LOCATED AT THE TIME OF THE CASUALTY AND (B) IN THE
CASE OF TENANT, THE FIRE AND EXTENDED COVERAGE INSURANCE POLICY REQUIRED TO BE
OBTAINED AND MAINTAINED UNDER SECTION 17.1. LANDLORD AND TENANT SHALL CAUSE AN
ENDORSEMENT TO BE ISSUED TO THEIR RESPECTIVE INSURANCE POLICIES RECOGNIZINGTHIS
WAIVER OF SUBROGATION.
17.3 LANDLORD'S INSURANCE. Landlord, at all times during the term of
this Lease, shall insure the Building (excluding any property which Tenant is
obligated to insure under Section 17.1 hereof) against damage with all risk
insurance (with replacement cost coverage) and comprehensive general public
liability insurance, all in such amounts, and with such deductibles as are
obtained by similarly situated landlords of office buildings comparable to the
Building in the Quorum, Addison, Texas, submarket from time to time, including
eighty percent (80%) replacement cost with twelve (12) months rent loss
coverage. Notwithstanding any contribution by Tenant to the cost of insurance
premiums, as provided in this Lease, Tenant acknowledges that it has no right to
receive any proceeds from any insurance policies carried by Landlord. Annually,
upon the request of Tenant, a copy of a duly executed certificate of insurance
reflecting Landlord's maintenance of the insurance required under this Section
shall be delivered to Tenant.
18. INDEMNITY. SUBJECT TO SECTION 17.2, TENANT SHALL DEFEND, INDEMNIFY AND
HOLD HARMLESS LANDLORD AND LANDLORD'S OFFICERS, DIRECTORS, SHAREHOLDERS,
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PARTNERS AND EMPLOYEES FROM AND AGAINST, ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, CLAIMS, ACTIONS, SUITS, COSTS, EXPENSES AND
DISBURSEMENTS (INCLUDING COURT COSTS AND REASONABLE ATTORNEYS' FEES) RESULTING
FROM ANY INJURIES TO OR DEATH OF ANY PERSON OR DAMAGE TO ANY PROPERTY
OCCURRING DURING THE TERM IN OR ABOUT THE PREMISES. TENANT SHALL NOT BE
OBLIGATED TO INDEMNIFY LANDLORD AGAINST, AND TENANT DOES NOT WAIVE ANY CLAIMS
ARISING OUT OF, LANDLORD'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. LANDLORD
WILL INDEMNIFY AND HOLD TENANT HARMLESS FROM AND AGAINST ANY CLAIMS, LOSSES,
DEMANDS, LIABILITIES, DAMAGES, AND EXPENSES (INCLUDING LEGAL FEES) RESULTING
FROM ANY INJURIES TO OR DEATH OF ANY PERSON OR DAMAGE TO ANY PROPERTY
OCCURRING DURING THE TERM IN OR ABOUT THE PREMISES, BUILDING OR COMPLEX
CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD, ITS AGENTS,
SERVANTS, AND EMPLOYEES.
19. THIRD PARTIES; ACTS OF FORCE MAJEURE. Landlord shall have no liability to
Tenant or to Tenant's officers, directors, shareholders, partners, employees,
agents, contractors or invitees, for bodily injury, death, property damage,
business interruption, loss of profits, loss of trade secrets or other direct or
consequential damages occasioned by (a) the acts or omissions of any other
tenant or such other tenant's officers, directors, shareholders, partners,
employees, agents, contractors or other invitees within the Complex, (b) Force
Majeure, (c) vandalism, theft, burglary and other criminal acts (other than
those committed by Landlord and its employees), (d) water leakage, or (e) the
repair, replacement, maintenance, damage, destruction or relocation of the
Premises, except if caused by Landlord's gross negligence or willful misconduct.
Nothing contained herein shall limit Landlord's obligations under this Lease,
such as repair and maintenance.
20. SECURITY INTEREST. As security for Tenant's payment of Rent and
performance of all of its other obligations under this Lease, Tenant hereby
grants to Landlord a security interest in all fixtures, furniture, phones,
computers and equipment of Tenant now or hereafter placed in the Premises. In no
event shall the security interest apply to customer files, or books or records.
Landlord, as secured party, shall be entitled to all of the rights, remedies and
recourses afforded to a secured party under the Texas Uniform Commercial Code,
which rights, remedies and recourses shall be cumulative of all other rights,
remedies, recourses, liens and security interests afforded Landlord by law,
equity or this Lease. Contemporaneously with the execution of this Lease, Tenant
shall execute and deliver, as debtor, promptly upon request and without any
compensation or consideration being payable to Tenant, such additional financing
statement or statements as Landlord may request. However, Landlord may at any
time file a copy of this Lease as a financing statement. So long as no Event of
Default exists and upon five (5) days' prior written notice to Landlord, Tenant
shall have the right to remove less than all or substantially all of its
personal property from the Premises without Landlord's approval, including
telephones, satellite dishes and related equipment and cabling. The foregoing
security interest shall commence simultaneously with the expiration of the
Letter of Credit described in Section 28.2, however brought about, and
thereafter remain in effect.
21. CONTROL OF COMMON AREAS. Subject to the terms of Section 28.1, Landlord
shall have the exclusive control over the Common Areas. Landlord may, from time
to time, create different Common Areas, close or otherwise modify the Common
Areas, and modify the Building Rules and Regulations with respect thereto.
22. INTENTIONALLY DELETED.
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23. QUIET ENJOYMENT. Provided Tenant is not in default beyond any applicable
notice and cure periods, if curable, under this Lease, Tenant shall and may
peaceably and quietly have, hold, occupy, use and enjoy the Premises during the
Term subject to the provisions of this Lease. Landlord shall warrant and forever
defend Tenant's right to occupancy of the Premises against the claims of any and
all persons whomsoever lawfully claiming the same or any part thereof, by,
through or under Landlord, but not otherwise, subject to the provisions of this
Lease.
24. DEFAULT BY TENANT.
24.1 EVENTS OF DEFAULT. Each of the following occurrences shall
constitute an Event of Default (herein so called):
(a) The failure of Tenant to pay Rent as and when due hereunder
and the continuance of such failure for a period of five (5) days after
written notice from Landlord to Tenant specifying the failure; provided,
however, after Landlord has given Tenant written notice pursuant to this
clause (a) on two (2) separate occasions in any single calendar year,
Landlord shall not be required to give Tenant any further notice under
this clause (a);
(b) The failure of Tenant to perform, comply with or observe
any other agreement, obligation or undertaking of Tenant, or any other
term, condition or provision, in this Lease, and the continuance of such
failure for a period of thirty (30) days after written notice from
Landlord to Tenant specifying the failure and such additional time [but
not to exceed ninety (90) days after such written notice from Landlord to
Tenant], if any, as is reasonably necessary to cure such failure if such
failure is of such a nature that it cannot reasonably be cured within
such thirty (30) day period, provided that Tenant commences the curing of
the same within such thirty (30) day period and diligently and
continuously prosecutes the curing of the same in good faith and with due
diligence;
(c) The failure of Tenant to accept and move into the Premises
following satisfaction by Landlord of the provisions contained in EXHIBIT
D passage of the Commencement Date and Tenant's failure to enter into the
Commencement Date agreement pursuant to Section 6.3 within thirty (30)
days following submission thereof to Tenant by Landlord;
(d) The filing of a petition by or against Tenant (the term
"Tenant" also meaning, for the purpose of this clause (d), any guarantor
of the named Tenant's obligations hereunder) (i) in any bankruptcy or
other insolvency proceeding, (ii) seeking any relief under the Bankruptcy
Code or any similar debtor relief law, (iii) for the appointment of a
liquidator or receiver for all or substantially all of Tenant's property
or for Tenant's interest in this Lease or (iv) to reorganize or modify
Tenant's capital structure (and, in the event that such petition is filed
against Tenant, that petition is not removed or set aside within sixty
(60) days from the filing date thereof); and
(e) The admission by Tenant in writing that it cannot meet its
obligations as they become due or the making by Tenant of an assignment
for the benefit of its creditors.
24.2 REMEDIES OF LANDLORD. Upon any Event of Default, Landlord may, at
Landlord's option and in addition to all other rights, remedies and recourses
afforded Landlord hereunder or by law or equity, do any one or more of the
following:
(a) Terminate this Lease by the giving of written notice to
Tenant, in which event Tenant shall pay to Landlord the sum of (i) all
Rent and other amounts accrued hereunder to the
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date of termination, (ii) all amounts due under Section 24.3 and (iii)
liquidated damages in an amount equal to (A) the total Rent that
Tenant would have been required to pay for the remainder of the Term
discounted to present value at the prime lending rate (or equivalent
rate, however denominated) in effect on the date of termination at the
largest national bank in the state where the Complex is located minus
(B) the then present fair rental value of the Premises for such
period, similarly discounted.
(b) Terminate Tenant's right to possession of the Premises
without terminating this Lease by the giving of written notice to Tenant,
in which event Tenant shall pay to Landlord (i) all Rent and other
amounts accrued hereunder to the date of termination of possession, (ii)
all amounts due from time to time under Section 24.3 and (iii) all Rent
and other sums required hereunder to be paid by Tenant during the
remainder of the Term, diminished by any net sums thereafter received by
Landlord through reletting the Premises during said period. Reentry by
Landlord in the Premises will not affect the obligations of Tenant
hereunder for the unexpired Term. Landlord may bring action against
Tenant to collect amounts due by Tenant on one or more occasions, without
the necessity of Landlord's waiting until expiration of the Term. If
Landlord elects to proceed under this Section 24.2(b), it may at any time
elect to terminate this Lease pursuant to Section 24.2(a).
(c) Without notice, alter any and all locks and other security
devices at the Premises without being obligated to deliver new keys to
the Premises, unless Tenant has cured all Events of Default before
Landlord has terminated this Lease under Section 24.2(a) or has entered
into a lease to relet all or a portion of the Premises.
(d) If an Event of Default specified in Section 24.1 (c)
occurs, Landlord may remove and store any property that remains on the
Premises, and, if Tenant does not claim such property within ten (10)
days after Landlord has delivered to Tenant notice of such storage,
Landlord may appropriate, sell, destroy, or otherwise dispose of the
property in question without notice to Tenant or any other person and
without any obligation to account for such property.
24.3 PAYMENT BY TENANT. Upon any Event of Default, Tenant shall also
pay to Landlord all costs and expenses incurred by Landlord, including court
costs and reasonable attorneys' fees, in (a) retaking or otherwise obtaining
possession of the Premises, (b) removing and storing Tenant's or any other
occupant's property, (c) repairing, restoring, altering, remodeling or otherwise
putting the Premises into condition acceptable to a new tenant or tenants (which
amount Landlord agrees shall not exceed $12.00 per square foot), (d) reletting
all or any part of the Premises, (e) paying or performing the underlying
obligation which Tenant failed to pay or perform and (f) enforcing any of
Landlord's rights, remedies or recourses arising as a consequence of the Event
of Default.
24.4 RELETTING. Upon termination of this Lease or upon termination of
Tenant's right to possession of the Premises, Landlord shall use reasonable
efforts to relet the Premises on such terms and conditions as Landlord in its
sole discretion may determine (including a term different than the Term, rental
concessions, and alterations to, and improvements of, the Premises); however,
Landlord shall not be obligated to relet the Premises before leasing other
portions of the Building. Landlord shall not be liable, nor shall Tenant's
obligations hereunder be diminished because of, Landlord's failure to relet the
Premises or collect rent due in respect of such reletting. Tenant shall not be
entitled to the excess of any rent obtained by reletting over the Rent herein
reserved.
24.5 LANDLORD'S RIGHT TO PAY OR PERFORM. Upon an Event of Default,
Landlord may, but without obligation to do so and without thereby waiving or
curing such Event of Default, pay or perform
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the underlying obligation for the account of Tenant, and enter the Premises
and expend the Security Deposit for such purpose.
24.6 NO WAIVER. No Implied Surrender, Provisions of this Lease may
only be waived by the party entitled to the benefit of the provision evidencing
the waiver in writing. Thus, neither the acceptance of Rent by Landlord
following an Event of Default (whether known to Landlord or not), nor any other
custom or practice followed in connection with this Lease, shall constitute a
waiver by Landlord of such Event of Default or any other Event of Default.
Further, the failure by Landlord to complain of any action or inaction by
Tenant, or to assert that any action or inaction by Tenant constitutes (or would
constitute, with the giving of notice and the passage of time) an Event of
Default, regardless of how long such failure continues, shall not extinguish,
waive or in any way diminish the rights, remedies and recourses of Landlord with
respect to such action or inaction. No waiver by Landlord of any provision of
this Lease or of any breach by Tenant of any obligation of Tenant hereunder
shall be deemed to be a waiver of any other provision hereof, or of any
subsequent breach by Tenant of the same or any other provision hereof.
Landlord's consent to any act by Tenant requiring Landlord's consent shall not
be deemed to render unnecessary the obtaining of Landlord's consent to any
subsequent act of Tenant. No act or omission by Landlord (other than Landlord's
execution of a document acknowledging such surrender) or Landlord's agents,
including the delivery of the keys to the Premises, shall constitute an
acceptance of a surrender of the Premises.
25. DEFAULTS BY LANDLORD. Landlord shall not be in default under this Lease,
and Tenant shall not be entitled to exercise any right, remedy or recourse
against Landlord or otherwise as a consequence of any alleged default by
Landlord under this Lease, except as expressly set forth herein, unless Landlord
fails to perform any of its obligations hereunder and said failure continues for
a period of thirty (30) days after Tenant gives Landlord and (provided that
Tenant shall have been given the name and address of Landlord's Mortgagee)
Landlord's Mortgagee written notice thereof specifying, with reasonable
particularity, the nature of Landlord's failure. If, however, the failure cannot
reasonably be cured within the thirty (30) day period, Landlord shall not be in
default hereunder if Landlord or Landlord's Mortgagee commences to cure the
failure within the thirty (30) days and thereafter pursues the curing of same
diligently to completion. If Tenant recovers a money judgment against Landlord
for Landlord's default of its obligations hereunder or otherwise, the judgment
shall be limited to Tenant's actual direct, but not consequential, damages
therefor and shall be satisfied only out of the interest of Landlord in the
Complex as the same may then be encumbered, and Landlord shall not otherwise be
liable for any deficiency. In no event shall Tenant have the right to levy
execution against any property of Landlord other than its interest in the
Complex. The foregoing shall not limit any right that Tenant might have to
obtain specific performance of Landlord's obligations hereunder.
26. RIGHT OF REENTRY. Upon the expiration or termination of the Term for
whatever cause, or upon the exercise by Landlord of its right to re-enter the
Premises without terminating this Lease, Tenant shall immediately, quietly and
peaceably surrender to Landlord possession of the Premises in "broom clean" and
good order, condition and repair, except only for ordinary wear and tear, damage
by casualty not covered by Section 15.2 and repairs to be made by Landlord
pursuant to Section 15.1. If Tenant fails to surrender possession as herein
required, Landlord may, without giving Tenant prior notice to vacate the
Premises or any other notice, initiate any and all legal action as Landlord may
elect to dispossess Tenant and all of its property, and all persons or firms
claiming by, through or under Tenant and all of their property, from the
Premises, and may remove from the Premises and store (without any liability for
loss, theft, damage or destruction thereto) any such property at Tenant's cost.
While Tenant remains in possession of the Premises after such expiration,
termination or exercise by Landlord of its re-entry right, Tenant shall be
deemed to be occupying tile Premises as a tenant-at-sufferance, subject to all
of the obligations of Tenant under this Lease, except that the daily Rent shall
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be twice the per day Rent in effect immediately before such expiration,
termination or exercise by Landlord; provided, that if Tenant provides notice
to Landlord no less than six (6) months prior to the scheduled expiration
date of this Lease that Tenant desires to holdover for a term of six (6)
months, then the daily rent shall be one hundred seventy-five percent (175%)
of the per day rent in effect immediately before such expiration, termination
or exercise by Landlord, and Tenant shall be entitled to holdover for a
period not to exceed six (6) months. No such holding over shall extend the
Term and no further notice to Landlord by Tenant shall extend Tenant's
permitted occupancy of the Premises. If Tenant fails to surrender possession
of the Premises in the condition herein required, Landlord may, at Tenant's
expense, restore the Premises to such condition.
27. MISCELLANEOUS.
27.1 INDEPENDENT OBLIGATIONS. The obligations of Tenant to pay Rent
and to perform the other undertakings of Tenant hereunder constitute
independent unconditional obligations to be performed at the times specified
hereunder, regardless of any breach or default by Landlord hereunder. Tenant
shall have no right, and Tenant hereby waives and relinquishes all rights
which Tenant might otherwise have, to claim any nature of lien against the
Complex or, except as otherwise expressly provided for herein, to withhold,
deduct from or offset against any Rent or other sums to be paid to Landlord
by Tenant.
27.2 TIME OF ESSENCE. Time is of the essence with respect to each date
or time specified in this Lease by which an event is to occur.
27.3 APPLICABLE LAW. THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ALL MONETARY AND OTHER
OBLIGATIONS OF LANDLORD AND TENANT ARE PERFORMABLE IN THE COUNTY WHERE THE
COMPLEX IS LOCATED.
27.4 ASSIGNMENT BY LANDLORD. Landlord shall have the right to assign,
in whole or in part, any or all of its rights, titles or interests in and to the
Complex or this Lease and, upon any such assignment, (i) Landlord shall be
relieved of all unaccrued liabilities and obligations hereunder to the extent of
the interest so assigned, and (ii) to the extent assignable, Landlord shall
assign the Letter of Credit described in Section 28 or any Security Deposit
remaining hereunder to its successors and assigns. To the extent the Letter of
Credit described in Section 28.2 is not assignable, Tenant will cooperate
promptly to secure a replacement Letter of Credit issued for the benefit of
Landlord's successors and assigns.
27.5 COMMENCEMENT DATE AND ESTOPPEL CERTIFICATES. From time to time at
the request of Landlord or Landlord's Mortgagee, Tenant will promptly and
without compensation or consideration execute, have acknowledged and deliver a
certificate stating (a) the Commencement Date and the date of expiration of the
Term, (b) the rights (if any) of Tenant to extend the Term or to expand the
Premises, (c) the Rent (or any components of the Rent) currently payable
hereunder, (d) whether this Lease has been amended in any respect and, if so,
submitting copies of or otherwise identifying the amendments, (e) whether,
within the knowledge of Tenant, there are any existing breaches or defaults by
Landlord hereunder and, if so, stating the defaults with reasonable
particularity and (f) such other information pertaining to this Lease as
Landlord or Landlord's Mortgagee may reasonably request.
27.6 SIGNS, BUILDING NAME AND BUILDING ADDRESS. Landlord may, from
time to time at its discretion, maintain any and all signs anywhere in the
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Complex, and to change the name and street address of the Complex. Tenant
shall not use the name of the Building for any purpose other than as the
address of the business to be conducted by Tenant from the Premises.
27.7 NOTICES. All notices and other communications given pursuant to
this Lease shall be in writing and shall either be mailed by first class United
States mail, postage prepaid, registered or certified with return receipt
requested, and addressed as set forth in this Section 27.7, or delivered in
person to the intended addressee, or sent by prepaid telegram, cable or telex
followed by a confirmatory letter. Notice mailed in the aforesaid manner shall
become effective three (3) business days after deposit; notice given in any
other manner, and any notice given to Landlord, shall be effective only upon
receipt by die intended addressee. Each party shall have the continuing right to
change its address for notice hereunder by the giving of fifteen (15) days'
prior written notice to the other party in accordance with this Section 27.7.
All payments should be made payable to CarrAmerica Realty, L. P. t/a Quorum
Place and delivered to P.O. Box 100899, Atlanta, Georgia 30384-0899, or wired to
CarrAmerica Realty, L.P. t/a Quorum Place, Acct. No. 3255807887, ABA#
061-000-0052 at NationsBank of Georgia.
Landlord:
CarrAmerica Realty, L.P.
14901 Quorum Drive, Suite 180
Dallas, Texas 75240
Attn: Property Manager
With a copy to:
CarrAmerica Realty, L.P.
1700 Pennsylvania Avenue, N.W.
Suite 700
Washington, DC 20006
Attn: Lease Administration
Tenant:
ObjectSpace, Inc.
14881 Quorum Drive, Suite 400
Dallas, Texas 75240
Attn: John W. Pritchett, Chief Financial Officer
27.8 ENTIRE AGREEMENT, AMENDMENT AND BINDING EFFECT. This Lease
constitutes the entire agreement between Landlord and Tenant relating to the
subject matter hereof and all prior agreements relative hereto which are not
contained herein are terminated. This Lease may be amended only by a written
document duly executed by Landlord and Tenant (and, if a Mortgage is then in
effect, by the Landlord's Mortgagee entitled to the benefits thereof), and any
alleged amendment which is not so documented shall not be effective as to either
party. The provisions of this Lease shall be binding upon and inure to the
benefit of the parties hereto and their heirs, executors, administrators,
successors and assigns; provided, however, that this Section 27.8 shall not
negate, diminish or alter the restrictions on Transfers applicable to Tenant set
forth elsewhere in this Lease.
27.9 SEVERABILITY. This Lease is intended to be performed in
accordance with and only to the extent permitted by all Legal Requirements. If
any provision of this Lease or the application thereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, but the extent of the invalidity or unenforceability does not
destroy the basis of the bargain between the parties as contained herein, the
remainder of this Lease and the application of such provision to other
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persons or circumstances shall not be affected thereby, but rather shall be
enforced to the greatest extent permitted by law.
27.10 NUMBER AND GENDER, CAPTIONS AND REFERENCES. As the context of
this Lease may require, pronouns shall include natural persons and legal
entities of every kind and character, the singular number shall include the
plural and the neuter shall include the masculine and the feminine gender.
Section headings in this Lease are for convenience of reference only and are not
intended, to any extent and for any purpose, to limit or define any section
hereof. Whenever the terms "hereof", "hereby", "herein", "hereunder" or words of
similar import are used in this Lease, they shall be construed as referring to
this Lease in its entirety rather than to a particular section or provision,
unless the context specifically indicates to the contrary. Any reference to a
particular "Section" shall be construed as referring to the indicated section of
this Lease.
27.11 ATTORNEYS' FEES. If either party hereto initiates any litigation
against the other party relating to this Lease, the prevailing party shall be
entitled to recover, in addition to all damages allowed by law and other relief,
all court costs and reasonable attorneys' fees incurred in connection with such
litigation.
27.12 BROKERS. Tenant and Landlord hereby warrant and represent unto
the other that it has not incurred or authorized any brokerage commission,
finder's fees or similar payments in connection with this Lease, other than that
which is due to Glenhurst Realty Advisors, Inc. and The Staubach Company, which
payment shall be paid Landlord. Each party shall defend, indemnify and hold the
other harmless from and against any claim for brokerage commission, finder's
fees or similar payment arising by virtue of authorization of such party, or any
Affiliate of such party, in connection with this Lease.
27.13 INTEREST ON TENANT'S OBLIGATIONS. Following the lapse of any
applicable cure periods set forth herein, any amount due from Tenant to Landlord
which is not paid when due shall bear interest at the maximum rate allowed by
law from the date such payment is due until paid, but the payment of such
interest shall not excuse or cure the default in payment.
27.14 AUTHORITY. Tenant warrants and represents to Landlord that (a)
Tenant is a duly organized and existing legal entity, in good standing in the
State of Texas, (b) Tenant has full right and authority to execute, deliver and
perform this Lease, (c) the person executing this Lease on behalf of Tenant was
authorized to do so and (d) upon request of Landlord, such person will deliver
to Landlord satisfactory evidence of his or her authority to execute this Lease
on behalf of Tenant.
27.15 RECORDING. Neither this Lease (including any Exhibit hereto) nor
any memorandum hereof shall be recorded without the prior written consent of
Landlord.
27.16 EXHIBITS. All Exhibits and written addenda hereto are
incorporated herein for any and all purposes.
27.17 MULTIPLE COUNTERPARTS. This Lease may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute but one instrument.
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28. SPECIAL PROVISIONS
28.1 ROOF RIGHTS.
(a) Tenant shall have the non-exclusive right to install,
operate, and maintain at its sole expense, a maximum of one (1) 6-foot
satellite dish and other related equipment, which related equipment shall
not exceed thirty (30) pounds (collectively, the "Communications
Equipment"), in an area on the roof of the Building designated by
Landlord, which area shall be encompassed by a four foot (4') radius
measured from the center of such Communications Equipment (the "Roof
Space"), to use in connection with Tenant's business in the Premises;
provided, however, that none of such installations of Communications
Equipment may be visible at the ground level in the vicinity of the
Building. Tenant's use of the Roof Space pursuant to this Section will be
without charge to Tenant during the Lease Term.
(b) Tenant shall have access to the roof and Tenant's equipment
relating to the Communications Equipment at all times throughout the
Lease Term, such right to be limited to authorized engineers of Tenant or
persons under Tenant's direct supervision and subject to the Building
Rules and Regulations. During normal business hours (for purposes hereof,
between 8:00 a.m. and 5:00 p.m., Monday through Friday), Tenant must
notify Building personnel of Tenant's need to gain access to the Building
roof Building personnel must escort Tenant to the roof access. During
requested after-hours access, Tenant's personnel must be accompanied by
Building personnel and Tenant will be billed at a rate of $35.00 per hour
for scheduled maintenance with a three (3) hour minimum for unscheduled
call-backs.
(c) Tenant's Communications Equipment, and the associated
wiring thereto, shall be installed in accordance with plans and
specifications approved by Landlord by contractors selected and employed
by Tenant. The installation, operation and maintenance of Tenant's
Communications Equipment will in no way damage the Building, interfere
with users already on or in the Premises, or interfere with Landlord's
maintenance of the Premises. Tenant shall cause all of Tenant's
communications from the roof of the Building and Tenant's Communications
Equipment to comply with Legal Requirements. Landlord and its
representatives agree to cooperate with Tenant in connection with
obtaining satellite permits, licenses, zoning variances, special use
permits or other authorizations necessary for Tenants use of the
above-described satellite dishes, provided that such permits, licenses,
variances or special use permits do not increase Landlord's obligations
hereunder or thereunder, and Landlord shall not be required to expend any
money in connection therewith. Electrical power will be supplied by
Landlord and paid for by Tenant. All work relating to the Communications
Equipment shall be coordinated with Landlord's roofing contractor so as
not to adversely affect any warranties in respect of the roof. The
maintenance and operation of Tenant's Communications Equipment shall be
accomplished at Tenant's sole expense by Tenant or contractors selected
and employed by Tenant.
(d) Landlord will not be liable for the failure of Tenant's
Communications Equipment to work, regardless of the cause of such
failure; nor shall Landlord be liable for any interference with the
reception of the antennas that may result from future construction in or
around the Building. Landlord will not be liable for any failure of the
Communications Equipment or the functionality thereof due to temporary
interruptions of electricity and/or routine Building maintenance and
repairs. Prior to allowing any other tenant to install equipment on the
roof within a ten foot (10') radius from the center of Tenant's existing
Communications Equipment, Landlord agrees to consult with Tenant to
ensure the functionality of Tenant's Communications Equipment is not
diminished by such additional installation. Landlord reserves the right
to require Tenant to relocate the Communications Equipment a maximum of
two (2) times during the Term, provided there is adequate space on the
roof of the Building which will not diminish the functionality of
Tenant's Communications Equipment. In the event the relocation
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of the Communications Equipment is required to accommodate another tenant
Landlord agrees to reimburse Tenant for the actual cost of such
relocation and any repairs required at the original Roof Space to restore
same to its original condition.
(e) Tenant agrees that its indemnification of Landlord
contained in Section 18 shall also apply to the Roof Space and
Communications Equipment. Furthermore Tenant agrees that the insurance
requirements described in Section 17 shall also apply to the Roof Space
and Communications Equipment.
(f) Any Communications Equipment installed on the roof by
Tenant and any connecting wiring to the Premises shall remain Tenant's
property notwithstanding attachment to the Building, may be removed by
Tenant at any time, and shall be removed by Tenant at the conclusion of
the Lease Term with Tenant restoring any damage to the Roof Space, or
elsewhere in or on the Building, which may have been caused by the
installation or its removal. Transfers to Tenant's Affiliates of
ownership in and/or use of the Communications Equipment shall be governed
by the provisions of Section 10.
28.2 SECURITY DEPOSIT: LETTER OF CREDIT. To secure payment and
performance of Tenant's obligations under this Lease, Tenant shall cause an
irrevocable, unconditional Letter of Credit (the "Letter of Credit") in an
amount equal to Five Hundred Seventy-Four Thousand Nine Hundred Thirteen and
72/100 Dollars ($574,913.72) in form and substance satisfactory to Landlord from
a financial institution acceptable to Landlord in its discretion to be issued to
and naming Landlord as the beneficiary within five (5) days of the execution
date of this Lease. Tenant's failure to deliver the Letter of Credit as provided
above shall, at Landlord's election, cause this Lease to terminate and neither
Landlord nor Tenant shall have any further obligations hereunder; it being
understood that the construction contemplated in the Work Letter, and any
preparation therefor on Landlord's part, will not commence until Landlord has
received such Letter of Credit. The initial term of the Letter of Credit shall
be for the period commencing on the execution date of this Lease and expiring on
the first (1st) anniversary of such execution date. Thereafter, the Letter of
Credit shall be automatically extended, with notice thereof forwarded to
Landlord by the issuer of such Letter of Credit no less than twenty (20) days
prior to the scheduled expiration date for such Letter of Credit, for two (2)
successive one (1) year terms. Landlord shall have the right to immediately
present the Letter of Credit for payment upon an Event of Default or in the
event the original Letter of Credit or the first renewal thereof are not
automatically renewed on or before twenty (20) days from their respective
expiration dates. Notwithstanding anything contained herein to the contrary,
Tenant shall be entitled to request that Landlord substitute a new letter of
credit for the existing Letter of Credit from time to time but not more often
than once per month, which new letter of credit shall be in form and substance
satisfactory to Landlord from a financial institution acceptable to Landlord in
its discretion and expiring on the same date as the Letter of Credit. The
aggregate amount of the new letter of credit may be decreased by an amount equal
to Twenty-Five Thousand Dollars ($25,000.00) per month for each month
(commencing with the Commencement Date until the date of the delivery of the new
letter of credit) that no Event of Default has occurred under this Lease. Tenant
covenants and agrees that no less than sixty (60) days prior to the third (3rd)
anniversary of the execution date hereof, Tenant shall deliver a cash security
deposit in an amount equal to Fifty Thousand Eight Hundred Thirty-Five Dollars
($50,835.00) as a Security Deposit for the full and timely payment and
performance by Tenant of its obligations under this Lease. Landlord may apply
any or all of the Security Deposit towards the payment of Any sum or the
performance of any obligation which Tenant was obligated, but failed, to pay or
perform hereunder. The Security Deposit shall not be considered an advance
payment of Rent by Tenant or a measure of or a limit to Landlord's damages upon
an Event of Default.
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28.3 RULES AND REGULATIONS. Tenant shall comply with the Building
Rules and Regulations attached hereto, as the same may be amended or promulgated
by Landlord from time to time. However, the Rules and Regulations may not be
amended or modified in any way which would impose additional material economic
obligations upon Tenant. The terms of this Lease shall control over any conflict
with rules and regulations.
28.4 CONSENTS. Unless otherwise provided herein, all consents or
approvals required or permitted of Landlord hereunder shall not be unreasonably
withheld.
TENANT ACKNOWLEDGES THAT, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH
HEREIN, LANDLORD HAS MADE NO WARRANTIES TO TENANT AS TO THE CONDITION OF THE
PREMISES, EITHER EXPRESS OR IMPLIED, AND LANDLORD ANDTENANT EXPRESSLY DISCLAIM
ANY IMPLIED WARRANTY THAT THE PREMISES ARE SUITABLE FOR TENANT'S INTENDED
COMMERCIAL PURPOSE.
EXECUTED as of the date and year above first written.
TENANT: OBJECTSPACE, INC.,
a Texas corporation
By: /s/ JOHN W. PRITCHETT
-------------------------------------
Name: John W. Pritchett
------------------------------
Title: Chief Financial Officer
------------------------------
LANDLORD: CARRAMERICA REALTY, L.P., a Delaware limited
partnership
By: CarrAmerica, Realty GP Holdings, Inc.,
a Delaware corporation, its General
Partner
By: /s/ ROBERT E. PETERSON
-------------------------------------
Name: Robert E. Peterson
------------------------------
Title: Regional Managing Director
------------------------------
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EXHIBIT INDEX
Exhibit A: Glossary
Exhibit B: Floor Plan
Exhibit C: Rules and Regulations
Exhibit D: Work Letter
Exhibit E: Property Legal Description
Exhibit F: First Right of Refusal Space
Exhibit G: Renewal Options
Exhibit H: Air Conditioning and Heating Specifications
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EXHIBIT A
GLOSSARY OF DEFINED TERMS
1 "ADDENDUM" shall mean the Addendum, if any, attached to this
Lease.
2. "AFFILIATE" shall mean a person or party who or which controls, is
controlled by or is under common control with another person or party.
3. "BUILDING" shall mean that certain nine (9) floor office building
and garage structure constructed on the Land, the street address of which is
14901 Quorum Drive, Dallas, Texas, and is more particularly described in the
deed recorded in Volume 95223, Page 1085 of the Deed Records of Dallas County,
Texas. The term "Building" shall include all fixtures and appurtenances in and
to the aforesaid structure, including specifically but without limitation all
above grade walkways and all electrical, mechanical, plumbing, security,
elevator, boiler, HVAC, telephone, water, gas, storm sewer, sanitary sewer and
all other utility systems and connections, all life support systems, sprinklers,
smoke detection and other fire protection systems, and all equipment, machinery,
shafts, flues, piping, wiring, ducts, duct work, panels, instrumentation and
other appurtenances relating thereto.
4. "BUILDING OPERATING HOURS" shall mean 7:00 a.m. to 6:30 p.m.
Monday through Friday and Saturday 8:00 a.m. to 1:00 p.m., exclusive of Sundays
and Holidays.
5. "BUILDING RULES AND REGULATIONS" shall mean the rules and
regulations governing the Complex promulgated by Landlord from time to time. The
current Building Rules and Regulations maintained by Landlord are attached as
EXHIBIT C hereto.
6. "BUILDING STANDARD" when applied to air item, shall mean such item
as has been designated by Landlord (orally or in writing) as generally
applicable throughout the leased portions of the Building.
7 "COMMENCEMENT DATE" shall mean the date of the commencement of the
Term, as determined pursuant to Section 6.3, with respect to the Premises.
However, in the event the Commencement Date for the portion of the Premises
other than the Ground Floor Premises differs from the Commencement Date for the
Ground Floor Premises, the earlier of such dates shall be determinative of the
Term.
8. "COMMON AREAS" shall mean all areas and facilities within the
Complex which have been constructed and are being maintained by Landlord for the
common, general, non-exclusive use of all tenants in the Building, and shall
include restrooms, lobbies, corridors, service areas, elevators, stairs and
stairwells, the Parking Facility, driveways, loading areas, ramps, walkways and
landscaped areas.
9. "COMPLEX" shall mean the Land and all improvements thereon,
including the Building and the Parking Facility.
10. "EXPENSE STOP" shall mean that portion of the Operating Expenses,
expressed in terms of dollars per square foot of Net Rentable Area per Fiscal
Year, which will be deducted from the computation of Additional Rent. Unless
changed by mutual agreement of the parties, the "Expense Stop" shall be equal to
the actual operating expenses per rentable square foot for the 1997 calendar
year.
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11. "FISCAL YEAR" shall mean the fiscal year (or portion thereof) of
Landlord as elapses during the Term. The Fiscal Year currently commences on
January 1; however, Landlord may change the Fiscal Year at any time or times.
12. "FORCE MAJEURE" shall mean the occurrence of any event which
hinders, prevents or delays the performance by Landlord of any of its
obligations hereunder and which is beyond the reasonable control of Landlord.
13. "HOLIDAYS" shall mean (a) New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, (b) other days
on which national or state banks located in the state where the Complex is
located must or may close for ordinary operations and (c) other days which are
commonly observed as holidays by the majority of tenants of the Building. If the
Holiday occurs on a Saturday or Sunday, the Friday preceding or the Monday
following may, at Landlord's discretion, be observed as a Holiday.
14. "HVA" shall mean the heating, ventilation and air conditioning
systems in the Building.
15. "IMPOSITIONS" shall mean (a) all real estate, personal property,
rental, water, sewer, transit, use, occupancy and other taxes, assessments,
charges, excises and levies (including any interest, costs or penalties with
respect thereto), general and special, ordinary and extraordinary, foreseen and
unforeseen of any kind and nature whatsoever which are assessed, levied, charged
or imposed upon or with respect to the Complex, or any portion thereof, or the
sidewalks, streets or alley ways adjacent thereto, or the ownership, use,
occupancy or enjoyment thereof, and (b) all charges for any easement, license,
permit or agreement maintained for the benefit of the Complex. "Impositions"
shall not include income taxes, estate and inheritance taxes, excess profit
taxes, franchise taxes, taxes imposed on or measured by the income of Landlord
from the operation of the Complex, and taxes imposed on account of the transfer
of ownership of the Complex or the Land. If any or all of the Impositions be
discontinued and, in substitution therefor, taxes, assessments, charges, excises
or impositions be assessed, levied, charged or imposed wholly or partially on
the Rents received or payable hereunder (a "SUBSTITUTE IMPOSITION"), then the
Substitute Imposition shall be deemed to be included within the term
"IMPOSITIONS".
16. "LAND" shall mean the real property on which the Building is
constructed and which is further described in EXHIBIT E hereto.
17. "LANDLORD'S MORTGAGEE" shall mean the mortgagee of any mortgage,
the beneficiary of any deed of trust, the pledgee of any pledge, the secured
party of any security interest, the assignee of any assignment and the
transferee of any other instrument of transfer (including the ground lessor of
any ground lease on the Land) now or hereafter in existence on all or any
portion of the Complex, and their successors, assigns and purchasers.
"MORTGAGE" shall mean any such mortgage, deed of trust, pledge, security
agreement, assignment or transfer instrument, including all renewals, extensions
and rearrangements thereof and of all debts secured thereby.
18. "LANDLORD'S WORK" shall mean all improvements, components,
assemblies, installations, finish, labor, materials and services that Landlord
is required to furnish, install, perform, provide or apply to the Premises as
specified in the Work Letter.
19. "PREMISES" shall mean the area leased by Tenant pursuant to this
Lease as outlined on the floor plan drawing attached as EXHIBIT B hereto and all
other space added to the Premises pursuant to the terms of this Lease. The
Premises includes the space between the top surface of the floor slab of the
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outlined area and the finished surface of the ceiling immediately above. "GROUND
FLOOR PREMISES" shall mean the portion of the Premises comprising 8,606 square
feet located on the ground floor of the Building.
20. "LEGAL REQUIREMENTS" shall mean any and all (a) judicial
decisions, orders, injunctions, writs, statutes, rulings, rules, regulations,
promulgations, directives, permits, certificates or ordinances of any
governmental authority in any way applicable to Tenant or the Complex, including
but not limited to the Building Rules and Regulations, zoning, environmental and
utility conservation matters, (b) requirements imposed on Landlord by any
Landlord's Mortgagee, (c) insurance requirements and (d) other documents,
instruments or agreements (written or oral) relating to the Complex or to which
the Complex may be bound or encumbered.
21. "NET RENTABLE AREA" whether of the Premises or the Complex shall
mean the area determined pursuant to the American National Standard Method for
measuring floor space in office buildings, as set forth in American National
Standard's Institute publication Z65.1-1980 and as, from time to time, revised.
Landlord and Tenant hereby stipulate that, unless and until revised by virtue of
the application of the standards set forth in said publication or in a revised
publication, the Net Rentable Area of the Premises shall be 28,606 square feet
and the Net Rentable Area of the Building shall be 174,159 square feet.
22. "OPERATING EXPENSE" shall mean all costs and expenses which
Landlord pays or accrues by virtue of the ownership, use, management, leasing,
maintenance, service, operation, insurance or condition of the Complex during a
particular Fiscal Year or portion thereof as determined by Landlord or its
certified public accountants in accordance with generally accepted accounting
principles PLUS (in instances where the Building was not fully occupied for the
entire period in question) all additional costs and expenses which Landlord or
such accountant reasonably determines Landlord would have paid or accrued during
such period if the Building has been fully occupied (defined as ninety-five
percent (95%) occupied]. "OPERATING EXPENSES" shall include, but shall not be
limited to, the following to the extent they relate to the Complex:
(a) all Impositions and other governmental charges;
(b) all insurance premiums charged for policies obtained by
Landlord, which may include without limitation, at Landlord's election,
(i) fire and extended coverage insurance including earthquake, windstorm,
hail, explosion, riot, strike, civil commotion, aircraft, vehicle and
smoke insurance, (ii) public in liability and property damage insurance,
(iii) elevator insurance, (iv) workmen's compensation insurance for the
employees covered by clause (h), (v) boiler, machinery, sprinkler, water
damage, legal liability, burglary, hold-up, fidelity and pilferage
insurance, (vi) rental loss insurance and (vii) such other insurance as
Landlord may elect to obtain;
(c) all customary and reasonable deductible amounts incurred in
any Fiscal Year relating to an insurable loss;
(d) all maintenance, repair, replacement and painting costs;
(e) all janitorial, custodial, cleaning, washing-, landscaping,
landscape maintenance, trash removal and pest control costs;
(f) all security costs;
A-3
<PAGE>
management of the Complex by Landlord or an Affiliate of Landlord, reasonably
allocated based on time actually spent on the Project as opposed to other
projects;
(i) all costs of leasing or purchasing supplies, tools,
equipment and materials;
(j) all management fees and other charges for management
services (including, without limitation, travel and related expenses),
whether provided by an independent management company, by Landlord or by
an Affiliate of Landlord;
(k) all fees and other charges paid under all maintenance and
service agreements, including but not limited to window cleaning,
elevator and HVAC maintenance;
(1) all legal, accounting and auditing fees and expenses; and
(m) amortization of the cost of acquiring, financing and
installing capital items which are intended to reduce (or avoid increases
in) operating expenses, but only to the extent of the reduction or
avoidance, or which are required by a governmental authority. Such costs
shall be amortized over the reasonable life of the items in accordance
with generally accepted accounting principles, but not beyond the
reasonable life of the Building.
"OPERATING EXPENSES" shall not include (i) expenditures classified as capital
expenditures for federal income tax purposes except as set forth in clause (m),
(ii) costs for which Landlord is entitled to specific reimbursement by Tenant,
by any other tenant of the Building or by any other third party, (iii)
allowances specified in the Work Letter for expenses incurred by Landlord for
improvements to the Premises, (iv) leasing commissions, and all non-cash
expenses (including depreciation), except for the amortized costs specified in
clause (in), (v) land or ground rent if applicable, (vi) debt service on any
indebtedness secured by the Complex (except debt service on indebtedness to
purchase or pay for items specified as permissible "OPERATING EXPENSES" under
clause (a) through (m)], (vii) costs of repairs, restoration, replacements or
other work occasioned by the exercise by a governmental authority of the right
of eminent domain to the extent to which the actual cost for such repairs,
restoration, replacements or other occasioned thereby is compensated by such
authority; (viii) attorneys' fees, costs, disbursements and other expenses
incurred in connection with negotiations or disputes with tenants, prospective
tenants, management agents, purchasers or mortgagees of the Building; (ix)
allowances, concessions and other costs and expenses incurred in completing,
renovating or otherwise improving, decorating or redecorating space for tenants,
or prospective tenants, or vacant, leasable space in the Complex; (x) any cost
that should be capitalized in accordance with generally accepted accounting
principles except capital improvements as set forth in clause (m); (xi) costs
incurred in connection with the sale, financing, refinancing, mortgaging,
selling or change of ownership of the Building; (xii) costs or expenses of
utilities directly metered to tenants of the Building and payable separately by
such tenants and costs of additional electrical equipment installed in premises
of other tenants of the Building and costs of electricity consumed through such
additional electrical equipment, whether or not such costs are payable by such
other tenants, and the costs of heating, ventilating and air-conditioning
services provided to other tenants of the Building during hours other than
Building standard hours, whether or not such costs are payable by such other
tenants; (xiii) costs of repairs, restoration, replacements or other work
occasioned by the gross negligence or intentional tort of Landlord, or any
representative, employee, agent or affiliate of Landlord; (xiv) costs of
repairing, replacing or otherwise correcting warrantied defects in construction
of Tenant Improvements and leasehold improvements of other tenants of the
Building; (xv) costs or expenses relating to another tenant's space which were
incurred in rendering any service or benefit to such tenant that Landlord was
not required, or were for a service in excess of the service that Landlord
A-4
<PAGE>
was required, to provide Tenant hereunder; (xvi) costs of Landlord's general
corporate overhead and general administrative expenses, organizational fees,
and partnership expenses, and the cost of personnel not actively involved in
management or marketing of the Complex; (xvii) costs associated with
operating health, exercise, luncheon, conference/communications club or
facilities; (xviii) management fees in excess of the lesser of five percent
(5%) of gross revenues of the Building or market management fees; (xix) costs
of restoration or repair paid by insurance, condemnation, third parties or
tenants (excluding deductible amounts so paid); (xx) costs which would be
included in Operating Expenses which are paid to any affiliate of Landlord to
the extent such costs exceed competitive market rates for such services; and
(xxi) costs incurred to correct violations within the Complex of any law,
rule, order or regulation which was in effect as of the date hereof. All
supply and service contracts will be competitively bid by independent third
parties each year. Operating Expenses will be calculated in years subsequent
to 1997 in a manner materially consistent with the calculations made in 1997.
Notwithstanding anything contained herein to the contrary, in no evnt shall
Controllable Expenses (hereinafter defined) that constitute a portion of the
Operating Expenses be increased from year to year by more than eight percent
(8%) per annum. As used herein, "CONTROLLABLE EXPENSES" shall mean those
expenses determined by and within the exclusive control of Landlord and shall
include all Operating Expenses enumerated in Paragraph 22 except those set
forth in Paragraph 22(a), (b), (g) and (m).
23. "PARKING FACILITY" shall mean (a) any parking. garage and any
other parking lot or facility adjacent to or in the Complex servicing the
Building and (b) any parking area, open or covered, leased by Landlord to
service the Building.
24. "RENT" shall mean Base Rent and Additional Rent and all other
amounts provided for under this Lease to be paid by Tenant, whether as
additional rent or otherwise. "BASE RENT" shall mean the base rent specified in
Section 5.1. "ADDITIONAL RENT' shall mean the additional rent specified in
Section 5.2.
25. "SECURITY DEPOSIT" shall mean Fifty Thousand Eight Hundred
Thirty-Five Dollars ($50,835) to be paid by Tenant sixty (60) days prior to die
expiration of the Letter of Credit as security for the full and faithful
performance of the obligations of Tenant under this Lease.
26. "TAKING" or "TAKEN" shall mean the actual or constructive
condemnation, or the actual or constructive acquisition by or under threat of
condemnation, eminent domain or similar proceeding, by or at the direction of
any governmental authority or agency.
27. "TENANT'S SHARE" shall mean the proportion by which the Net
Rentable Area of the Premises bears to the Net Rentable Area of the Building.
"TENANT'S SHARE" shall be adjusted by Landlord from time to time to reflect
adjustments to the then current Net Rentable Area of the Building or the
Premises. "TENANT'S SHARE" shall initially mean sixteen and four hundred
twenty-five thousandths percent (16.425%).
28. "TRANSFER" shall mean (a) an assignment (direct or indirect,
absolute or conditional, by operation of law or otherwise) by Tenant of all or
any portion of Tenant's interest in this Lease or the leasehold estate created
hereby, (b) a sublease of all or any portion of the Premises or (c) the grant or
conveyance by Tenant of any concession or license within the Premises. If Tenant
is a corporation then any transfer of this Lease by merger, consolidation or
dissolution, or by any change in the power to vote a majority of the voting
stock (being the shares of stock regularly entitled to vote for the election of
directors) in Tenant outstanding at the time of execution of this Lease shall
constitute a Transfer. Notwithstanding anything contained in Section 10 of this
Lease or this definition of "Transfer" to the contrary, Tenant shall have the
right, upon ten (10) days prior written
A-5
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notice to Landlord, to consummate a Transfer to an Affiliate. As used herein,
the term "Affiliate" means any person or entity that directly or indirectly
Controls, is Controlled by, or is under common Control with, the entity in
question; and the term "Control" means possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
an entity whether through ownership of voting securities, by contract or
otherwise, and also shall include any entity that acquires all or
substantially all of the assets or stock or other ownership interests in or
of Tenant. "TRANSFEREE" shall mean the assignee, sublessee, pledgee,
concessionee, licensee or other transferee of all or any portion of Tenant's
interest in this Lease, the leasehold estate created hereby or the Premises.
29. "WORK LETTER" shall mean the agreement, if any, attached as
EXHIBIT D hereto between Landlord and Tenant for the construction of
improvements in the Premises.
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EXHIBIT B
FLOOR PLAN
B-1
<PAGE>
[FLOOR PLAN]
EXHIBIT C
RULES AND REGULATIONS
1. Landlord may from time to time adopt appropriate systems and
procedures for the security or safety of the Building, any persons occupying,
using, or entering the Building, or any equipment, finishings, or contents of
the Building, and each tenant shall comply with such systems and procedures.
2. Tenant's employees, visitors, and licensees shall not loiter in or
interfere with the use of the Parking Facility or the Complex's driveway or
parking areas nor consume alcohol in the common areas of the Complex or the
Parking Facility. The sidewalks, halls, passages, exits, entrances, elevators,
escalators, and stairways of the Building will not be obstructed by any tenants
or used by any of them for any purpose other than for ingress to and egress from
their respective premises. The halls, passages, exits, entrances, elevators,
escalators, and stairways are not for the general public, and Landlord may
control and prevent access to them by all persons whose presence, in the
reasonable judgment of Landlord, would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants; in determining whether
access will be denied, Landlord may consider attire worn by a person and its
appropriateness for an office building, whether shoes are being worn, use of
profanity, either verbally or on clothing, actions of a person (including,
without limitation, spitting, verbal abusiveness, and the like), and such other
matters as Landlord may reasonably consider appropriate.
3. No sign, placard, picture, name, advertisement, or notice visible
from the exterior of any tenant's premises shall be inscribed, painted, affixed,
or otherwise displayed by any tenant on any part of the Building without the
prior written consent of Landlord. All approved signs or lettering on doors will
be printed, painted, affixed, or inscribed at the expense of the tenant desiring
such by a person approved by Landlord. Material visible from outside the
Building will not be permitted. Landlord may remove such material without any
liability, and may charge the expense incurred by such removal to the tenant in
question.
4. No curtains, draperies, blinds, shutters, shades, screens, or
other coverings, hangings, or decorations will be attached to, hung, or placed
in, or used in connection with any window of the Building or the Premises.
5. The sashes, sash doors, skylights, windows, heating, ventilating,
and air conditioning vents and doors that reflect or admit light and air into
the halls, passageways, or other public places in the Building shall not be
covered or obstructed by any tenant, nor will any bottles, parcels, or other
articles be placed on any window sills.
6. No showcases or other articles will be put in front of or affixed
to any part of the exterior of the Building, nor placed in the public halls,
corridors, or vestibules without the prior written consent of Landlord.
7. No tenant will permit its Premises to be used for lodging or
sleeping. No cooking will be done or permitted by any tenant on its premises,
except in areas of the premises which are specially constructed for cooking, so
long as such use is in accordance with all applicable federal, state, and city
laws, codes, ordinances, rules, and regulations.
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8. No tenant will employ any person or persons other than the
cleaning service of Landlord for the purpose of cleaning the premises, unless
otherwise agreed by Landlord in writing. If any tenant's actions result in any
increased expense for any required cleaning, Landlord may assess such tenant for
such expenses. Janitorial service will not be furnished on nights to offices
which are occupied after business hours on those nights unless, by prior written
agreement of Landlord, service is extended to a later hour for specifically
designated offices.
9. The toilets, urinals, wash bowls, and other plumbing fixtures will
not be used for any purposes other than those for which they were constructed,
and no sweepings, rubbish, rags, or other foreign substances will be thrown in
them. All damages resulting from any misuse of the fixtures will be borne by the
tenant who, or whose servants, employees, agents, visitors, or licensees, have
caused the damage.
10. No tenant will deface any part of the premises or the Building.
Without the prior written consent of Landlord, no tenant will lay linoleum, or
other similar floor covering, so that it comes in direct contact with the floor
of such tenant's premises. If linoleum or other similar floor covering is to be
used, an interlining of builder's deadening felt will be first affixed to the
floor, by a paste or other material, soluble in water. The use of cement or
other similar adhesive material is expressly prohibited.
11. No tenant will alter, change, replace, or rekey any lock or
install a new lock or a knocker on any door of the premises. Landlord, its agent
or employee, will retain a master key to all door locks on the premises. Any new
door locks required by a tenant or any change in keying of existing locks will
be installed or changed by Landlord following such tenant's written request to
Landlord and will be at such tenant's expense. All new locks and rekeyed locks
will remain operable by Landlord's master key. Landlord will furnish to each
tenant, free of charge, ten (10) keys to each door lock on its premises.
Landlord will have the right to collect a reasonable charge for additional keys
and access cards requested by any tenant. Each tenant, upon termination of its
tenancy, will deliver to Landlord all keys and access cards for the premises and
Building which have been furnished to such tenant.
12. The elevator designated for freight by Landlord will be available
for use by all tenants in the Building during the hours and pursuant to such
procedures as Landlord may determine from time to time. The persons employed to
move tenant's equipment, material, furniture, or other property in or out of the
Building must be acceptable to Landlord; such persons must be a locally
recognized professional mover, whose primary business is the performing of
relocation services, and must be bonded and fully insured. A certificate or
other verification of such insurance must be received and approved by Landlord
prior to the start of any moving operations. Insurance must be sufficient, in
Landlord's sole opinion, to cover all personal liability, theft, or damage to
the Building, including without limitation floor coverings, doors, walls,
elevators, stairs, foliage, and landscaping. All moving operations will be
conducted at such times and in such a manner as Landlord may direct, and all
moving will take place during nonbusiness hours unless Landlord otherwise agrees
in writing. The moving tenant shall be responsible for the provision of Building
security during all moving operations, and shall be liable for all losses and
damages sustained by any party as a result of the failure to supply adequate
security. Landlord may prescribe the weight, size, and position of all
equipment, materials, furniture, or other property brought into the Buildings.
Heavy objects will, if considered necessary by Landlord, stand on wood strips of
such thickness as is necessary to distribute the weight properly. Landlord will
not be responsible for loss of or damage to any such property from any cause,
and all damage done to the Building by moving or maintaining such property will
be repaired at the expense of the moving tenant. Landlord may inspect all such
property to be brought into the Building and to exclude from the Building all
such property which violates any of these rules and regulations or the lease of
which these rules and regulations area part.
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Supplies, goods, materials, packages, furniture, and all other items of every
kind delivered to or taken from the premises will be delivered or removed
through the entrance and route designated by Landlord.
13. No tenant will use or keep in the premises or the Building any
kerosene, gasoline, or inflammable or combustible or explosive fluid or material
or chemical substance other than limited quantities of them reasonably necessary
for the operation or maintenance of office equipment or limited quantities of
cleaning fluids and solvents required in normal operation of the premises.
Without Landlord's prior written approval, no tenant will use any method of
heating or air conditioning other than that supplied by Landlord. No tenant will
keep any firearms within the Premises. No tenant will use or keep or permit to
be used or kept any foul or noxious gas or substance in the premises, or permit
of suffer the premises to be occupied or used in an manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors, or vibrations, or interfere in any way with other tenants or those having
business in the Building.
14. Landlord may without notice and without liability to any tenant,
change the name and street address of the Building.
15. Landlord will have the right to prohibit any advertising by
tenant, mentioning the Building, which, in Landlord's reasonable opinion, tends
to impair the reputation of the Building or its desirability as a Building for
offices, and upon written notice from Landlord, tenant will discontinue such
advertising.
16. Tenant will not bring any animals or birds into the Building, and
will not permit bicycles or other vehicles inside or on the sidewalks outside
the Building except in areas designated from time to time by Landlord for such
purposes.
17. All persons entering or leaving the Building at any time other
than the Building's business hours shall comply with such off-hour regulations
as Landlord may establish and modify from time to time. Landlord may limit or
restrict access to the Building during such periods.
18. Each tenant will store all its trash and garbage within its
premise. No material will be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash and garbage without being in
violation of any law or ordinance governing such disposal. All garbage and
refuse disposal will be made only through entryways and elevators provided for
such purposes and at such times as Landlord may designate. No furniture,
appliances, equipment, or flammable products of any type may be disposed of in
the Building trash receptacles.
19. Canvassing, peddling, soliciting, and distribution of handbills or
any other written materials in the Building are prohibited, and each tenant will
cooperate to prevent same.
20. Each tenant shall keep the doors of the premises closed and locked
and shall shut off all water faucets, water apparatus, and utilities before
tenant or tenant's employees leave the premises, so as to prevent waste or
damage, and for any default or carelessness in this regard tenant shall be
liable for all injuries sustained by other tenants or occupants of the Building
or Landlord. On multiple-tenancy floors, all tenants will keep the doors to the
Building corridors closed at all times except for ingress and egress.
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EXHIBIT D
WORK LETTER AGREEMENT
This Work Letter Agreement supplements and is hereby incorporated in that
certain Lease Agreement (hereinafter referred to as the "Lease") dated and
executed concurrently herewith by and between CarrAmerica Realty, L.P., a
Delaware limited partnership (hereinafter referred to as "Landlord"), and
ObjectSpace, Inc., a Texas corporation (hereinafter referred to as "Tenant")
with the terms defined in the Lease to have the same definition where used
herein.
(i) The Premises are leased to Tenant in their "AS IS"
condition and this Work Letter Agreement is intended to set forth the
obligations of Landlord and Tenant with respect to the preparation of the
Premises for Tenant's occupancy. All improvements described in this Work
Letter Agreement to be constructed in and upon the Premises are
hereinafter referred to as the "Tenant Improvements." It is agreed that
construction of the Tenant Improvements will be completed in accordance
with the procedures set forth in this Work Letter Agreement.
(ii) Tenant shall devote such time in consultation with Landlord
or Landlord's agent as may be required to provide all necessary
information to Landlord or Landlord's agent as Landlord deems necessary
in order to enable Landlord to complete, and obtain Tenant's written
approval of, the final layout, drawings, and plans for the Premises. If
Tenant fails to furnish any such information, or fails to agree on tenant
finish out contractors, or fails to approve layout, drawings, or plans
within ten (10) Business Days after written request, Landlord may, at its
election, be discharged of its obligations under this Work Letter
Agreement, but the same shall not affect or diminish Tenant's duties and
obligations set forth in the Lease, and Tenant agrees to pay on demand
all costs and expenses and increased unit prices incurred by Landlord on
account of Tenant's failure to furnish such information and approved
drawings within such prescribed time limits. All of Tenant's plans and
specifications shall be subject to Landlord's consent, the granting or
denial of which shall be in Landlord's reasonable discretion.
(iii) Space planning and construction drawings shall be prepared
by Tenant's architect. Landlord shall bear the cost of the space planning
and construction drawings which shall be prepared by Tenant's architect;
provided, however, such costs and expenses, including phones and cabling
reflected on such drawing, shall be paid out of the Leasehold
Improvements allowance defined in (viii) hereof and in no event shall
Landlord's obligation for the cost of such space planning and
construction drawings, phones and cabling exceed an amount equal to $2.00
per square foot of Net Rentable Area in the Premises (which for purposes
hereof is agreed to be 28,606 square feet), being the total sum of
$57,212.00. Tenant shall pay for any and all additional space planning
costs beyond Landlord's obligation specified above. Tenant shall
furthermore be responsible for the design, function and maintenance of
all special improvements, whether installed by Landlord at Tenant's
request or installed by Tenant with Landlord's prior written approval.
Tenant shall use the Building Standard materials as defined in EXHIBIT
D-1 unless other materials are expressly approved in writing by Landlord.
(iv) Prior to commencing any construction of Tenant
Improvements, Landlord and Tenant shall agree upon three (3) mutually
acceptable qualified tenant finish contractors who shall provide
competitive bids for the Tenant Improvements. After receipt of such three
(3) competitive bids, Landlord and Tenant shall select the successful
bidder to construct the Tenant Improvements and Landlord shall enter into
a contract with the successful bidder to construct the Tenant
Improvements. In the event that any performance or payment bonds are
D-1
<PAGE>
required by Landlord, Landlord shall be responsible for the payment of
such expenses and such expenses shall not be apart of the Leasehold
Improvements Allowance. Any building stock materials used by Tenant
that are required out of Landlord's building stock shall be charged
against the Leasehold Improvements Allowance at cost. Tenant is not
required to use such building stock materials. Landlord shall provide
all utilities, toilets, security and elevator service to the Premises
and shall provide the general contractor with parking at no cost to
Tenant or its contractors or subcontractors. Landlord shall not charge
a construction management services fee to Tenant.
(v) In the event the actual cost of construction shall exceed
the Leasehold Improvements Allowance (such amounts exceeding the
Leasehold Improvements Allowance being herein referred to as the "Excess
Costs"), Tenant shall pay to Landlord such Excess Costs as follows:
(a) Tenant shall deliver to Landlord prior to
commencement of construction an amount equal to fifty percent
(50%) of the Excess Costs as then estimated by Landlord.
(b) After substantial completion of the Tenant
Improvements, but prior to occupancy of the Premises by Tenant,
Tenant shall pay to Landlord on demand an amount which when added
to the initial payment described in subparagraph (a) above equals
ninety percent (90%) of the Excess Costs as then estimated by
Landlord.
(c) As soon as the final accounting can be prepared and
submitted to Tenant, Tenant shall pay on demand to Landlord the
entire balance of the Excess Costs based upon the actual cost of
construction.
The statements of costs submitted to Landlord by Landlord's
contractors shall be conclusive for purposes of determining the
actual cost of the items described therein. The amounts payable
hereunder constitute additional rent payable pursuant to the
Lease, and the failure to timely pay same constitutes an Event of
Default under the Lease.
Notwithstanding the foregoing, in the event the actual cost of
removal of the bank vault located within the Ground Floor Premises
exceeds the cost submitted to Landlord by Landlord's contractors,
such budgetary shortfall shall not be assessed against the
Leasehold Improvements Allowance or otherwise charged to Tenant.
Tenant waives and hereby disclaims any interest in the remedies
secured by Landlord from Landlord's contractors to secure
performance of the construction specifications, including, without
limitation, any bond or letter of credit delivered by Landlord's
contractors to Landlord to secure removal of such bank vault at a
cost of an amount not to exceed the contract quote therefor.
(vi) If Tenant shall request any change, addition or
alteration in the working drawings, after approval by Landlord and
Tenant, Landlord shall have such working drawings prepared, and
Tenant shall promptly reimburse Landlord for the cost thereof.
Promptly upon completion of the revisions, Landlord shall notify
Tenant in writing of the cost which will be chargeable to Tenant
by reason of such change, addition or deletion. Tenant shall,
within three (3) Business Days, notify Landlord in writing whether
it desires to proceed with such change, addition or deletion. In
the absence of such written authorization, Landlord shall have the
D-2
<PAGE>
option to continue work on the Premises disregarding the requested
change, addition or alteration. In the event such revisions
result in a higher estimate of the cost of construction, Tenant
shall pay to Landlord an amount sufficient to provide Landlord
with the above described fifty percent (50%) [of if applicable,
ninety percent (90%)] payment toward Excess Costs.
(vii) Following approval of the plans and the payment by
Tenant of the required portion of the Excess Costs, if any,
Landlord shall cause the Tenant Improvements to be constructed in
accordance with the approved plans. Unless otherwise specifically
provided in the approved plans, all material used in the
construction of the Tenant's Improvements shall be of such quality
as determined by Landlord and approved by Tenant. Landlord shall
notify Tenant of substantial completion of the Tenant
Improvements.
(viii) Landlord agrees to construct the Tenant Improvements
in accordance with the approved plans at its cost and expense;
provided, however, in the event the actual cost of construction of
the Tenant Improvements exceeds Twelve and 62/100 Dollars ($12.62)
per square foot of Net Rentable Area in the Premises (which for
purposes hereof is agreed to be 28,606 square feet), being the
total sum of $361,066.00, such amount being referred to as the
"Leasehold Improvements Allowance"), Tenant shall pay the Excess
Costs as prescribed in EXHIBIT D. In the event the actual cost of
the Tenant Improvements is less than the Allowance, Tenant shall
not be entitled to any credit for any amounts not applied to the
cost of the Tenant Improvements.
(ix) Notwithstanding anything herein to the contrary,
Landlord shall provide an additional Two Dollars ($2.00) per
rentable square foot to Tenant for the payment of Excess Costs,
which amount shall be amortized at an annual interest rate of
twelve percent (12%) over the first (?) twenty-four (24) months of
the Lease term commencing with the Commencement Date. In the event
Tenant elects to utilize such additional Two Dollars ($2.00) per
rentable square foot, the Letter of Credit shall be increased by
an amount equal to the cost per rentable square foot utilized by
Tenant and Tenant shall provide Landlord with a substituted letter
of credit reflecting such increased amount.
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<PAGE>
It is hereby acknowledged by both Tenant and Landlord that this
EXHIBIT D has been executed as of, and shall become part of the Lease
dated April 29, 1997.
TENANT OBJECTSPACE, INC.
a Texas corporation
By: /s/ JOHN W. PRITCHETT
-----------------------------------
Name: John W. Pritchett
---------------------------------
Title: CFO
--------------------------------
Date: April 29, 1997
--------------------------------
LANDLORD CARRAMERICA REALTY, L.P., a
Delaware limited partnership
By: CarrAmerica Realty GP Holdings,
Inc., a Delaware corporation its
General Partner
By: /s/ ROBERT E. PETERSON
-----------------------------------
Name: Robert E. Peterson
---------------------------------
Title: Regional Managing Director
--------------------------------
D-4
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EXHIBIT D-1
1. The Building Standard (herein so called) materials are the following:
A. FLOORING: Grade and quality of carpeting to be selected by Landlord,
with color to be selected by Tenant from those offered by
Landlord.
B. WINDOW
COVERING: At Landlord's option, mini blinds or drapes in Landlord's
uniform color.
C. CEILING: Acoustical tiles - Grid system.
D. PARTITIONS: Sheetrock partitions with tape, bed, texture and paint
finish, and/or vinyl pre-clad sheetrock.
E. DOORS: Hollow core door with metal frame and hardware.
F. ELECTRICAL
POWER
OUTLETS: Standard 110 volt duplex wall-mounted convenience outlets.
G. LIGHT
SWITCHES: Single pole light switches.
H. TELEPHONE
FACILITIES: Standard unwired telephone outlets (ring and string)
mounted on partitions. Tenant must make timely arrangements
for telephone installation and is responsible for all
charges related to such installation.
I LIGHT
FIXTURES: Recessed fluorescent lighting fixtures.
D-5
<PAGE>
EXHIBIT E
PROPERTY LEGAL DESCRIPTION
BEING a tract of land situated in the City of Addison, Dallas County, Texas, out
of the Josiah Pancoast Survey, Abstract 1146; and being part of Block 2 of
Quorum, an Addition to the City of Addison as recorded in Volume 79100, Page
1895 of the Deed Records of Dallas County, Texas; and being more particularly
described as follows:
COMMENCING at a point, said point being, the northwest comer of Block 2 of said
Quorum addition, also being the intersection of the south right-of-way line of
Belt Line Road (100 foot right-of-way);
THENCE South 01DEG. 30'57" East for a distance of 1,014.57 feet to an iron rod
found for the POINT OF BEGINNING of the herein described tract;
THENCE North 88DEG. 29'03" East along the southerly line of a tract of land
conveyed to Crow and Associates, Inc., by deed recorded in Volume 79136, Page
2865 of the Deed Records of Dallas County, Texas, a distance of 578.65 feet to
an iron rod found for comer in the westerly line of Quorum Drive (variable
width);
THENCE in a southerly and southwesterly direction continuing along the westerly
line of Quorum Drive and along a curve to the right whose tangent bears South
3DEG. 14'14" East and having a radius of 777.43 feet, a central angle of 17DEG.
32'32", and an arc length of 238.03 feet to an iron rod found for the end of
said curve to the right;
THENCE South 14DEG. 18'18" West continuing along said westerly line of Quorum
Drive a distance of 207.07 feet to an iron rod found for corner;
THENCE South 89DEG. 46'47" West along the northerly line of a tract of land
conveyed to Richards Group, Inc. By deed recorded in Volume 79120, Page 865 of
the Deed Records of Dallas County, Texas, a distance of 493.22 feet to an iron
rod found for comer in the westerly line of Block 2 of the Quorum;
THENCE North 1DEG. 30'57" West along said westerly line of Block 2 a distance of
423.38 feet to the POINT OF BEGINNING and containing 235,285 square feet or
5.4014 acres.
E-1
<PAGE>
EXHIBIT F
FIRST RIGHT OF REFUSAL SPACE
Provided Tenant is not in default under the Lease and provided Tenant or
an Affiliate thereof is in occupancy of the Premises and has not otherwise
assigned or sublet it, Tenant or an Affiliate thereof (but not a non-Affiliated
assignee or subtenant of Tenant) shall have the continuing right, subject to the
terms below, to Lease any portion of the space located on the first (1st),
seventh (7th), and eighth (8th) floors of the Building and outlined on the floor
plan attached hereto as EXHIBIT F-1 and labeled "First Right of Refusal Space"
(herein so called) that is either vacant on the Commencement Date or becomes
available for lease during the Tern of the Lease before it is leased to any
third party. NOTWITHSTANDING ANYTHING CONTAINED IN THIS EXHIBIT TO THE CONTRARY,
TENANT'S RIGHTS PURSUANT TO THIS EXHIBIT ARE SUBJECT AND SUBORDINATE TO ANY AND
ALL RIGHTS OF FIRST REFUSAL TO THE FIRST RIGHT OF REFUSAL SPACE WHICH ARE IN
EFFECT AS OF THE DATE OF THIS LEASE.
Upon written request from Tenant, Landlord shall deliver to Tenant a
written list of all available spaces in the Building; provided, however,
Landlord shall not be obligated to provide such list more than once every six
(6) months during the initial Term of this Lease. In the event any third party
expresses interest in leasing all or any portion of the First Right of Refusal
Space during the period of time commencing on the Commencement Date and expiring
on the first (1st) anniversary of the Commencement Date which Landlord is
prepared to accept by entering into a lease with the proposed tenant for such
First Fight of Refusal Space, Landlord shall offer the First Right of Refusal
Space to Tenant upon the same terms (at the then current Base Rent) and
conditions of this Lease, including improvement allowances and any adjustments
thereto described below, provided that the expiration date of the lease with
respect to the First Fight of Refusal Space shall be coterminous with the
initial term of this Lease and Landlord and Tenant shall enter into an amendment
of this Lease to reflect the inclusion of the First Right of Refusal Space as a
part of the Premises demised pursuant to this Lease within five (5) business
days after Landlord has delivered such notice to Tenant. The Tenant improvement
allowance referred to above which applies to First Right of Refusal Space
exercised prior to the first (1st) anniversary of the Commencement Date shall
equal the $12.62 Leasehold Improvement Allowance provided to Tenant for the
primary Premises which remains if such Allowance had been amortized on a
straight-line basis over the initial term of the Lease. For instance, should the
First Right of Refusal Space be exercised with sixty (60) months remaining in
the initial term of the Lease, the following formula would apply: $12.62/68
months X 60 months = $11.14 improvement allowance for the First Right of Refusal
Space. In the event that Tenant fails or refuses to exercise such right of
refusal within such five (5) day period, then Tenant's rights under this
paragraph with respect to the First Right of Refusal Space so offered shall
terminate and Landlord shall thereafter be able to lease the First Right of
Refusal Space so offered to any third party on the same terms offered to Tenant.
In the event any third party expresses interest in leasing all or any portion of
the First Right of Refusal Space during the period commencing after the first
(1st) anniversary of the Commencement Date and expiring at the end of the Term
of this Lease which Landlord is prepared to accept by entering into a lease with
the proposed tenant for such First Right of Refusal Space, Landlord shall offer
the First Right of Refusal Space to Tenant upon the same terms and conditions as
Landlord intends to offer to the proposed tenant provided that the expiration of
the term of the lease of the First Right of Refusal Space shall be coterminous
with the Term of this Lease. Tenant shall notify Landlord in writing of the
acceptance of such offer within five (5) business days after Landlord has
delivered such offer to Tenant specifying that such First Right of Refusal Space
has been accepted by Tenant and is a part of the Premises demised pursuant to
the Lease for the remainder of the Term and containing other appropriate terms
and conditions relating to the addition of the First Right of Refusal Space to
this Lease (including
E-1
<PAGE>
specifically any increase or adjustment of the Rent as a result of such
addition). In the event that Tenant does not notify Landlord in writing of
its acceptance of such offer within such five (5) business day period, then
Tenant's rights under this paragraph with respect to the First Right of
Refusal Space so offered shall terminate and Landlord shall thereafter be
able to lease the First Right of Refusal Space or any portion thereof to any
third party on the same terms offered to Tenant. Any termination of the Lease
shall terminate all rights of Tenant with respect to the First Right of
Refusal Space. The rights of Tenant with respect to the First Right of
Refusal Space shall not be severable from the Lease, nor may such rights be
assigned or conveyed in connection with any permitted non-Affiliated
assignment of the Lease. Landlord's consent to any assignment of the Lease
shall not be construed as allowing an assignment or a conveyance of such
rights to any assignee. Nothing herein contained should be construed so as to
limit or abridge Landlord's ability to deal with the First Right of Refusal
Space or to lease the First Right of Refusal Space to other tenants,
Landlord's sole obligation being to offer, and if such offer is accepted, to
deliver the First Right of Refusal Space to Tenant in accordance with this
Exhibit. If Landlord materially changes the terms of the offer to the
proposed tenant and such changes are more favorable to the proposed tenant
than those contained in the first right of refusal notice to Tenant, then
Landlord shall submit such differing terms to Tenant for acceptance by Tenant
prior to entering into a lease with such third party. Tenant's failure to
exercise its rights with respect to First Right of Refusal Space on one
occasion shall not prevent Tenant from exercising such rights to the same
First Right of Refusal Space when such First Right of Refusal Space becomes
available for lease by Landlord again.
The Lease shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting from any delay in delivering possession
of the First Right of Refusal Space to Tenant, but abatement of the Base Rental
attributable to the First Right of Refusal Space from the date of Tenant's
acceptance of Landlord's offer with respect to the First Right of Refusal offer
to the date of actual delivery of the First Right of Refusal Space shall
constitute full settlement of all claims that Tenant might have against Landlord
by reason of the First Right of Refusal Space not being delivered upon the date
of Tenant's acceptance of Landlord's offer.
E-2
<PAGE>
EXHIBIT G
RENEWAL OPTIONS
Provided that no event of default exists under any term or provision
contained in this Lease and no condition exists which with the passage of time
or the giving of notice or both would constitute an event of default pursuant to
this Lease and provided that Tenant has continuously occupied the Premises for
the Permitted Use during the Term of this Lease, Tenant (but not any assignee or
subtenant of Tenant) shall have, and is hereby given, two (2) options (each, a
"Renewal Option") to renew and to extend the term of this Lease, each Renewal
Option to follow consecutively upon the expiration of the initial Term of this
Lease (or the immediately preceding Renewal Term [hereinafter defined], if
applicable). Each Renewal Option shall be for a term (determined by Tenant) of
not less than thirty-six (36) months and not more than sixty (60) months (a
"Renewal Term") and shall be exercised, if at all, by Tenant giving written
notice thereof to Landlord at least nine (9) months prior to the expiration date
of the initial Term or the then current Renewal Term, as the case may be.
Tenant's written notice to Landlord exercising a Renewal Option shall state
Tenant's desired term of such renewal in accordance with the time parameters
stated above. The renewal and extension of this Lease for any Renewal Term shall
be under the same terms, conditions and covenants contained in the Lease, except
that (a) no abatements or other concessions, if any, applicable to the initial
Term shall apply to any Renewal Term; (b) the Base Rent shall be equal to the
Prevailing Market Rent (hereinafter defined); (c) Tenant shall have no option to
renew this Lease beyond the expiration of the second Renewal Term (provided that
Tenant exercised its option with respect to the first Renewal Term and has
otherwise satisfied the requirements of this Exhibit); and (d) all leasehold
improvements within the Premises shall be provided in their then existing
condition (on an "as is" basis) at the time the Renewal Term in question
commences. Failure by Tenant to notify Landlord in writing of Tenant's election
to exercise the Renewal Options herein granted within the time limits set forth
for such exercise shall constitute a waiver and termination of such Renewal
Options.
As used herein, the term "Prevailing Market Rent" means what a non-equity
tenant would pay and receive and on what a landlord of a comparable office
building (with similar amenities) would accept and give at arm's length as rent
concessions, expense, escalations, tenant improvement allowances, refurbishment
allowances, other allowances, brokerage commissions, inducements and other
economic conditions for the lease of space comparable to the Premises. The
determination of such Prevailing Market Rent shall, for all applications in this
Lease, be made using the following procedure:
1. Whenever, pursuant to the terms of this Lease, a determination
must be made of revailing Market Rent, Landlord shall provide to
Tenant in writing Landlord's reasonable determination of such
Prevailing Market Rent within fifteen (15) days after receipt of
Tenant's written request therefor. If Tenant accepts such
determination by Landlord in writing, or if Tenant shall not have
notified Landlord of its objection to such determination in
writing, both within fifteen (15) days following Tenants receipt
of such determination, then such determination by Landlord of the
Prevailing Market Rent for that applicable portion of the Lease
shall irrevocably become the Prevailing Market Rent.
2. If Tenant notifies Landlord, within fifteen (15) days following
its receipt of Landlord's determination of Prevailing Market Rent,
that it objects to such determination as not accurately reflecting
such prevailing market rental rate ("Tenant's Notice of
Objection"), then Landlord's determination of Prevailing Market
Rent referred to in paragraph 1 above shall thereafter not be
effective, and instead the following procedure shall be
implemented to determine Prevailing Market Rent:
G-1
<PAGE>
(a) Within fifteen (15) days following Landlord's receipt of
Tenant's Notice of Objection, Landlord shall select and
notify Tenant of its selection of, an independent real
estate broker from a recognized commercial real estate
brokerage firm knowledgeable in the commercial real estate
market of the Quorum, Addison, Texas, sub-market (the
"Landlord's Market Broker"). Within fifteen (15) days
following Landlord's selection of Landlord's Market Broker,
Landlord shall cause such broker to analyze the
then-existing market conditions, prepare and deliver to
Landlord and Tenant such broker's determination of the
Prevailing Market Rent for the space to be leased by Tenant
within the Building to which such Prevailing Market Rate
shall apply. If Tenant accepts in writing such
determination of Prevailing Market Rent presented by
Landlord's Market Broker, or if Tenant shall not have
notified Landlord of its objection to such determination,
in writing, both within fifteen (15) days following
Tenant's receipt of such determination by Landlord's Market
Broker, then such determination by Landlord's Market Broker
of the Prevailing Market Rent for that applicable portion
of the Lease shall irrevocably become the Prevailing Market
Rent.
(b) If Tenant notifies Landlord, within fifteen (15) days
following its receipt of Landlord's Market Broker's
determination of the Prevailing Market Rent, that it
objects to such determination as not accurately reflecting
such prevailing market rental rate ("Tenant's Notice of
Objection to Landlord's Market Broker's Determination"),
then the following procedure shall be implemented to
determine Prevailing Market Rent:
(i) Within fifteen (15) days following Tenant's giving
or delivering to Landlord the Tenant's Notice of
Objection to Landlord's Market Broker's
Determination, Tenant shall select, and notify
Landlord of its selection of, an independent real
estate broker from a recognized commercial real
estate brokerage firm knowledgeable in the
commercial real estate market of the Quorum,
Addison, Texas, sub-market (the "Tenant's Market
Broker"). Within fifteen (15) days following
Tenant's selection of Tenant's Market Broker, Tenant
shall cause such broker to analyze the then-existing
market conditions, and prepare and deliver to
Landlord and Tenant such broker's determination of
the Prevailing Market rent for the space to be
leased by Tenant within the Building to which such
Prevailing Market Rate shall apply. If Landlord
accepts in writing such determination of Prevailing
market Rent presented by Tenant's market Broker, of
if Landlord shall not have notified Tenant of its
objection to such determination, in writing, both
within fifteen (15) days following Landlord's
receipt of such determination of Prevailing Market
Rent presented by Tenant's Market Broker, or if
Landlord shall not have notified Tenant of its
objection to such determination by Tenant's Market
broker, then such determination by Tenant's Market
Broker of the Prevailing Market Rent for that
applicable portion of the Lease shall irrevocably
become the Prevailing Market Rent.
(ii) If Landlord notifies Tenant, within fifteen (15)
days following its receipt of Tenant's Market
Broker's determination of the Prevailing Market
Rent, that it objects to such determination as not
accurately reflecting
G-2
<PAGE>
such prevailing market rental rate ("Landlord's
Notice of Objection to Tenant's Market Broker's
Determination"), then Landlord shall, within five
(5) days thereafter, direct both Landlord's
Market Broker and Tenant's Market Broker to
select within ten (10 days thereafter, and notify
Landlord and Tenant of their selection of, a
third independent real estate broker from a
recognized commercial real estate brokerage firm
knowledgeable in the commercial real estate
market of the Quorum, Addison, Texas, sub-market
(the "Third Market Broker"). Within fifteen (15)
days following such selection of the Third Market
Broker, such Broker shall analyze the
then-existing market conditions, prepare and
deliver to landlord, Tenant, landlord's Market
Broker, and Tenant's market Broker such Third
Market Broker's determination of the Prevailing
Market Rent for the space to be leased by Tenant
within the Building to which such Prevailing
Market Rate shall apply. If the third Market
Broker's determination of Prevailing Market Rent
is a number between (x) the rental rate
determined by Landlord's Market Broker, augmented
five percent (5%) both higher and lower from such
rental rate, and (y) the rental rate determined
by Tenant's Market Broker, augmented five percent
(5%) both higher and lower from such rental rate,
then such Third Market Broker's determination of
Prevailing Market Rent shall be irrevocably
binding upon both Landlord and Tenant. However,
if the Third Market Broker's determination of
Prevailing Market Rent is a number not between
(x) and (y) from the previous sentence, then the
final, irrevocable determination of Prevailing
Market Rent which shall be binding upon both
Landlord and Tenant, will be calculated by adding
together the two closest appraisals of the three
determinations from the three brokers, and
dividing such sum by two. Both Landlord and
Tenant acknowledge that the determination of
Prevailing Market Rent which is derived from such
procedure shall be irrevocably binding upon both
Landlord and Tenant.
(c) Notwithstanding any provisions elsewhere in this Lease
allocating the payment of expenses, Landlord agrees to pay
the expenses associated with the services of Landlord's
Market Broker, Tenant agrees to pay the expenses associated
with the services of Tenant's Market Broker, and both
Landlord and Tenant agree to jointly pay the expenses
associated with the services of the Third Market Broker.
Upon exercise of a Renewal Option by Tenant and subject to the conditions
set forth hereinabove, the Lease shall be extended for the period of such
applicable Renewal Term without the necessity of the execution of any further
instrument or document, although if requested by either party, Landlord and
Tenant shall enter into a written agreement modifying and supplementing the
Lease in accordance with the provisions hereof. Any termination of the Lease
during the initial Lease Term shall terminate all rights to the second Renewal
Option. The renewal rights of Tenant hereunder shall not be severable from the
Lease, nor may such rights be assigned or otherwise conveyed in connection with
any permitted non-Affiliated assignment of the Lease. Landlord's consent to any
assignment of the Lease shall not be construed as allowing an assignment of such
rights to any assignee.
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<PAGE>
EXHIBIT H
AIR CONDITIONING AND HEATING SPECIFICATION
The following represents the required office environment of the Tenant.
The entire office area shall be heated and air conditioned by a combination
heating/cooling unit and a duct system, to maintain for heating 70DEG. F inside
when the outside temperature is 0DEG. F and for cooling inside 75DEG. F dry bulb
with a 50% relative humidity when outside temperature is 95DEG. F and 78DEG. F
wet bulb. Air conditioning specifications are stated on the basis of doors and
windows being closed, as well as all glass areas in the air conditioned premises
being provided with vertical window blinds, shades or drapes which shall be
closed, depending on the position of the sun.
H-1
<PAGE>
Re: 14901 Quorum Drive
Dallas, Texas
FIRST AMENDMENT TO LEASE AGREEMENT
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF DALLAS )
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "AMENDMENT") has been
executed effective as of (but not necessarily on) the 23rd day of September,
1999, by CARRAMERICA REALTY L.P., a Delaware limited partnership ("LANDLORD")
and OBJECTSPACE, INC., a Delaware corporation ("Tenant").
R E C I T A L S:
A. Landlord and Tenant have heretofor executed that certain Lease
Agreement (the "LEASE"), dated as of April, 1997, pursuant to which Tenant
leased from Landlord certain premises containing approximately 28,606 rentable
square feet (the "ORIGINAL PREMISES") in that certain building known as 14901
Quorum Drive, Dallas, Texas, and more particularly described in the Lease (the
"BUILDING"). Unless otherwise defined herein, all initially capitalized terms
will have the respective meanings assigned thereto in the Lease.
B. Landlord and Tenant desire to execute this Amendment in order to
evidence their agreement to (i) reduce the original Premises by 8,606 rentable
square feet contained in Suite 125 of the Building (the "REDUCED PREMISES"); and
(ii) make certain other amendments to the Lease, all as more particularly set
forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant agree as follows:
Article I
CERTAIN AMENDMENTS
SECTION 1.01. REDUCED PREMISES. As of September 23, 1999 (the "REDUCTION
DATE"), and subject to the contingencies set forth in this Amendment, the
Original Premises will be reduced by 8,606 rentable square feet, representing
the square footage contained in Suite 125. The Original Premises, as so reduced,
are outlined on EXHIBIT B, page B-1 of the Lease, containing 20,000 rentable
square feet in Suite 900 of the Building and are hereinafter referred to as the
"PREMISES." Page B-2 of the EXHIBIT B is hereby deleted. As a result, the
Premises covered under the Lease will equal approximately 20,000 rentable square
feet, representing the sum of the 28,606 rentable square feet included within
the Original Premises, less the 8,606 rentable square feet contained within the
Reduced Premises. Tenant shall remain liable for all Rent and Additional Rent
obligations accruing under the Lease with respect to the Reduced Premises prior
to the Reduction Date. Any of Tenant's rights to parking associated with the
Reduced Premises (together with any charges therefor) are hereby terminated.
FIRST AMENDMENT TO LEASE AGREEMENT - Page 1 of 3
<PAGE>
SECTION 1.02. REMAINING PREMISES. The Lease as to the Premises will
continue in full force and effect in accordance with the terms and conditions
set forth in the Lease, except that (a) the monthly Base Rent from October 1,
1999, through March 31, 2003, shall be $34,166.66 per month, payable monthly, in
advance, without set off or deduction whatsoever, and (b) Tenant's obligations
with respect to Additional Rent shall be reduced proportionately.
SECTION 1.03 . SURRENDER/VACATE. Except to the extent otherwise agreed
to by Valtech (defined below), on or before the Reduction Date, Tenant agrees to
vacate and abandon the Reduced Premises and to remove, at Tenant's sole cost,
all office equipment and supplies, furniture and other personal property, each
to the extent owned by Tenant and located within, and readily removable from,
the Reduced Premises. Except to the extent otherwise agreed to by Valtech
(defined below), Tenant must deliver the Reduced Premises to Landlord in
broom-clean condition and restore and otherwise repair, at Tenant's sole cost,
all damage caused to the Reduced Premises as a result of any such removal.
SECTION 1.04. COMMISSIONS. Landlord and Tenant each represent to the
other that no brokers have been or will be involved in this Amendment. Landlord
and Tenant hereby indemnify each other from the payment of any commissions
resulting from the acts of such party, but not otherwise.
SECTION 1.05. CONTINGENCY. This Amendment is contingent upon Landlord
entering into a lease (the "NEW LEASE") with Valtech Technologies, Inc.
("VALTECH") for the Reduced Premises on terms and conditions acceptable to
Landlord, in Landlord's sole discretion, and Landlord obtaining a Guaranty (the
"GUARANTY") for such lease obligations from Valtech S.A., in form and substance
acceptable to Landlord, in Landlord's sole discretion. If Landlord has not
entered into the New Lease by October 1, 1999, and obtained the Guaranty by
October 21, 1999, on either such occasion, at Landlord's election, this
Amendment shall be null and void, except with respect to the next sentence of
this Section 105. In the event that the contingencies are not satisfied within
the time periods set forth above, i.e., a New Lease is not entered into and/or
Landlord does not receive the Guaranty, Landlord agrees to waive its right to
recapture the Reduced Premises if Tenant and Valtech (which Landlord hereby
approves as an acceptable subtenant) enter into a sublease of the Reduced
Premises on or before October 31, 1999, with an effective date on or before
October 31, 1999, in form reasonably acceptable to Landlord and on substantially
the terms and conditions currently set forth in the New Lease.
SECTION 1.06. FURTHER AMENDMENTS. The Lease shall be and hereby is
further amended wherever necessary, even though not specifically referred to
herein, in order to give effect to the terms of this Amendment. Tenant's rights
with respect to the first (1st) floor First Right of Refusal Space described in
EXHIBIT F to the Lease are hereby deleted. Tenant's rights with respect to the
seventh (7th) and eighth (8th) floor First Right of Refusal Space shall be
retained by Tenant in accordance with EXHIBIT F.
Article II
MISCELLANEOUS
SECTION 2.01. RATIFICATION. The Lease, as amended hereby, is hereby
ratified, confirmed and deemed in full force and effect in accordance with its
terms. Each party represents to the other that such party (a) is currently
unaware of any default by the other party under the Lease; and (b) has full
power and authority to execute and deliver this Amendment and this Amendment
represents a valid and binding obligation of such party enforceable in
accordance with its terms.
FIRST AMENDMENT TO LEASE AGREEMENT - Page 2 of 3
<PAGE>
SECTION 2.02. NOTICES. All notices to be delivered to Landlord under the
Lease or otherwise with respect to the Premises shall, unless Landlord otherwise
notifies Tenant, be delivered to Landlord in accordance with the Lease at the
following addresses:
CarrAmerica Realty, L.P.
c/o CarrAmerica Realty Corporation
15950 N. Dallas Parkway, Suite 300
Dallas, TX 75248
with a copy to:
CarrAmerica Realty Corporation
1850 K Street, N. W.
Suite 500
Washington, D.C. 20006
Attn.: Lease Administration
SECTION 2.03. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas.
SECTION 2.04. COUNTERPARTS. This Amendment may be executed in multiple
counterparts each of which is deemed an original but together constitute one and
the same instrument. This Amendment may be executed by facsimile and each party
has the right to rely upon a facsimile counterpart of this Amendment signed by
the other party to the same extent as if such party had received an original
counterpart.
IN WITNESS WHEREOF, this Amendment has been executed as of (but not
necessarily on) the date and year first above written.
LANDLORD:
CARRAMERICA REALTY L.P.,
a Delaware limited partnership
By: CarrAmerica Realty G.P.
Holdings, Inc.,
its general partner
By: /s/ PHILIP L. HAWKINS
------------------------------------
Print Name: Philip L. Hawkins
---------------------------
Print Title: Executive Vice President
---------------------------
TENANT:
OBJECTSPACE, INC.,
a Delaware corporation
By: /s/ KENNETH J. OVERTON
----------------------------------------
Print Name: Kenneth J. Overton
--------------------------------
Print Title: VP, Enterprise Solutions
-------------------------------
FIRST AMENDMENT TO LEASE AGREEMENT - Page 3 of 3
<PAGE>
BASIC LEASE INFORMATION
-----------------------
(Office Lease Agreement)
LANDLORD: 14850 QUORUM ASSOCIATES, LTD.
A. BUILDING: 14850 QUORUM DRIVE, DALLAS, TEXAS 75240
B. ADDRESS (for notices): C/O LEHMAN BROTHERS, INC.
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NY 10285
Attn: Lawrence M. Ostow
C. TELEPHONE: 212-526-3213
TENANT: ObjectSpace, Inc., a Texas Corporation
A. PREMISES: The spaces known as Suite Nos. 400 AND 500 as identified on
Exhibit "B" hereto located on floor(s) 4 AND 5 of the Building as
described in the Lease.
B. ADDRESS (for notices):
Prior to occupancy: During occupancy:
ObjectSpace, Inc. ObjectSpace, Inc.
14881 Quorum Drive, Suite 400 14850 Quorum Drive, Suite 500
Dallas, Texas 75240 Dallas, Texas 75240
Attn: _______________________ Attn: _______________________
Telephone: __________________ Telephone: __________________
BASE RENTAL:
Commencement Date - April 30, 1998 $ 35,012.40 per month
May 1, 1998 - April 30, 1999 $ 35,772.86 per month
May 1, 1999 - April 30, 2000 $ 36,825.36 per month
May 1, 2000 - April 30, 2001 $ 37,585.82 per month
May 1, 2001 - April 30, 2002 $ 38,638.32 per month
May 1, 2002 - March 31, 2003 $ 39,398.77 per month
SECURITY DEPOSIT:
A. Within five (5) days after execution of the Lease by both Landlord and
Tenant or on the date Tenant first occupies the Premises, whichever is
earlier, the Security Letter of Credit in the amount of $342,258.31 to
be held by Landlord as security for Tenant complying with the terms of
the Lease, as set forth in Section 1(d)(1) of the Lease; and
B. Prior to the Commencement of the construction of the Tenant
Improvements, the Improvement Letter of Credit in the amount of
$381,414.62, to be held by Landlord as security for the amortization
of the cost of the Tenant Improvements and Commissions, as set forth
in Section 1(d)(2), Exhibit "D" of the Lease.
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PREPAID RENTAL: $35,012.40 due and payable upon execution of the Lease.
EXPENSE BASE: 1997 base year.
RENTABLE AREA IN THE PREMISES: 25,260 square feet of Rentable Area.
RENTABLE AREA IN THE BUILDING: 84,094 square feet of Rentable Area.
TENANT'S PRO RATA SHARE: Thirty percent (30%).
COMMENCEMENT DATE: The earlier of July 1, 1997, or the date Tenant occupies
the Premises, subject to modification pursuant to Paragraph 3(a) of the Lease.
LEASE TERM: A period of sixty-nine (69) months from the Commencement Date;
provided that if the Commencement Date is a date other than the first day of a
calendar month the Lease Term shall consist of sixty-nine (69) calendar months
in addition to the remainder of the calendar month in which the Commencement
Date occurs.
LANDLORD'S AGENT(S): Transwestern Property Company
SPACE PLAN APPROVAL DATE:
PERMITTED USE: General office.
The foregoing Basic Lease Information shall be construed in conjunction
with the references thereto contained in other provisions of the Lease and shall
be limited by such other provisions. Each reference in the Lease to any of the
foregoing Basic Lease Information shall be construed to incorporate each term
set forth hereinabove as so limited. In the event of any conflict between any
Basic Lease Information and the Lease, the terms of the Lease shall control.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Lease Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
3. Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5. Base Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
6. Security Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
7 Services to be Furnished by Landlord. . . . . . . . . . . . . . . . . . . . . .7
8. Improvements to be Made by Landlord . . . . . . . . . . . . . . . . . . . . . .8
9. Graphics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
10. Repairs and Alterations by Tenant . . . . . . . . . . . . . . . . . . . . . . .8
11. Use of Electrical Services by Tenant. . . . . . . . . . . . . . . . . . . . . .9
12. Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14. Mechanic's Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
15. Property Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
16. Liability and Worker's Compensation Insurance . . . . . . . . . . . . . . . . 13
17. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
18. Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
19. Casualty Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
20. Damages from Certain Causes . . . . . . . . . . . . . . . . . . . . . . . . . 15
21. Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
22. Events of Default/Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 15
23. Tenant Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
24. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
25. Event of Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
26. Peaceful Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
27. Substitution. [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . 21
28. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
29. Subordination to Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . 22
30. Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
31. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
32. Severabilily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
33. Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
34. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
35. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
36. Time of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
37. Transfers by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
38. Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
39. Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . . . . 23
40. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
41. Financial Condition of Tenant . . . . . . . . . . . . . . . . . . . . . . . . 23
42. Effect of Delivery of This Lease. . . . . . . . . . . . . . . . . . . . . . . 23
43. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
44. Landlord's Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease"), made and entered into on this
the 5th day of May, 1997, between 14850 QUORUM ASSOCIATES, LTD., a Texas limited
partnership ("LANDLORD") and OBJECTSPACE, INC., a Texas corporation ("TENANT").
W I T N E S S E T H:
1. DEFINITIONS: The following are definitions of some of the defined
terms used in this Lease. The definition of other defined terms are found
throughout this Lease.
(a) "BUILDING" shall mean the office building located upon the real
property (the "Property") described in EXHIBIT "A" attached hereto and
incorporated herein together with all appurtenances thereto.
(b) "BASE RENTAL" shall mean the following sums per month for each of
the stated years of the Lease Term for a total of $2,569,378.79 during the
Lease Term, all as adjusted pursuant to EXHIBIT "C" hereto:
<TABLE>
<S> <C>
Commencement Date - April 30, 1998 $ 35,012.40 per month
May 1, 1998 - April 30, 1999 $ 35,772.86 per month
May 1, 1999 - April 30, 2000 $ 36,825.36 per month
May 1, 2000 - April 30, 2001 $ 37,585.82 per month
May 1, 2001 - April 30, 2002 $ 38,638.32 per month
May 1, 2002 - March 31, 2003 $ 39,398.77 per month
</TABLE>
The Base Rental due for the first month during the "LEASE TERM"
(hereinafter defined) has been deposited with Landlord by Tenant
contemporaneously with the execution hereof.
(c) "BASIC COSTS" shall mean all direct and indirect costs and
expenses incurred in connection with the Building as more fully defined in
EXHIBIT "C" attached hereto.
(d) "SECURITY DEPOSIT" shall mean:
(1) An irrevocable, annually renewable letter of credit (the
"SECURITY LETTER OF CREDIT") to the Landlord's benefit, on terms
acceptable to Landlord, in the amount of $342,258.31, shall be
delivered by Tenant to Landlord within five (5) days after execution
of this Lease by both Landlord and Tenant or on the date Tenant first
occupies the Premises, whichever is earlier. The Security Letter of
Credit shall be held by Landlord as security for Tenant's obligations
under this Lease. If Tenant does not renew the Security Letter of
Credit and deliver to Landlord the original, renewed letter of credit
(thereafter defined as the "SECURITY LETTER OF CREDIT") at least
thirty (30) days before the end of the annual term of each annual
Security Letter of Credit, on that date which is twenty-nine (29) days
before the end of that year's Security Letter of Credit, Landlord may
cash in that Security Letter of Credit and thereafter hold the cash as
a deposit in lieu of the Security Letter of Credit. Such sum shall be
held by Landlord, who shall have no obligation to account to Tenant
for any interest thereon. In the last ten months of the Lease Term,
Tenant may, at its option, redeem from Landlord the Security Letter of
Credit by substituting for the Security Letter of Credit a sum of cash
equal to the Base
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Rental due during the last twelve months of the Lease Term. If the
Tenant chooses this option, the stated sum of cash shall be deemed
to be the "SECURITY DEPOSIT". Each month thereafter, a portion of
the Security Deposit shall be applied to the Base Rental due in
each consecutive month. It is the parties' intention that at the
end of the Lease Term the Security Deposit shall equal the Base
Rental due for the last two months of the Lease Term. Landlord
shall have no obligation to account to Tenant for interest on the
Security Deposit; and
(2) An additional, irrevocable, annual renewable Letter of
Credit (the "IMPROVEMENT LETTER OF CREDIT") to Landlord's benefit, on
terms acceptable to Landlord, in the amount of $381,414.62, shall be
delivered by Tenant to Landlord on execution of this Lease. If Tenant
does not renew the Improvement Letter of Credit and deliver to
Landlord the original, renewed letter of credit (thereafter defined as
the "IMPROVEMENT LETTER OF CREDIT") at least thirty (30) days before
the end of the annual term of each annual Improvement Letter of
Credit, on that date which is twenty-nine (29) days before the end of
that year's Improvement Letter of Credit, Landlord may cash in that
Improvement Letter of Credit and thereafter hold the cash as a deposit
in lieu of the Improvement Letter of Credit. Such sum shall be held
by Landlord, who shall have no obligation to account to Tenant for any
interest thereon. The Improvement Letter of Credit shall expire on the
date on which Tenant's accumulated payments of Basic Rental since the
Commencement Date equal the total sum secured by the Improvement
Letter of Credit.
(e) "COMMENCEMENT DATE" shall mean the earlier of the date that
Tenant actually occupies the Premises or July 1, 1997 (except as the same
may be delayed pursuant to the provisions of Paragraph 3(a) hereof). (See
Addendum, Section 4).
(f) "LEASE TERM" shall mean a term commencing on the Commencement
Date and continuing for sixty-nine (69) full calendar months (plus any
partial calendar month in which the Commencement Date occurs).
(g) "PREMISES" shall mean the suite of offices located within the
Building and outlined on EXHIBIT "B" to this Lease. The Premises are
stipulated for all purposes to contain 25,260 square feet of "Rentable
Area" (as defined below).
(h) "RENTABLE AREA" shall mean the area contained within the demising
walls of the Premises and any other area designated for the exclusive use
of Tenant plus an allocation of the Tenant's pro rata share of the square
footage of the "Common Areas" and the "Service Areas" (as defined below).
The Rentable Area in the Building shall be deemed to be 84,094 square feet.
The estimates of Rentable Area within the Premises and within the Building
as set forth herein may be revised at Landlord's election if Landlord's
architect determines such estimate to be inaccurate in any material degree
after examination of the final drawings of the Premises and the Building.
(See Addendum, Section 1).
(i) "COMMON AREAS" shall mean those areas devoted to corridors,
elevator foyers, mail rooms, restrooms, mechanical rooms, elevator
mechanical rooms, janitorial closets, electrical and telephone closets,
vending areas, and lobby areas (whether at ground level or otherwise), and
other similar facilities provided for the common use or benefit of tenants
generally and/or the public.
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(j) "SERVICE AREAS" shall mean those areas within the outside walls
of the Building used for stairs, elevator shafts, flues, vents, stacks,
pipe shafts and other vertical penetrations (but shall not include any such
areas for the exclusive use of a particular tenant).
(k) "BUILDING STANDARD", when used herein, shall mean the type,
brand, quality and/or quantity of materials Landlord designates from time
to time to be the minimum quality and/or quantity to be used in the
Building or the exclusive type, grade, quality and/or quantity of material
to be used in the Building and shall include, but not be limited to, the
Building Standard Materials defined in the Work Letter Agreement attached
hereto as EXHIBIT "D".
(l) "MAXIMUM RATE", when used herein, shall mean the greatest of the
rates of interest from time to time permitted under applicable federal and
state law. To the extent of the applicability of Article 5069-1.04, as
amended, Texas Revised Civil Statutes, the Maximum Rate shall be the
highest permitted rate based upon the "indicated rate ceiling", but to the
extent now or hereafter permitted by Texas law, Landlord may from time to
time implement, withdraw and reinstate any ceiling as an alternative to the
indicated rate ceiling, including the right to reinstate the indicated rate
ceiling.
(m) "PRIME RATE" shall mean the per annum interest rate announced by
Texas Commerce Bank from time to time (whether or not charged in each
instance) as its prime or base rate.
(n) "NORMAL BUSINESS HOURS" for the Building shall mean 7:00 a.m. to
6:00 p.m. Mondays through Fridays, and 8:00 a.m. to 1:00 p.m. on Saturdays,
exclusive of the normal business holidays of New Years Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
(o) "PREPAID RENTAL" shall mean the sum of $35,012.00 which shall be
paid by Tenant to Landlord on execution of this Lease. The Prepaid Rental
shall be applied to the first full month's Base Rental due under this
Lease.
(p) "BUSINESS DAY(S)" shall mean Mondays through Fridays exclusive of
the normal business holidays of New Year's Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
2. LEASE GRANT. Subject to and upon the terms herein set forth, Landlord
leases to Tenant and Tenant leases from Landlord the Premises.
3. LEASE TERM.
(a) Subject to and upon the terms and conditions set forth in this
Lease, this Lease shall continue in force for the Lease Term.
Notwithstanding the Commencement Date provided in Paragraph l(e) of this
Lease, Tenant's obligation for the payment of rent and the Lease Term shall
not commence until Landlord has substantially completed all work to be
performed by Landlord as set forth in the Work Letter Agreement attached
hereto as EXHIBIT "D"; provided, however, that if Landlord shall be delayed
in substantially completing said work as a result of any of the following
(a "DELAY"):
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(i) Tenant's failure to furnish information in accordance
herewith or to respond to any request by Landlord for any approval or
information within any time period prescribed, or if no time period is
prescribed, then within three Business Days of such request; or
(ii) Tenant's insistence on materials, finishes or
installations other than Landlord's Building Standard after having
first been informed by Landlord in writing at or before the time of
delivery to Tenant of final construction pricing for Tenant's approval
that such materials, finishes or installations will cause a Delay; or
(iii) Tenant's changes in any plans and specifications; or
(iv) The performance by a person, firm or corporation employed
by Tenant in the completion of any work by said person, firm or
corporation (all such work and such persons, firms or corporations
being subject to the approval of Landlord); or
(v) Any request by Tenant that Landlord delay the completion
of any of Landlord's work; or
(vi) Any breach or default by Tenant in the performance of
Tenant's obligations under this Lease; or
(vii) Any delay resulting from Tenant's having taken possession
of the Premises prior to its being substantially completed, as defined
below; or
(viii) Any reasonably necessary displacement of any of
Landlord's work from its place in Landlord's construction schedule
resulting from any of the causes for Delay; or
(ix) Any other delay chargeable to Tenant, its agents,
employees or independent contractors;
then the commencement of the Lease Term and the payment of rent shall be
accelerated by the number of days of such Delay but in no event shall such
commencement be prior to the Commencement Date stipulated in Paragraph 1(e)
hereof. The Premises shall be deemed to be substantially completed on the
date that Landlord's architect reasonably determines that all work to be
performed by Landlord pursuant to this Lease has been performed other than
punchlist items. The term "punchlist items" as used herein shall mean any
details of construction, mechanical adjustment or other matter, the
noncompletion of which does not materially interfere with Tenant's use of
the Premises. The abatement of rent shall be Tenant's sole remedy and shall
constitute full settlement of all claims that Tenant might otherwise have
against Landlord by reason of the Premises not being ready for occupancy by
Tenant on the Commencement Date. If for any reason Tenant takes possession
of the Premises prior to substantial completion, except as set forth in the
next sentence, Tenant's obligation to pay rent shall commence upon the date
Tenant takes possession of the Premises and Tenant shall indemnify and hold
Landlord harmless from any liability as a result of Tenant's early
occupancy of the Premises. Tenant shall have access to the Premises five
(5) days before the Commencement Date to move in furniture and prepare for
opening Tenant's business; provided (i) that Tenant shall not conduct
business from the Premises until the Commencement Date and (ii) that
Landlord and Tenant prepare a final
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punchlist before Tenant shall have such access. Landlord's determination
of the Commencement Date shall be final and binding on all parties for
all purposes hereof, including, without limitation, determination of the
date of commencement of the Lease Term and of Tenant's obligation to pay
rent hereunder. (See Addendum, Sections 2 and 3).
(b) The taking of possession of the Premises by Tenant shall be
conclusive evidence against Tenant that, except for the completion of any
items which Landlord stipulates in writing are remaining to be done or
corrected by Landlord, (i) Tenant warrants and represents to Landlord that
it has conducted its own independent investigation of the Premises and that
the Premises are suitable for the purpose for which the same are leased,
(ii) the Property and the Building and each and every part and appurtenance
thereof are in good and satisfactory condition, except for any defect which
is not discoverable upon a reasonable inspection, and (iii) Tenant waives
any defects in the Premises and its appurtenances and in all other parts of
the Building and the appurtenances thereto, except for any defect which is
not discoverable upon a reasonable inspection.
If Tenant intends to vacate the Premises at the end of the Lease Term,
Tenant will give Landlord ninety (90) days prior written notice of such
intent to vacate the Premises.
4. USE. The Premises shall be used for office purposes (the "PERMITTED
USE") and for no other purpose. Neither Landlord nor its agents or employees
have made any representation or warranty as to the suitability of the Premises
for the conduct of Tenant's business. Tenant agrees not to use or permit the use
of the Premises for any purpose which is illegal, dangerous to life, limb or
property or which, in Landlord's reasonable opinion, creates a nuisance or which
would increase the cost of insurance coverage with respect to the Building. In
the event there shall be any increase in the cost of insurance coverage with
respect to the Building which results from Tenant's acts or conduct of business,
then Tenant hereby agrees to pay the amount of such increase on demand. Tenant
will conduct its business and control its agents, servants, employees,
customers, licensees, and invitees in such a manner as not to unreasonably
interfere with, annoy or disturb other tenants or Landlord in the management of
the Building. Tenant will maintain the Premises in a clean and healthful
condition, and comply with all laws, ordinances, orders, rules and regulations
of any governmental entity with reference to the use, condition or occupancy of
the Premises. Tenant covenants not to introduce any toxic material into or near
Building. Without limiting the generality of the foregoing, Tenant shall not
store, use or dispose of any toxic material in or near the Building. Tenant
shall comply with all applicable federal, state, and local laws or ordinances
pertaining to the storage, use or disposal of any toxic material. Tenant will
comply with the rules and regulations of the Building adopted and altered by
Landlord from time to time and will cause all of its agents, employees, invitees
and visitors to do so. All changes to such rules and regulations will be sent by
Landlord to Tenant in writing. A copy of the existing rules and regulations is
attached hereto as Exhibit "H" and made a part hereof. Tenant agrees not to
commit or allow any waste to be committed on any portion of the Premises, and at
the termination of this Lease to deliver up the Premises to Landlord in as good
condition as at the Commencement Date, ordinary wear and tear excepted. Tenant
will not conduct or permit to be conducted any sale by auction on the Premises.
(See Addendum, Section 5).
5. BASE RENTAL.
(a) Tenant covenants and agrees to pay during the Lease Term, to
Landlord, without any setoff or deduction whatsoever, the Base Rental, and
all such other sums of money as shall become due hereunder as additional
rent, all of which are sometimes herein collectively called
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"rent." In the event of nonpayment of any such rent, Landlord shall be
entitled to exercise all such rights and remedies as are herein provided
in the case of the nonpayment of Base Rental. Except as otherwise
provided herein, the annual Base Rental for each calendar year or
portion thereof during the Lease Term, together with any estimated
adjustment thereto pursuant to EXHIBIT "C" hereof then in effect, shall
be due and payable in advance in twelve (12) equal installments on the
first day of each calendar month during the initial term of this Lease
and any extensions or renewals hereof, and Tenant hereby agrees to pay
such Base Rental and any adjustments thereto to Landlord at Landlord's
address provided herein (or such other address as may be designated by
Landlord in writing from time to time) monthly, in advance, and without
demand. If the term of this Lease commences on a day other than the
first day of a month or terminates on a day other than. the last day of
a month, then the installments of Base Rental and any adjustment thereto
for such month or months shall be prorated, based on the number of days
in such month. The Base Rental for the first partial month, if any,
shall be payable at the beginning of said period. All such payments
shall be by a good and sufficient check (subject to collection) drawn on
a bank acceptable to Landlord. No payment by Tenant or receipt or
acceptance by Landlord of a lesser amount than the correct installment
of rent due under this Lease shall be deemed to be other than a payment
on account of the earliest rent due hereunder, nor shall any endorsement
or statement on any check or any letter accompanying any check or
payment be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover
the balance or pursue any other remedy provided by this Lease or
applicable law. The acceptance by Landlord of an installment of rent on
a date after the due date of such payment shall not be construed to be a
waiver of Landlord's right to declare a default for any other late
payment. If Tenant fails to timely pay any two (2) installments of rent,
Landlord may require Tenant to pay rent (as estimated by Landlord, if
necessary) quarterly in advance, and, in such event, all future payments
shall be made on or before the due date in cash or by cashier's check or
money order, and the delivery of Tenant's collectible personal or
corporate check shall no longer constitute payment thereof. Any
acceptance of Tenant's collectible personal or corporate check
thereafter by Landlord shall not be construed as a waiver of the
requirement that such payments be made in cash or by cashier's check or
money order. All amounts received by Landlord from Tenant hereunder
shall be applied first to the earliest accrued and unpaid rent then
outstanding.
(b) All installments of rent not paid when due and payable shall bear
interest until paid at a per annum rate equal to the lesser of (i) the
Prime Rate plus five percent (5%) or (ii) the Maximum Rate.
(c) The Base Rental payable hereunder shall be adjusted upward from
time to time in accordance with the provisions of EXHIBIT "C" attached
hereto and incorporated herein for all purposes.
(d) See additional provisions regarding Base Rental in Paragraph 6.
6. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord
without liability for interest and as security for the performance by Tenant of
Tenant's covenants and obligations under this Lease including but not limited to
those set forth in Paragraph 10 hereof, it being expressly understood that the
Security Deposit shall not be considered an advance payment of rent, except as
set forth later in this paragraph, or a measure of Tenant's liability for
damages in case of default by Tenant. Landlord may commingle the Security
Deposit with Landlord's other funds. Landlord may, from time to time, without
prejudice to any other remedy, use the Security Deposit to the extent necessary
to make good
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any arrearages of rent or to satisfy any other covenant or obligation of
Tenant hereunder. Following any such application of the Security Deposit,
Tenant shall pay to Landlord on demand the amount so applied in order to
restore the Security Deposit to its original amount. If Tenant is not in
default at the termination of this Lease, the balance of the Security Deposit
remaining after any such application shall be returned by Landlord to Tenant.
If Landlord transfers its interest in the Premises during the term of this
Lease, Landlord may assign the Security Deposit to the transferee and
thereafter shall have no further liability for the return of such Security
Deposit. Tenant agrees to look solely to such transferee or assignee or
successor thereof for the return of the Security Deposit. Landlord and its
successors and assigns shall not be bound by any actual or attempted
assignment or encumbrance of the Security Deposit by Tenant.
7. SERVICES TO BE FURNISHED BY LANDLORD. Landlord shall provide to
Tenant, at no additional or separate charge to Tenant, the level and quality of
services typically provided by Landlords of office buildings comparable to the
Building within a three mile radius of the Building and Tenant shall be entitled
to install and operate photocopiers, telephone and telecopy equipment, word
processing equipment, computers and other equipment customarily used in
comparable office space in such area without additional charge. Landlord agrees
to furnish Tenant the following services:
(a) Hot and cold water at those points of supply provided for general
use of tenants in the Building, central heat and air conditioning in
season, at such temperatures and in such amounts as are considered standard
for buildings comparable to the Building within a three mile radius of the
Building or as required by governmental authority; provided, however,
heating and air conditioning service at times other than for Normal
Business Hours for the Building shall be furnished only upon the written
request of Tenant delivered to Landlord prior to 3:00 p.m. at least one
Business Day in advance of the date for which such usage is requested.
Tenant shall bear the entire cost of additional service as such costs are
determined by Landlord from time to time. Tenant shall comply with energy
conservation programs implemented by Landlord by reason of enacted laws or
ordinances.
(b) Routine maintenance and electric lighting service for all Common
Areas and Service Areas of the Building in the manner and to the extent
deemed standard for buildings comparable to the Building within a three
mile radius of the Building.
(c) Janitor service on Business Days; provided, however, if Tenant's
floor covering or other improvements require special treatment, Tenant
shall pay the additional cleaning cost attributable thereto as additional
rent upon presentation of a statement therefor by, Landlord.
(d) Subject to the provisions of Paragraph 11 hereof, facilities to
provide all electrical current required by Tenant in its use and occupancy
of the Premises. (See Addendum, Section 9).
(e) All fluorescent bulb replacement in the Premises necessary to
maintain the lighting provided by Landlord as set forth in the Work Letter
Agreement attached hereto as EXHIBIT "D" as a part of the Building Standard
Materials and fluorescent and incandescent bulb replacement in the Common
Areas and Service Areas.
(f) Passenger elevators for ingress and egress to and from the floor
of the Premises during Normal Business Hours and with at least one
passenger elevator available at all other times.
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(g) Access control to the Building during other than Normal Business
Hours shall be provided in such form as Landlord deems appropriate. Tenant
shall cooperate fully in Landlord's efforts to maintain access control to
the Building and shall follow all regulations promulgated by Landlord with
respect thereto. (See Addendum, Section 6).
Except as otherwise expressly provided herein, the failure by Landlord to
any extent to furnish, or the interruption or termination of these defined
services in whole or in part, resulting from adherence to laws, regulations
and administrative orders, FORCE MAJEURE or any other causes beyond the
reasonable control of Landlord shall not render Landlord liable in any
respect nor be construed as an eviction of Tenant, nor work an abatement of
rent, nor relieve Tenant from the obligation to fulfill any covenant or
agreement hereof Should any of the equipment or machinery used in the
provision of such services for any cause cease to function properly,
Landlord shall use reasonable diligence to repair such equipment or
machinery but, except as otherwise expressly provided herein, Tenant shall
have no claim for offset or abatement of rent or damages on account of an
interruption in service thereby or resulting therefrom. Except as expressly
provided herein, Landlord shall not be required to make any repairs to or
maintain the Premises. (See Addendum, Section 8).
Notwithstanding anything to the contrary set forth in this Lease, if there
is any material slow-down, interruption or stoppage of any of the services
required to be provided by Landlord pursuant to this Lease, and if Landlord
has failed to commence to cure or remedy such problem within ten (10) days
after Tenant's prior written notice thereof, or if Landlord should fail
thereafter to proceed diligently to remedy such problem, then provided that
the problem has a material adverse effect on the habitability of the
Premises or a portion thereof and Tenant has ceased to use or occupy the
portion of the Premises affected, Tenant shall have the right to abate rent
by submitting to binding arbitration.
8. IMPROVEMENTS TO BE MADE BY LANDLORD. Except as otherwise provided in
the Work Letter Agreement attached hereto as Exhibit "W" all installations and
improvements now or hereafter placed on or in the Premises shall be subject to
the provisions of Paragraph 10 hereof and shall be for Tenant's account and at
Tenant's cost (and Tenant shall pay ad valorem taxes and increased insurance
thereon or attributable thereto), which cost shall be payable by Tenant to
Landlord upon demand as additional rent.
9. GRAPHICS. Landlord shall provide and install, at Tenant's cost, all
letters or numerals on the exterior of the Premises; all such letters and
numerals shall be in the standard graphics for the Building and no others shall
be used or permitted on the Premises without Landlord's prior written consent.
Tenant acknowledges that the standard Building graphics are acceptable to
Tenant. (See Addendum, Section 7).
10. REPAIRS AND ALTERATIONS BY TENANT. Tenant covenants and agrees with
Landlord, at Tenant's own cost and expense, to keep the Premises in good
condition and repair and to repair or replace any damage done to the Building,
or any part thereof, caused by Tenant or Tenant's agents, servants, employees,
customers, licensees, or invitees. Tenant further covenants and agrees that such
repairs shall restore the Building to as good a condition as it was in prior to
such damage and that such repairs shall be effected in compliance with all
applicable laws. If Tenant fails to make such repairs or replacements promptly,
Landlord may, at its option, make such repairs or replacements, and Tenant shall
pay the cost thereof to the Landlord on demand as additional rent. Tenant agrees
with Landlord not to make or allow to be made any alterations to the Premises,
or place signs on the Premises which are
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visible from outside the Premises, without first obtaining the written
consent of Landlord in each such instance. If Landlord gives its consent, no
such alterations will proceed without Landlord's prior written approval of
(i) Tenant's contractor, (ii) certificates of insurance by Tenant's
contractor for public liability and automobile liability and property damage
insurance as set forth in Paragraph 16, and (iii) detailed plans and
specifications for such work. Any and all alterations, additions and
improvements to the Premises, all attached furniture, equipment and fixtures,
and any unattached and movable equipment, furniture, trade fixtures or other
personalty which was acquired with funds provided by or on behalf of Landlord
shall become the property of Landlord upon termination of this Lease. In
addition, all other personal property which shall remain in the Premises for
more than seven (7) days following either the termination of this Lease or
the entry of the Premises by Landlord following Tenant's default hereunder
shall, at Landlord's option, become the property of Landlord. Landlord may,
nonetheless, require Tenant to remove such fixtures, furniture, trade
fixtures, equipment, improvements, alterations, additions and personal
property installed on or located in the Premises as are designated by
Landlord at the time Landlord approves the plans or such installments (the
"REQUIRED REMOVABLES") at Tenant's sole cost. In the event that Landlord so
elects, and Tenant fails to remove the Required Removables, Landlord may
remove the Required Removables at Tenant's cost, and Tenant shall pay
Landlord on demand all costs incurred in removing, storing and/or disposing
of the Required Removables. Landlord may also require Tenant to provide
Landlord, at Tenant's sole cost and expense, a payment and performance bond
in form acceptable to Landlord, in a principal amount not less than one and
one-half times the estimated cost of such alterations, to insure Landlord
against any liability for mechanic's or materialman's liens and to insure
completion of the work. Lessor will have the right to construct or permit
construction of tenant improvements in or about the Building for existing and
new tenants and to alter any public areas in and around the Property.
Notwithstanding anything which may be contained in this Lease, Tenant
understands this right of Landlord and agrees that such construction will not
be deemed to constitute a breach of this Lease by Landlord and Tenant waives
any such claim which it might have arising from such construction. Tenant
will not make repairs to the Premises at the cost of Landlord, whether by
deduction of rent or otherwise and will not vacate the Premises or terminate
the Lease with abatement or termination of rent because repairs are not made.
If during the Lease Term, any alteration, addition or change to the Premises
is required by legal authorities, Tenant, at its sole expense, shall promptly
make same. Landlord will not be liable for any failure to make any repairs or
perform any maintenance and there will be no abatement of rent, nor liability
of Landlord by reason of any injury to or interference with Tenant's business
arising from the making or failure to make any repair, alteration or
improvement in or to any portion of the Premises or to Tenant's fixtures,
appurtenances and equipment.
11. USE OF ELECTRICAL SERVICES BY TENANT. Tenant's use of electrical
services furnished by Landlord shall not exceed, either in voltage, rated
capacity, or overall load that which Landlord deems to be standard for the
Building. In the event Tenant shall request that it be allowed to consume
electrical services in excess of that deemed by Landlord to be standard for the
Building, Landlord may refuse to consent to such usage or may consent upon such
conditions as Landlord elects (including the requirement that submeters be
installed at Tenant's expense). However, Tenant shall have the right to install
its own HVAC system (subject to Landlord s approval of the size and location of
such system) at Tenant's expense which system shall be separately metered and
for which Tenant shall be fully responsible, both for the monthly utility
charges therefor and for the maintenance and repair thereof. Tenant additionally
shall pay to Landlord an administrative fee equal to five percent (5%) of (i)
any utility charges for this additional HVAC system and (ii) any repairs thereof
which Landlord must perform if Tenant does not. At the end of the Lease Term,
the HVAC system which Tenant installs shall become the property Landlord
(subject to Landlord s approval of size and location of such system).
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12. ENTRY BY LANDLORD. Tenant agrees to permit Landlord or its agents
or representatives to enter into and upon any part of the Premises at all
reasonable hours (and in emergencies at all times, by any means Landlord may
deem proper, and without liability therefor) to inspect the same, or to show
the Premises to prospective purchasers, mortgagees, tenants (to tenants only
during last year of Lease Term) or insurers, or to clean or make repairs,
alterations or additions thereto, and Tenant shall not be entitled to any
abatement or reduction of rent by reason thereof. Landlord will at all times
have and retain a key with which to unlock all of the doors in, upon and
about the Premises, excluding Tenant's vaults, safes and filing cabinets.
Tenant will not alter any lock or install a new or additional lock or any
bolt on any door of the Premises without the prior written consent of
Landlord, which will not be unreasonably withheld. If Landlord gives its
consent, such work shall be undertaken by a locksmith approved by Landlord,
at Tenant's sole cost, and Tenant will furnish Landlord with a key. Landlord
retains the right to charge Tenant for restoring any altered doors to their
condition prior to the installation of the new or additional locks.
13. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign, sublease, transfer or encumber this
Lease or any interest therein or grant any license, concession or other
right of occupancy of the Premises or any portion thereof or otherwise
permit the use of the Premises or any portion thereof by any party other
than Tenant (any of which events is hereinafter called an "ASSIGNMENT")
without the prior written consent of Landlord. Any such attempted
assignment in violation of the terms and covenants of this Paragraph shall,
at Landlord's option, exercisable in Landlord's sole and absolute
discretion, be void. Consent by Landlord to one or more assignments shall
not operate as a waiver of Landlord's rights as to any subsequent
assignments. In addition, Tenant shall not, without Landlord's consent,
publicly offer to assign the Lease nor advertise the Lease for assignment
in any media, including but not limited to newspapers, periodicals, radio,
television, circulars or brochures. In the event Tenant or any agent,
representative or broker acting on behalf of Tenant or with Tenant's
knowledge violates the provisions of the foregoing sentence, in addition to
all of the remedies which Landlord may have at law, in equity, or pursuant
to the terms of this Lease, Landlord shall be entitled to seek injunctive
relief preventing such action and Tenant shall be responsible for all costs
incurred by Landlord in connection with seeking such injunctive relief.
(b) If Tenant requests Landlord's consent to an assignment, Tenant
shall submit to Landlord, in writing, the name of the proposed assignee and
the nature and character of the business of the proposed assignee, the
term, use, rental rate and all other material terms and conditions of the
proposed assignment, including, without limitation, evidence satisfactory
to Landlord that the proposed assignee has a financial strength equal to or
greater than Tenant's. Landlord shall either (i) consent to or refuse to
consent to such assignment in writing (but no such consent to an assignment
shall relieve Tenant or any guarantor of Tenant's obligations under this
Lease of any liability hereunder), or (ii) negotiate directly with the
proposed assignee and (in the event Landlord is able to reach agreement
with such proposed assignee) upon execution of a lease with such assignee,
terminate this Lease (in part or in whole, as appropriate) upon ninety (90)
days' notice. If Landlord should fail to notify Tenant in writing of its
decision within a sixty (60) day period after the later of the date
Landlord is notified in writing of the proposed assignment or the date
Landlord has received all required information concerning the proposed
assignee and the proposed assignment, Landlord shall be deemed to have
refused to consent to such assignment, and to have elected to keep this
Lease in full force and effect. In the event Landlord consents to any such
assignment, the assignment shall be on a form approved by
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Landlord, and Tenant shall bear all costs and expenses incurred by Landlord
in connection with the review and approval of such documentation. Landlord
shall not withhold its approval of a proposed assignment or sublease
unreasonably, provided Landlord approves the financial strength of, and use
of the Premises proposed by, the proposed assignee or sublessee. Landlord
shall have no right to terminate this Lease if Tenant assigns or subleases
the Premises to an affiliate of Tenant, provided that the financial
strength of the affiliate is equal to or greater than Tenant's and provided
that Tenant shall remain liable under this Lease. An "AFFILIATE" shall be
defined as any entity which owns at least fifty-one percent (51%) of the
equity and control of Tenant or an entity in which Tenant owns at least
fifty-one percent (51%) of the equity and control.
(c) All cash or other proceeds of any assignment or sublease of
Tenant's interest in this Lease and/or the Premises, whether consented to
by Landlord or not, shall be paid to Landlord notwithstanding the fact that
such proceeds exceed the rentals called for hereunder, unless Landlord
agrees to the contrary in writing, and Tenant hereby assigns all rights it
might have or ever acquire in any such proceeds to Landlord. In addition to
the rent hereunder, Tenant hereby covenants and agrees to pay to Landlord
all rent and other consideration which it receives which is in excess of
the rent payable hereunder within ten (10) days following receipt thereof
by Tenant. This covenant and assignment shall benefit Landlord and its
successors in ownership of the Building and shall bind Tenant and Tenant's
heirs, executors, administrators, personal representatives, successors and
assigns. In addition to any other rights and remedies which Landlord may
have hereunder, at law or in equity, in the event Tenant has failed to pay
any rent due hereunder on or before five (5) days following the date on
which it is due, Landlord shall have the right to contact any assignee or
subtenant and require that from that time forward all payments made
pursuant to the assignment or sublease shall be made directly to the
Landlord. Any assignee or subtenant of Tenant's interest in this Lease (all
such assignees or subtenants being hereinafter referred to as
"SUCCESSORS"), by occupying the Premises and/or assuming Tenant's
obligations hereunder, shall be deemed to have assumed liability to
Landlord for all amounts paid to persons other than Landlord by such
Successors in consideration of any such assignment in violation of the
provisions hereof. (See Addendum, Section 10).
(d) If Tenant is a corporation and if at any time during the Lease
Term the person or persons who own the voting shares at the time of the
execution of this Lease cease for any reason, including but not limited to
merger, consolidation or other reorganization involving another
corporation, to own a majority of such shares or if Tenant is a partnership
and if at any time during the Lease Term the general partner or partners
who own the general partnership interests in the partnership at the time of
the execution of this Lease, cease for any reason to own a majority of such
interests (except as the result of transfers by gift, bequest or
inheritance to or for the benefit of members of the immediate family of
such original shareholder(s) or partner(s)), such an event shall be deemed
to be an assignment. The preceding sentence shall not apply whenever
Tenant is a corporation the outstanding stock of which is listed on a
recognized security exchange, or if at least eighty percent (80%) of its
voting stock is owned by another corporation, the voting stock of which is
so listed. Notwithstanding the foregoing, Tenant shall have the right to
add investors, change investors or otherwise change its ownership
structure, including offering interests in Tenant publicly, and such
changes shall not be an assignment requiring Landlord's consent so long as
such changes do not decrease Tenant's financial strength, in Landlord's
reasonable opinion and as long as Tenant gives Landlord written notice of
such change in Tenant's structure at least 30 days before such change is
effective.
-Page 11-
<PAGE>
14. MECHANIC'S LIENS. Tenant will not permit any mechanic's liens or
other liens to be placed upon the Premises, the Building, or the Property and
nothing in this Lease shall be deemed or construed in any way as constituting
the consent or request of Landlord, express or implied, by inference or
otherwise, to any person for the performance of any labor or the furnishing
of any materials to the Premises, the Building, or the Property or any part
thereof, nor as giving Tenant any right, power, or authority to contract for
or permit the rendering of any services or the furnishing of any materials
that would give rise to any mechanic's or other liens against the Premises,
the Building, or the Property. In the event any such lien is attached to the
Premises, the Building, or the Property, then, in addition to any other right
or remedy of Landlord, Landlord may, but shall not be obligated to, discharge
the same. Any amount paid by Landlord for any of the aforesaid purposes
including, but not limited to, attorneys fees, shall be paid by Tenant to
Landlord promptly on demand as additional rent. In the event Landlord does
consent to the performance of any labor or the furnishing of any materials to
the Premises, the Building, or the Property by any party, which consent must
be in writing, Tenant shall be responsible for insuring that all such persons
procure and maintain insurance coverage against such risks, in such amounts
and with such companies as Landlord may require, including, but not limited
to, Builder's Risk and Worker's Compensation insurance.
15. PROPERTY INSURANCE.
(a) Landlord shall maintain fire and extended coverage insurance on
the Building and the Premises in such amounts as Landlord elects. The cost
of such insurance shall be included as a part of the Basic Costs, and
payments for losses thereunder shall be made solely to Landlord or the
mortgagees of Landlord as their interests shall appear.
(b) Tenant shall maintain at its expense, in an amount equal to full
replacement cost, fire and extended coverage insurance on all of its
personal property, including removable trade fixtures and leasehold and
tenant improvements, located in the Premises and in such additional amounts
as are required to meet Tenant's obligations pursuant to Paragraph 19
hereof. Tenant shall furnish evidence satisfactory to Landlord of the
maintenance and timely renewal of such insurance, and Tenant shall obtain
and deliver to Landlord a written obligation on the part of each insurer to
notify Landlord at least thirty (30) days prior to the modification,
cancellation or expiration of such insurance policies. In the event Tenant
shall not have delivered to Landlord a policy or certificate evidencing
such insurance at least thirty (30) days prior to the expiration date of
each expiring policy, Landlord may obtain such insurance as Landlord may
reasonably require to protect Landlord's interest (which obtaining of
insurance shall not be deemed to be a waiver of Tenant's default
hereunder). The cost to Landlord of obtaining such policies, plus an
administrative fee in the amount of fifteen percent (15%) of the cost of
such policies shall be paid by Tenant to Landlord as additional rent upon
demand.
(c) Landlord and Tenant each hereby waives on behalf of itself and
its insurers (none of which shall ever be assigned any such claim or be
entitled thereto due to subrogation or otherwise) any and all rights of
recovery, claim, action, or cause of action, against the other, its agents,
officers or employees, for any loss or damage that may occur to the
Premises, or any improvements thereto or the Building of which the Premises
are a part, or any improvements thereto, or any personal property of such
party therein, by reason of fire, the elements, or any other cause(s) which
are, or could be, insured against under the terms of the standard fire and
extended coverage insurance policies referred to in this Paragraph 15,
regardless of whether such insurance is actually maintained and regardless
of the cause or origin of the damage involved,
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<PAGE>
including sole, joint or concurrent, negligence of the other party hereto,
its agents, officers, or employees.
16. LIABILITY AND WORKER'S COMPENSATION INSURANCE.
(a) Tenant and Landlord shall, each at its own expense, maintain
during the term of this Lease a policy or policies of comprehensive general
liability insurance (including endorsement or separate policy for owned or
non-owned automobile liability) with respect to the respective activities
of each in the Building and on the Property, with the premiums thereon
fully paid on or before the due date, issued by and binding upon an
insurance company or companies approved by Landlord. Such insurance shall
afford minimum protection of not less than $1,000,000.00 per occurrence per
person coverage for bodily injury, property damage, personal injury, or
combination thereof. The term "PERSONAL INJURY" herein used means false
arrest, detention or imprisonment, malicious prosecution, wrongful entry,
libel and slander. If only a combined single limit coverage is available,
it shall be for at least $1,000,000.00 per occurrence with an umbrella
policy of at least $5,000,000.00 combined single limit per occurrence.
Tenant's insurance policy shall name Landlord as an additional insured and
shall include coverage for the contractual liability of Tenant to indemnify
Landlord pursuant to Paragraph 17 of this Lease.
(b) Tenant shall obtain and maintain in force worker's compensation
and employer's liability insurance to cover Tenant's liability to its
employees to the extent required by law, provided that Tenant shall
indemnify and hold harmless Landlord, its employees, agents, successors and
assigns from any and all claims made by Tenant's employees regarding such
worker's compensation or employer's liability issues.
(c) Landlord and Tenant each hereby waives subrogation on its behalf
and on behalf of its insurer, to the extent subrogation on a paid claim can
be legally waived prior to loss by contract between the parties, in respect
of any payment made by such insurer under any liability or worker's
compensation policy. Neither Landlord nor Tenant shall be liable to the
other or any insurance company (by way of subrogation or otherwise)
insuring the other party for any loss or damage to any building, structure
or other tangible property, or bodily injury or personal injury, or any
resulting loss of income, or losses from workers' compensation laws and
benefits, even though such loss or damage might have been occasioned by the
negligence of such parry, its agents or employees, if any such loss or
damage is covered by insurance benefitting the party suffering such loss or
damage or was required to be covered by insurance pursuant to this Lease.
(d) Each party shall use its good faith efforts to cause its general
liability, automobile liability and worker's compensation policies to be
endorsed by the issuing insurer waiving rights of subrogation of such
insurer against the other party hereto. The failure of any insurer to issue
such endorsement shall not be deemed to limit or alter the force and effect
of Paragraph 16(c) of this Lease.
17. INDEMNITY. Neither Landlord nor any of its officers, directors,
employees or agents shall be liable to Tenant, or to Tenant's agents,
servants, employees, customers, licensees, or invitees for any injury to
person or damage to property caused by any act, omission, or neglect of
Tenant, its agents, servants, employees, customers, invitees, licensees or
any other person entering the Building or upon the Property under the
invitation of Tenant or arising out of the use of the Property, Building or
Premises by Tenant and the conduct of its business or out of a default by
Tenant in the performance of its obligations hereunder. Tenant hereby
indemnifies and holds Landlord and its officers, directors, employees and
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<PAGE>
agents ("INDEMNITEES"), harmless from all liability and claims for any
property damage, or bodily injury or death of, or personal injury to, a
person in or on the Premises, or at any other place, including the Property
or the Building, caused, in whole or in part, by Tenant, its employees,
agents, servants, customers, invitees or licensees and this indemnity shall
be enforceable to the full extent whether or not such liability and claims
are the result of the sole, joint or concurrent acts, negligent or
intentional, or otherwise, of Tenant, or its employees, agents, servants,
customers, invitees or licensees. Such indemnity for the benefit of
Indemnitees shall be enforceable even if Indemnitees, or any one or more of
them have or has caused or participated in causing such liability and claims
by their joint or concurrent acts, negligent or intentional, or otherwise.
(See Addendum, Section 11).
18. EVIDENCE OF INSURANCE. On or before five (5) days following the
date of this Lease, Tenant will cause its insurer(s) to issue and deliver to
Landlord certificate(s) of insurance in the form attached hereto as EXHIBIT
"F" evidencing the existence and coverage of insurance required herein.
19. CASUALTY DAMAGE. If the Premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Building shall be so damaged that
substantial alteration or reconstruction of the Building shall, in Landlord's
sole opinion, be required (whether or not the Premises shall have been
damaged by such casualty) or in the event there is less than two (2) years of
the Lease Term remaining or in the event any mortgagee of Landlord's should
require that the insurance proceeds payable as a result of a casualty be
applied to the payment of the mortgage debt or in the event of any material
uninsured loss to the Building, Landlord may, at its option, terminate this
Lease by notifying Tenant in writing of such termination within ninety (90)
days after the date of such casualty. If Landlord does not thus elect to
terminate this Lease, Landlord shall commence and proceed with reasonable
diligence to restore the Building, and the improvements located within the
Premises, if any, for which Landlord had financial responsibility pursuant to
the Work Letter Agreement attached hereto as EXHIBIT "D" (except that
Landlord shall not be responsible for delays not within the control of
Landlord) to substantially the same condition in which it was immediately
prior to the happening of the casualty. Notwithstanding the foregoing,
Landlord's obligation to restore the Budding, and the improvements located
within the Premises, if any, for which Landlord had financial responsibility
pursuant to the Work Letter Agreement, shall not require Landlord to expend
for such repair and restoration work more than the insurance proceeds
actually received by the Landlord as a result of the casualty and Landlord's
obligation to restore shall be further limited so that Landlord shall not be
required to expend for the repair and restoration of the improvements located
within the Premises, if any, for which Landlord had financial responsibility
pursuant to the Work Letter Agreement, more than the dollar amount of the
Allowance, if any, described in the Work Letter Agreement. When the repairs
described in the preceding two sentences have been completed by Landlord,
Tenant shall complete the restoration of all improvements, including
furniture, fixtures and equipment, which are necessary to permit Tenant's
reoccupancy of the Premises which Landlord is not obligated to restore as set
forth above. Except as set forth above, all cost and expense of
reconstructing the Premises shall be borne by Tenant, and Tenant shall
present Landlord with evidence satisfactory to Landlord of Tenant's ability
to pay such costs prior to Landlord's commencement of repair and restoration
of the Premises. Tenant shall not be entitled to receive any credit or
payment with respect to any portion of the Reconstruction Allowance not
actually spent upon restoration of the Promises. Landlord shall not be liable
for any inconvenience or annoyance to Tenant or injury to the business of
Tenant resulting in any way from such damage or the repair thereof, except
that, subject to the provisions of the next sentence, Landlord shall allow
Tenant a fair diminution of rent during the time and to the extent the
Premises are unfit for occupancy. If the Premises or any other portion of the
Building is damaged by fire or other casualty resulting from the fault or
negligence of Tenant or any of Tenant's agents, employees, or invitees, the
rent hereunder shall not be diminished during the repair of such damage and
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<PAGE>
Tenant shall be liable to Landlord for the cost of the repair and restoration
of the Building caused thereby to the extent such cost and expense is not
covered by insurance proceeds.
20. DAMAGES FROM CERTAIN CAUSES. Landlord shall not be liable to Tenant
for any injury to person or damage to property sustained by Tenant or any
person claiming through Tenant resulting from any accident or occurrence in
the Premises or any other portion of the Building caused by the Premises or
any other portion of the Building becoming out of repair or by defect in or
failure of equipment, pipes, or wiring, or by broken glass, or by the backing
up of drains, or by gas, water, steam, electricity, or oil leaking, escaping
or flowing into the Premises (except where due to Landlord's willful failure
to make repairs required to be made pursuant to other provisions of this
Lease, after the expiration of a reasonable time after written notice to
Landlord of the need for such repairs), nor shall Landlord be liable to
Tenant for any loss or damage that may be occasioned by or through the acts
or omissions of other tenants of the Building or of any other persons
whomsoever, including, but not limited to riot, strike, insurrection, war,
court order, requisition, order of any governmental body or authority, acts
of God, fire or theft.
21. CONDEMNATION. If the whole or any substantial part of the Premises
or if the Building or any portion thereof which would leave the remainder of
the Building unsuitable for use as an office building comparable to its use
on the Commencement Date, shall be taken or condemned for any public or
quasi-public use under governmental law, ordinance or regulation, or by right
of eminent domain, or by private purchase in lieu thereof, then Landlord may,
at its option, terminate this Lease and the rent shall be abated during the
unexpired portion of this Lease, effective when the physical taking of said
Premises or said portion of the Building shall occur. In the event this Lease
is not terminated, the rent for any portion of the Premises so taken or
condemned shall be abated during the unexpired term of this Lease effective
when the physical taking of said portion of the Premises shall occur. All
compensation awarded for any such taking or condemnation, or sale proceeds in
lieu thereof, shall be the property of Landlord, and Tenant shall have no
claim thereto, the same being hereby expressly waived by Tenant, except for
any portions of such award or proceeds which are specifically allocated by
the condemning or purchasing party for the taking of or damage to trade
fixtures of Tenant, which Tenant specifically reserves to itself.
22. EVENTS OF DEFAULT/REMEDIES.
(a) The following events shall be deemed to be events of default
under this Lease:
(i) Tenant shall fail to pay within five days of the due date
any Base Rental or other rent payable by Tenant to Landlord under this
Lease (hereinafter sometimes referred to as a "MONETARY DEFAULT").
(ii) Any failure by Tenant (other than a Monetary Default) to
comply with any term, provision or covenant of this Lease, which
failure is not cured within twenty (20) days after delivery to Tenant
of notice of the occurrence of such failure or if such failure is not
reasonably susceptible of being cured within such twenty (20) day
period, Tenant shall fail to commence the curing thereof within such
twenty (20) day period, or having commenced the curing thereof, Tenant
shall fail to diligently pursue the curing of such default with
reasonable diligence to completion.
(iii) Tenant or any Guarantor shall become insolvent, or shall
make a transfer in fraud of creditors, or shall commit an act of
bankruptcy or shall make an assignment
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for the benefit of creditors, or Tenant or any Guarantor shall admit
in writing its inability to pay its debts as they become due.
(iv) Tenant or any Guarantor shall file a petition under any
section or chapter of the United States Bankruptcy Code, as amended,
pertaining to bankruptcy, or under any similar law or statute of the
United States or any State thereof, or Tenant or any Guarantor shall
be adjudged bankrupt or insolvent in proceedings filed against Tenant
or any Guarantor thereunder; or a petition or answer proposing the
adjudication of Tenant or any Guarantor as a bankrupt or its
reorganization under any present or future federal or state bankruptcy
or similar law shall be filed in any court and such petition or answer
shall not be discharged or denied within sixty (60) days after the
filing thereof.
(v) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant or any Guarantor or of the
Premises or of any of Tenant's property located thereon in any
proceeding brought by Tenant or any Guarantor, or any such receiver or
trustee shall be appointed in any proceeding brought against Tenant or
any Guarantor and shall not be discharged within sixty (60) days after
such appointment or Tenant or such Guarantor shall consent to or
acquiesce in such appointment.
(vi) The leasehold estate hereunder shall be taken on
execution or other process of law in any action against Tenant.
(vii) Tenant shall abandon or vacate any substantial portion of
the Premises without the prior written permission of Landlord for a
period longer than 365 consecutive days during the Lease Term. If
Tenant or any other person acting on Tenant's behalf has removed, is
removing or has made preparations to remove (other than in the normal
course of business) goods, equipment, fixtures or other property from
the Premises in amounts substantial enough to indicate a probable
intent to abandon or vacate the Premises without the prior written
permission of Landlord, Tenant's abandonment of the Premises shall be
deemed conclusively established for all purposes. The provisions of
the foregoing sentence shall supersede the provisions of the Texas
Property Code.
(viii) Tenant shall fail to take possession of and occupy the
Premises within sixty (60) days following the Commencement Date and
thereafter continuously conduct its operations in the Premises for the
Permitted Use as set forth in Paragraph 4 hereof.
(ix) The liquidation, termination, dissolution, forfeiture of
right to do business or death of Tenant or any Guarantor.
(b) Upon the occurrence of any event or events of default under this
Lease, whether enumerated in this Paragraph or not, Landlord shall have the
option to pursue any one or more of the following remedies without any
notice (except as expressly prescribed herein) or demand for possession
whatsoever (and without limiting the generality of the foregoing, Tenant
hereby specifically waives notice and demand for payment of rent or other
obligations due and waives any and all other notices or demand requirements
imposed by applicable law):
(i) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord. If Tenant fails to
surrender the Premises upon termination of
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<PAGE>
the Lease hereunder, Landlord may without prejudice to any other
remedy which it may have for possession or arrearages in rent, enter
upon and take possession of the Premises and expel or remove Tenant
and any other person who may be occupying said Premises, or any part
thereof, by force, if necessary, without being liable for prosecution
or any claim of damages therefor, and Tenant hereby agrees to pay to
Landlord on demand the amount of all loss and damage which Landlord
may suffer by reason of such termination, whether through inability to
relet the Premises on satisfactory terms or otherwise, specifically
including but not limited to all Costs of Reletting (hereinafter
defined) and any deficiency that may arise by reason of any reletting.
If such termination is caused by the failure to pay rent and/or the
abandonment of any substantial portion of the Premises, Landlord may
elect, by sending written notice thereof to Tenant, to receive
liquidated damages in an amount equal to the Base Rental and other
rent payable hereunder for the month during which the Lease is
terminated times the lesser of (A) twelve (12) or (B) the number of
months remaining in the Lease Term as of the date of such failure to
pay rent and/or abandonment of any substantial portion of the
Premises. Such liquidated damages shall be in lieu of the payment of
loss and damage Landlord may suffer by reason of such termination as
provided in the preceding sentence but shall not be in lieu of or
reduce in any way any amount (including accrued rent) or damages due
to breach of covenant (whether or not liquidated) payable by Tenant to
Landlord which is accrued and outstanding at the time of the
termination of the Lease.
(ii) Enter upon and take possession of the Premises and expel
or remove Tenant or any other person who may be occupying said
Premises, or any part thereof, by force, if necessary, without having
any civil or criminal liability therefor and without terminating this
Lease. Landlord may (but shall be under no obligation to) relet the
Premises or any part thereof for the account of Tenant, in the name of
Tenant or Landlord or otherwise, without notice to Tenant for such
term or terms which may be greater or less than the period which would
otherwise have constituted the balance of the Lease Term and on such
conditions (which may include concessions or free rent) and for such
uses as Landlord in its absolute discretion may determine, and
Landlord may collect and receive any rents payable by reason of such
reletting. Tenant agrees to pay Landlord on demand all Costs of
Reletting and any deficiency that may arise by reason of such
reletting. Landlord shall not be responsible or liable for any failure
to relet the Premises or any part thereof or for any failure to
collect any rent due upon any such reletting. No such re-entry or
taking of possession of the Premises by Landlord shall be construed as
an election on Landlord's part to terminate this Lease unless a
written notice of such termination is given to Tenant.
(iii) Enter upon the Premises by force if necessary without
having any civil or criminal liability therefor, and do whatever
Tenant is obligated to do under the terms of this Lease and Tenant
agrees to reimburse Landlord on demand for any expense which Landlord
may incur in thus affecting compliance with Tenant's obligations under
this Lease together with interest at the lesser of a per annum rate
equal to (i) the Maximum Rate or (ii) the Prime Rate plus five percent
(5%) and Tenant further agrees that Landlord shall not be liable for
any damages resulting to Tenant from such action, whether caused by
the negligence of Landlord or otherwise.
(iv) In order to regain possession of the Premises and to deny
Tenant access thereto, Landlord or its agent may, at the expense and
liability of the Tenant, alter or
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change any or all locks or other security devices controlling access
to the Premises without posting or giving notice of any kind to
Tenant. Landlord shall have no obligation to provide Tenant a key or
grant Tenant access to the Premises so long as Tenant is in default
under this Lease. Tenant shall not be entitled to recover possession
of the Premises, terminate this Lease, or recover any actual,
incidental, consequential, punitive, statutory or other damages or
award of attorneys' fees, by reason of Landlord's alteration or change
of any lock or other security device and the resulting exclusion from
the Premises of the Tenant or Tenant's agents, servants, employees,
customers, licensees, invitees or any other persons from the Premises.
Landlord may, without notice, remove and either dispose of or store,
at Tenant's expense, any property belonging to Tenant that remains in
the Premises after Landlord has regained possession thereof. Any such
property of Tenant not retaken by Tenant from Landlord's storage
within 30 days after removal from the Premises shall, at Landlord's
option. be deemed conveyed by Tenant to Landlord under this Lease as
by a bill of sale without further payment or credit by Landlord to
Tenant. Tenant acknowledges that the provisions of this subparagraph
of this Lease supersedes die Texas Property Code and Tenant farther
warrants and represents that it hereby knowingly waives any rights it
may have thereunder.
(v) Terminate this Lease by giving Tenant written notice
thereof, in which event, Tenant shall pay to Landlord the sum of (i)
all rent accrued hereunder through the date of termination, (ii) all
Costs of Reletting, and (iii) an amount equal to (A) the total rent
that Tenant would have been required to pay for the remainder of the
Lease Term discounted to present value minus; (B) the then present
fair rental value of the Premises for such period, similarly
discounted.
(c) For purposes of this Lease, the term "COSTS OF RELETTING" shall
mean all costs and expenses incurred by Landlord in connection with the
reletting of the Promises, including without limitation the cost of
cleaning, renovation, repairs, decoration and alteration of the Premises
for a new tenant or tenants, advertisement, marketing, brokerage and legal
fees, the cost of protecting or caring for the Premises while vacant, the
cost of removing and storing any property located on the Premises, any
increase in insurance premiums caused by the vacancy of the Premises, costs
of carrying the Premises such as taxes, insurance premiums, utilities and
security precautions, any unearned brokerage commissions paid in connection
with this Lease, parking fees or occupancy taxes due under the Lease,
reimbursement of any previously waived Base Rental, Basic Costs, free rent,
or reduced rental rate, and any concession made or paid by Landlord to the
benefit of Tenant in consideration of this Lease including, but not limited
to, any moving allowances, contributions or payments by Landlord for tenant
improvements or build-out allowances, or assumptions by Landlord of any of
Tenant's previous lease obligations and any other out-of-pocket expenses
incurred by Landlord including tenant inducements such as the cost of
moving the new tenant or tenants and the cost of assuming any portion of
the existing lease(s) of the new tenant(s).
(d) Except as otherwise herein provided, no repossession or
re-entering on the Premises or any part thereof pursuant to Paragraph 22(b)
hereof or otherwise shall relieve Tenant or any Guarantor of its
liabilities and obligations hereunder, all of which shall survive such
repossession or re-entering. Notwithstanding any such repossession or
re-entering on the Premises or any part thereof by reason of the occurrence
of an event of default, Tenant will pay to Landlord the Base Rental and
other rent or other sum required to be paid by Tenant pursuant to this
Lease.
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<PAGE>
(e) No right or remedy herein conferred upon or reserved to Landlord
is intended to be exclusive of any other right or remedy, and each and
every right and remedy shall be cumulative and in addition to any other
right or remedy given hereunder or now or hereafter existing by agreement,
applicable law or in equity. In addition to other remedies provided in
this Lease, Landlord shall be entitled, to the extent permitted by
applicable law, to injunctive relief in case of the violation, or attempted
or threatened violation, of any of the covenants, agreements, conditions or
provisions of this Lease, or to a decree compelling performance of any of
the other covenants, agreements, conditions or provisions of this Lease, or
to any other remedy allowed to Landlord at law or in equity. Forbearance by
Landlord to enforce one or more of the remedies herein provided upon an
event of default shall not be deemed or construed to constitute a waiver of
such default.
(f) This Paragraph 22 shall be enforceable to the maximum extent such
enforcement is not prohibited by applicable law, and the unenforceability
of any portion thereof shall not thereby render unenforceable any other
portion. To the extent any provision of applicable law requires some action
by Landlord to evidence or effect the termination of this Lease or to
evidence the termination of Tenant's right of occupancy, Tenant and
Landlord hereby agree that written notice by Landlord to any of Tenant's
agents, servants or employees, which specifically sets forth Landlord's
intention to terminate, shall be sufficient to evidence and effect the
termination herein provided for.
23. TENANT REMEDIES. Except to the extent specifically provided herein,
Tenant shall not have the right to an abatement of rent or to terminate this
Lease as a result of Landlord's default as to any covenant or agreement
contained in this Lease or as a result of the breach of any promise or
inducement in connection herewith, whether in this Lease or elsewhere and Tenant
hereby waives such remedies of abatement of rent and termination. Tenant hereby
agrees that Tenant's remedies for default hereunder or in any way arising
in connection with this Lease including any breach of any promise or inducement
or warranty, express or implied, shall be limited to:
(a) A suit for direct and proximate damages provided that Tenant has
given the notices as hereinafter required. Notwithstanding anything to the
contrary contained in this Lease, the liability of Landlord to Tenant for
any default by Landlord under the terms of this Lease shall be limited to
the interest of Landlord in the Building and the Property and Tenant agrees
to look solely to Landlord's interest in the Building and the Property for
the recovery of any judgment against the Landlord, it being intended that
Landlord shall not be personally liable for any judgment or deficiency.
Tenant hereby covenants that, prior to the filing of any suit for direct
and proximate damages, it shall give Landlord and all mortgagees whom
Tenant has been notified hold mortgages or deed of trust liens on the
Property, Building or Premises ("LANDLORD'S MORTGAGEES") notice and
reasonable time to cure any alleged default by Landlord.
(b) In the event Landlord fails to commence the cure of a material
default of any material covenant or agreement contained in this Lease
within sixty (60) days following receipt of notice specifying such alleged
default from Tenant by both Landlord and Landlord's mortgagees, equitable
abatement of the Base Rental and other rent due hereunder to the extent
reasonably necessary to adjust for any inconvenience occasioned by
Landlord's failure to theretofore commence the cure of such default.
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<PAGE>
24. NO WAIVER. Failure of Landlord to declare any default immediately
upon its occurrence, or delay in taking any action in connection with an
event of default, shall not constitute a waiver of such default, nor shall it
constitute an Estelle against Landlord, but Landlord shall have the right to
declare the default at any time and take such action as is lawful or
authorized under this Lease. Failure by Landlord to enforce its rights with
respect to any one default shall not constitute a waiver of its rights with
respect to any subsequent default. Receipt by Landlord of Tenant's keys to
the Premises shall not constitute an acceptance of surrender of the Premises.
25. EVENT OF BANKRUPTCY. In addition to, and in no way limiting the
other remedies set forth herein Landlord and Tenant agree that if Tenant ever
becomes the subject of a voluntary or involuntary bankruptcy, reorganization,
composition, or other similar type proceeding under the federal bankruptcy
laws, as now enacted or hereinafter amended, then:
(a) "ADEQUATE PROTECTION" of Landlord's interest in the Premises
pursuant to the provisions of Section 361 and 363 (or their successor
sections) of the Bankruptcy Code, 11 U.S. C. Paragraph 101, ET SEQ. (such
Bankruptcy Code as amended from time to time being herein referred to as
the "BANKRUPTCY CODE"), prior to assumption and/or assignment of the Lease
by Tenant shall include, but not be limited to all (or any part) of the
following:
(i) the continued payment by Tenant of the Base Rental and
all other rent due and owing hereunder and the performance of all
other covenants and obligations hereunder by Tenant;
(ii) the hiring of security guards to protect the Premises if
Tenant abandons and/or ceases operations; such obligation of Tenant
only to be effective so long as Tenant remains in possession and
control of the Premises to the exclusion of Landlord;
(iii) the furnishing of an additional/new security deposit by
Tenant in the amount of three (3) times the then-current monthly Base
Rental and other rent payable hereunder.
(b) "ADEQUATE ASSURANCE OF FUTURE PERFORMANCE" by Tenant and/or any
assignee of Tenant pursuant to Bankruptcy Code Section 365 will include
(but not be limited to) payment of an additional/new Security Deposit in
the amount of three (3) times the then-current Base Rental payable
hereunder.
(c) Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code, shall be deemed without further act
or deed to have assumed all of the obligations of Tenant arising under this
Lease on and after the effective date of such assignment. Any such assignee
shall, upon demand by Landlord, execute and deliver to Landlord an
instrument confirming such assumption of liability.
(d) Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of the Landlord under this Lease,
whether or not expressly denominated as "rent", shall constitute "rent" for
the purposes of Section 502(b)(6) of the Bankruptcy Code.
(e) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise to be delivered to Landlord (including
Base Rentals and other rent hereunder), shall be and remain the
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exclusive property of Landlord and shall not constitute property of Tenant
or of the bankruptcy estate of Tenant. Any and all monies or other
considerations constituting Landlord's property under the preceding
sentence not paid or delivered to Landlord shall be held in trust by Tenant
or Tenant's bankruptcy estate for the benefit of Landlord and shall be
promptly paid to or turned over to Landlord.
(f) If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or entity
who shall have made a bona fide offer to accept an assignment of this Lease
on terms acceptable to the Tenant, then notice of such proposed
offer/assignment, setting forth (i) the name and address of such person or
entity; (h) all of the terms and conditions of such offer, and (iii) the
adequate assurance to be provided Landlord to assure such person's or
entity's future performance under the Lease, shall be given to Landlord by
Tenant no later than twenty (20) days after receipt by Tenant, but in any
event no later than ten (10) days prior to the date that Tenant shall make
application to a court of competent jurisdiction for authority and approval
to enter into such assumption and assignment, and Landlord shall thereupon
have the prior right and option, to be exercised by notice to Tenant given
at any time prior to the effective date of such proposed assignment, to
accept an assignment of this Lease upon the same terms and conditions and
for the same consideration, if any, as the bona fide offer made by such
persons or entity, less any brokerage commission which may be payable out
of the consideration to be paid by such person for the assignment of this
Lease.
(g) To the extent permitted by law, Landlord and Tenant agree that
this Lease is a contract under which applicable law excuses Landlord from
accepting performance from (or rendering performance to) any person or
entity other than Tenant within the meaning of Sections 365(c) and
365(c)(2) of the Bankruptcy Code.
26. PEACEFUL ENJOYMENT. Tenant shall, and may peacefully have, hold, and
enjoy the Premises, subject to the other terms hereof, provided that Tenant pays
the rent and other sums herein recited to be paid by Tenant and performs all of
Tenant's covenants and agreements herein contained. This covenant and any and
all other covenants of Landlord shall be binding upon Landlord and its
successors only with respect to breaches occurring during its or their
respective periods of ownership of the Landlord's interest hereunder.
27. SUBSTITUTION. [Intentionally Omitted]
28. HOLDING OVER. In the event of holding over by Tenant after
expiration or other termination of this Lease or in the event Tenant
continues to occupy the Premises after the termination of Tenant's right of
possession pursuant to Paragraph 22(b) hereof, Tenant shall, throughout the
entire holdover period, pay rent equal to 150% of the sum of the Base Rental
and additional rent which would have been applicable had the term of this
Lease continued through the period of such holding over by Tenant. No holding
over by Tenant or payments of money by Tenant to Landlord after the
expiration of the term of this Lease shall be construed to extend the term of
this Lease or prevent Landlord from recovery of immediate possession of the
Premises by summary proceedings or otherwise unless Landlord has sent written
notice to Tenant that Landlord has elected to extend the term of the Lease.
Tenant shall be liable to Landlord for all damage, including any
consequential damage, which Landlord may suffer by reason of any holding over
by Tenant and Tenant shall indemnify Landlord against any and all claims made
by any other tenant or prospective tenant against Landlord for delay by
Landlord in delivering possession of the Premises to such other tenant or
prospective tenant.
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29. SUBORDINATION TO MORTGAGE. Tenant accepts this Lease subject and
subordinate to any mortgage, deed of trust or other lien presently existing
or hereafter arising upon the Premises, or upon the Building and/or the
Property and to any renewals, modifications, refinancings and extensions
thereof. This clause shall be self-operative and no further instrument of
subordination shall be required. However, Tenant agrees upon demand to
execute such further instruments subordinating this Lease or attorning to the
holder of any such liens as Landlord may request. Landlord is hereby
irrevocably vested with full power and authority to subordinate this Lease to
any mortgage, deed of trust or other lien now existing or hereafter placed
upon the Premises, or the Building and/or the Property if Tenant does not
properly execute and return to Landlord the documents required to further
evidence such subordination within ten (10) days after the documents are
delivered to Tenant. The terms of this Lease are subject to approval by the
Landlord's existing Lender(s) and any lender(s) who, at the time of the
execution of this Lease, have committed or are considering committing to
Landlord to make a-loan secured by all or any portion of the Property, and
such approval is a condition precedent to Landlord's obligations hereunder.
In the event that Tenant should fail to execute any subordination or other
agreement required by this Paragraph promptly as requested, Tenant hereby
irrevocably constitutes Landlord as its attorney-in-fact to execute such
instrument in Tenant's name, place and stead, it being agreed that such power
is one coupled with an interest in Landlord and is accordingly irrevocable.
Tenant agrees that it will from time to time upon request by Landlord execute
and deliver to such persons as Landlord shall request a statement in
recordable form certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full
force and effect as so modified), stating the dates to which rent and other
charges payable under this Lease have been paid, stating that Landlord is not
in default hereunder (or if Tenant alleges a default stating the nature of
such alleged default) and further stating such other matters as Landlord
shall reasonably require. (See Addendum, Section 12).
30. ATTORNEY'S FEES. In the event either party defaults in the
performance of any of the terms of this Lease and the other party employs an
attorney in connection therewith, the non-prevailing party agrees to pay the
prevailing party's reasonable attorneys' fees.
31. NOTICE. Any notice in this Lease provided for must, unless
otherwise expressly provided herein, be in writing, and may, unless otherwise
in this Lease expressly provided, be given or be served by depositing the
same in the United States mail, postage paid and certified with return
receipt requested, or by prepaid telegram, when appropriate, addressed to the
party to be notified at the address stated in this Lease or such other
address notice of which has been given to the other party or by delivering
the same in person to such party or an officer or partner of such party.
Notice deposited in the mail in the manner hereinabove described shall be
effective as of the date it is so deposited.
32. SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term and provision of this Lease shall be valid and enforced to the
fullest extent permitted by law.
33. RECORDATION. Tenant agrees not to record this Lease or any
memorandum hereof.
34. GOVERNING LAW. This Lease and the rights and obligations of the
parties hereto shall be interpreted, construed, and enforced in accordance
with the laws of the State of Texas.
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35. FORCE MAJEURE. Whenever a period of time is herein prescribed for
the taking of any action by Landlord, Landlord shall not be liable or
responsible for, and there shall be excluded from the computation of such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations or restrictions, or
any other cause whatsoever beyond the control of Landlord.
36. TIME OF PERFORMANCE. Except as expressly otherwise herein provided,
with respect to all required acts of Tenant, time is of the essence of this
Lease.
37. TRANSFERS BY LANDLORD. Landlord shall have the right to transfer
and assign, in whole or in part, all of its rights and obligations hereunder
and in the Building and Property referred to herein, and in such event and
upon such transfer Landlord shall be released from any further obligations
hereunder, and Tenant agrees to look solely to such successor in interest of
Landlord for the performance of such obligations.
38. COMMISSIONS. Landlord and Tenant hereby indemnify and hold each
other harmless against any loss, claim, expense or liability with respect to
any commissions or brokerage fees claimed on account of the execution and/or
renewal of this Lease due to any action of the indemnifying party, except
that Landlord will pay the commissions to the Tenant's broker in accordance
with a separate commission agreement.
39. JOINT AND SEVERAL LIABILITY. If there is more than one Tenant, or
if the Tenant as such is comprised of more than one person or entity, the
obligations hereunder imposed upon Tenant shall be joint and several
obligations of all such parties.
40. AUTHORITY. In the event Tenant is a corporation (including any form
of professional association), partnership (general or limited), or other form
of organization other than an individual, then each individual executing or
attesting this Lease on behalf of Tenant hereby covenants, warrants and
represents: (i) that such individual is duly authorized to execute or attest
and deliver this Lease on behalf of Tenant in accordance with the
organizational documents of Tenant; (ii) that this Lease is binding upon
Tenant; (iii) that Tenant is duly organized and legally existing in the state
of its organization, and is qualified to do business in the State of Texas;
(iv) that upon request, Tenant will provide Landlord with true and correct
copies of all organizational documents of Tenant. and any amendments thereto;
and (v) that the execution and delivery of this Lease by Tenant will not
result in any breach of, or constitute a default under any mortgage, deed of
trust, lease, loan, credit agreement, partnership agreement or other contract
or instrument to which Tenant is a party or by which Tenant may be bound. If
Tenant is a corporation, Tenant will, prior to the Commencement Date, deliver
to Landlord a copy of a resolution of Tenant's board of directors authorizing
or ratifying the execution and delivery of this Lease, which resolution will
be duly certified to Landlord's satisfaction by the secretary or assistant
secretary of Tenant.
41. FINANCIAL CONDITION OF TENANT. Tenant acknowledges that the
financial capability of Tenant to perform its obligations hereunder is
material to Landlord and that Landlord would not enter into this Lease but
for its belief, based on its review of Tenant's financial statements, that
Tenant is capable of performing such financial obligations. Tenant hereby
represents, warrants and certifies to Landlord that its financial statements
are true and correct in all material respects.
42. EFFECT OF DELIVERY OF THIS LEASE. Landlord has delivered a copy of
this Lease to Tenant for Tenant's review only, and the delivery hereof does
not constitute an offer to Tenant or option. This
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Lease shall not be effective until an original of this Lease executed by both
Landlord and Tenant and this Lease has been approved by Landlord's mortgagee,
Landlord and Tenant hereby agree that Landlord will be entitled to
immediately endorse and cash Tenant's good faith rent and the Security
Deposit check(s) accompanying this Lease when the Lease is executed by both
Tenant and Landlord. It is further agreed and understood that such action
will not guarantee acceptance of this Lease by Landlord, but, in the event
Landlord does not accept this Lease, such deposits will be refunded in full
to Tenant.
43. ENTIRE AGREEMENT. This Lease Agreement, including the following
Exhibits:
Exhibit A - Property Description
Exhibit B - Outline and Location of Premises
Exhibit C - Payment of Excess Basic Cost
Exhibit D - Work Letter Agreement
Exhibit D-1 - Building Standard Materials
Exhibit D-2 - Tenant Improvement Allowance
Exhibit E - Parking
Exhibit F - Certificate of Insurance for Tenant
Exhibit G - [Intentionally Omitted]
Exhibit H - Rules and Regulations
Exhibit I - Renewal Option
Addendum
Roof License Agreement
constitute the entire agreement between the parties hereto with respect to
the subject matter of this Lease. Tenant expressly acknowledges and agrees
that Landlord has not made and is not making, and Tenant, in executing and
delivering this Lease, is not relying upon, any warranties, representations,
promises or statements, except to the extent that the same are expressly set
forth in this Lease. All understandings and agreements heretofore had between
the parties are merged in this Lease which alone fully and completely
expresses the agreement of the parties, neither party relying upon any
statement or representation not embodied in this Lease.
44. LANDLORD'S LIEN. In addition to any statutory lien for rent in
Landlord's favor, Landlord (the secured party for purposes hereof) shall have
and Tenant (the debtor for purposes hereof) hereby grants to Landlord,
subject to the last sentence of this paragraph, a continuing security
interest for all Base Rental, rent and other sums of money becoming due
hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture,
inventory, accounts, contract rights, chattel paper and other personal
property of Tenant situated on the Premises subject to this Lease being
described as Suite 500 of the Building, located in Dallas, Dallas County,
Texas (a description of the property in and upon which the Premises is
located and an outline of the Premises are attached hereto as EXHIBIT "A" and
EXHIBIT "B" respectively), and such property shall not be removed therefrom
without the consent of Landlord until all arrearages in rent as well as any
and all other sums of money then due to Landlord hereunder shall first have
been paid and discharged. Fixtures located at the Premises and products of
collateral are also covered hereby by the filing hereof in the real property
records of Dallas County, Texas. In the event of a default under this Lease,
Landlord shall have, in addition to any other remedies provided herein or by
law, all rights and remedies under the Uniform Commercial Code, including
without limitation the right to sell the property described in this Paragraph
at public or private sale upon ten (10) days notice to Tenant which notice
Tenant hereby agrees is adequate and reasonable. Tenant hereby agrees to
execute such other instruments necessary or desirable in Landlord's
discretion to perfect the security interest hereby created. Any statutory
lien for rent is not hereby waived, the express contractual lien herein
-Page 24-
<PAGE>
granted being in addition and supplementary thereto. Landlord and Tenant
agree that this Lease and the security interest granted herein serve as a
financing statement and a copy or photographic or other reproduction of this
Paragraph of this Lease may be filed of record by Landlord and have the same
force and effect as the original. Tenant warrants and represents that the
collateral subject to the security interest granted herein is not purchased
or used by Tenant for personal, family or household purposes. Tenant further
warrants and represents to Landlord that the lien granted herein constitutes
a first and superior lien and that Tenant will not allow the placing of any
other lien upon any of the property described in this Paragraph without the
prior written consent of Landlord. Record owner of the Premises is 14850
Quorum Associates, Ltd. Tenant/Debtor's address is 14850 QUORUM DRIVE, SUITE
500, DALLAS, TEXAS 75240 and Landlord/Secured Party's address is C/O LEHMAN
BROTHERS, 3 WORLD FINANCIAL CENTER, 29TH FLOOR, NEW YORK, NY 10285. Landlord,
on a case-by case basis, not as a blanket waiver of lien, will subordinate
the landlord's lien granted in this paragraph to the lien of Tenant's lending
institution on any furniture, fixtures or equipment after Landlord is
presented proper documentation of that lending institution's lien on said
furniture, fixtures and equipment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in
multiple original counterparts as of the day and year first above written.
LANDLORD:
14850 Quorum Associates, Ltd.
By: Commercial Properties 3, L.P.
a Virginia limited partnership,
General Partner
By: Real Estate Services VII, Inc.,
a Delaware corporation,
General Partner
By: /s/ LAWRENCE M. OSTOW
---------------------------------
Lawrence M. Ostow
Vice President
TENANT:
ObjectSpace, Inc.
By: /s/ JOHN W. PRITCHETT
---------------------------------
Name: John W. Pritchett
----------------------------
Title: Chief Financial Officer
---------------------------
-Page 25-
<PAGE>
EXHIBIT "A"
PROPERTY DESCRIPTION
Being a 1.753 acre tract of land out of the Josiah Pancoast Survey, Abstract
No. 11466, and the G.W. Fisher Survey, Abstract No. 482, Dallas County, Texas
and being out of Quorum, a 71.90 acre addition to the City of Addison as
recorded in Volume 79100, Page 1895, Plat Records, Dallas County, Texas, and
being a portion of the property conveyed by Daon-Texas to Quorum Investors,
#2, Ltd., by deed filed July 22, 1980, in Volume 80144, Page 764, Deed
Records, Dallas County, Texas, said 1.753 acre tract being more particularly
described as follows:
COMMENCING at a point, said point being the southeast comer of Block 1 of
said Quorum Addition also being the intersection of the west right-of-way
line of Dallas Parkway (200 foot R.O.W.) with the north right-of-way line of
Quorum Drive (variable R.O.W.);
THENCE N 01 DEG. 39' 54" along said west right-of-way line of Dallas Parkway
a distance of 501.93 feet to a point;
THENCE S 89 DEG. 46' 47" W a distance of 197.56 feet to the POINT OF
BEGINNING for this tract;
THENCE South a distance of 145.82 feet to a point for comer;
THENCE West a distance of 178.00 feet to a point for comer;
THENCE South for a distance of 146.00 feet to a point for comer;
THENCE 79 DEG. 31' 38" W for a distance of 198.79 feet to an X cut in
concrete for a comer being a point in the east line of said Quorum Drive and
being a point of curvature of a curve to the right having a radius of 235.01
feet, a tangent of 37.82 feet and an internal angle of 18 DEG. 17' 06";
THENCE along said curve to the right and being the east right-of-way line of
said Quorum Drive for an are distance of 75.00 feet to an iron rod and the
point of tenancy of said curve;
THENCE N 14 DEG. 18' E along said cast side line of Quorum Drive for a
distance of 260.49 feet to an iron rod for comer;
THENCE N 89 DEG. 46' 47" E a distance of 302.39 feet to the POINT OF
BEGINNING;
CONTAINING 76,349.98 net square feet or 1.753 acres of land.
-Page 26-
<PAGE>
EXHIBIT "B"
OUTLINE AND LOCATION OF PREMISES
-Page 27-
<PAGE>
EXHIBIT "B"
OUTLINE AND LOCATION OF PREMISES
[FLOOR PLAN]
[FLOOR PLAN]
<PAGE>
EXHIBIT "C"
PAYMENT OF EXCESS BASIC COSTS
The Base Rental payable hereunder shall be adjusted upward from time to
time in accordance with the following provisions:
1. Tenant's Base Rental is based, in part, upon an Expense Base (herein
so called) equal to the actual per square foot operating expenses for the
Building for calendar year 1997, grossed up to reflect ninety-five percent (95%)
occupancy for the Building. Basic Costs will be calculated in years subsequent
to 1997 in a manner consistent with industry standards with the gross-up
consistently applied in all years so that increases in Basic Costs will result
solely from increases and not from different methods of calculation unless a
change in method of calculation is to more accurately meet industry standards.
Tenant shall, during the Lease Term, pay as an adjustment to Base Rental
hereunder an amount (per each square foot of Rentable Area within the Premises)
equal to the excess ("Excess"), if any, from time to time of actual Basic Costs
per square foot per year for the Rentable Area in the Building over the Expense
Base. Prior to January 1 of each calendar year during Tenant's occupancy or as
soon thereafter as practical, Landlord shall make a good faith estimate of the
Excess for each upcoming calendar year and, upon prior written notice to Tenant,
may require the monthly payment of Base Rental to be adjusted in accordance with
such estimate. Landlord shall have the right from time to time during any such
calendar year to revise the estimate of the Excess for such year and provide
Tenant with a revised statement therefor, and thereafter the amount Tenant shall
pay each month shall be based upon such revised estimate. Any amounts paid based
on any estimate shall be subject to adjustment pursuant to Paragraph 2 below
when actual Basic Costs are available for such calendar year.
2. As soon as is practical following the end of each calendar year during
Tenant's occupancy Landlord shall furnish to Tenant a statement of Landlord's
actual Basic Costs for the previous calendar year. If for any calendar year
additional Base Rental collected for the prior year, as a result of Landlord's
estimate of Basic Costs, is in excess of the additional Base Rental actually due
during such prior year, then Landlord shall refund to Tenant any overpayment (or
at Landlord's option, apply such amount against rentals due or to become due
hereunder). Likewise, Tenant shall pay to Landlord, on demand, any underpayment
with respect to the prior year whether or not the Lease has terminated prior to
receipt by Tenant of a statement for such underpayment.
3. Tenant, at its expense, shall have the right no more frequently than
once per calendar year, within 90 days after receipt by Tenant of each
applicable annual reconciliation of Basic Costs, following thirty (30) days
prior written notice to Landlord, to audit Landlord's books and records relating
to Basic Costs at Landlord's office during Normal Business Hours.
4. "Basic Costs" shall mean all direct and indirect costs and expenses
incurred in each calendar year in connection with operating, maintaining,
repairing, managing and owning the Building and the Property, including, without
limitation, the following:
(a) All labor costs for Landlord's employees performing services
required or utilized in connection with the operation, repair and
maintenance of and control of access to the Building and the Property,
including but not limited to amounts incurred for wages, salaries and other
compensation for services, payroll, social security, unemployment and other
similar taxes, workmen's compensation insurance, disability benefits,
pensions, hospitalization, and retirement plans and group insurance.
-Page 28-
<PAGE>
(b) All management fees, the cost of maintaining a management office
at the Building, and all fees for legal and accounting services relating to
the Building and the Property.
(c) All rental and/or purchase costs of materials, supplies, hand
tools and equipment used in the operation, repair, replacement and
maintenance and the control of access to the Building and the Property.
(d) All amounts charged to Landlord by contractors and/or suppliers
for services, materials, equipment and supplies furnished in connection
with the operation, repair, maintenance, replacement of and control of
access to any part of the Building, the plazas, the garage, and the
sidewalks adjoining the Building, if any, or the Property generally, and
the heating, air conditioning, ventilating, plumbing, electrical, elevator
and other systems of the Building and the garage.
(e) All premiums paid by Landlord for fire and extended coverage
insurance, earthquake and extended coverage insurance, liability and
extended coverage insurance and other insurance customarily carried from
time to time by lessors of comparable office buildings or required to be
carried by Landlord.
(f) Charges for all utilities including but not limited to water,
sewer and electricity, but excluding those charges for which tenants are
individually responsible.
(g) Taxes, including (i) all real estate taxes and assessments on the
Property, the Building or the Premises, and taxes and assessments levied in
substitution or supplementation in whole or in part of such taxes, (ii) all
personal property taxes for the Building's personal property, including
license expenses, (iii) all taxes imposed on services of Landlord's agents
and employees, and (iv) all other taxes, fees or assessments now or
hereafter levied by any governmental authority on the Property, the
Building or its contents or on the operation and use thereof (except as
relate to specific tenants), but excluding income taxes.
(h) All landscape expenses and costs of repairing, resurfacing and
striping of the parking areas of the Property.
(i) Cost of all maintenance service agreements for equipment, alarm
service, window cleaning, drapery or venetian blind cleaning, janitorial
services, pest control, uniform supply, landscaping, and parking equipment.
(j) Cost of all other repairs, replacements and general maintenance
of the Property and Building neither specified above nor directly billed to
tenants.
(k) Amortization on a straight-line basis of all capital improvements
or repairs made to the Building or parking garage subsequent to the
Commencement Date which are primarily for the purpose of reducing
operating. expense costs or otherwise improving the operating efficiency of
the Building or which are required to comply with any change in the laws,
rules or regulations of any governmental authority or which will extend the
life of the Building, the cost of such items to be amortized over their
actual, estimated useful life, but for a period of at least five (5) years.
-Page 29-
<PAGE>
(l) Operating Costs of the Exterior Common Areas. "Exterior Common
Areas" shall mean those areas of the Property which are not located within
the Building and its immediate proximity and which are provided and
maintained for the common use and benefit of Landlord and tenants of the
Building generally and the employees, invitees and licensees of Landlord
and such tenants, including, without limitation, sidewalks and landscapes.
Basic Costs shall not include (i) the cost of capital improvements (except as
above set forth), (ii) depreciation, (iii) interest, (iv) lease commissions, (v)
principal payments on mortgage and other non-operating debts of Landlord, (vi)
costs of repairs, restoration, replacements or other work occasioned by the
exercise by a governmental authority of the right of eminent domain; (vii)
attorneys' fees, costs, disbursements and other expenses incurred in connection
with negotiations or disputes with tenants, prospective tenants, management
agents, purchasers or mortgagees of the Building; (viii) allowances, concessions
and other costs and expenses incurred in completing, renovating or otherwise
improving, decorating or redecorating space for tenants, or prospective tenants,
or vacant, leasable space in the Building; (ix) any cost that should be
capitalized in accordance with generally accepted accounting principals except
non-structural capital improvements made to reduce operating expenses in an
annual amortization over the actual useful life with a reasonable salvage value,
not to exceed the actual cost savings, and non-structural capital improvements
made by Landlord to comply with changes in laws after the date hereof, amortized
on a straight line basis over the actual useful life; (x) rental payments made
under any ground or underlying lease or leases; (xi) costs incurred in
connection with the sale, financing, refinancing, mortgaging, selling or change
of ownership of the Building; (xii) costs or expenses of utilities directly
metered to tenants of the Building and payable separately by such tenants and
costs of additional electrical equipment installed in premises of other tenants
of the Building; (xiii) costs of repairs, restoration, replacements or other
work occasioned by the gross negligence or intentional tort of Landlord, or any
representative, employee, agent or affiliate of Landlord; (xiv) costs of
repairing, replacing or otherwise correcting defects in construction of the
Building, the Tenant Improvements, the leasehold improvements of other tenants
of the Building, or in the Building equipment; (xv) costs or expenses relating
to another tenant's space, which were incurred in rendering any service or
benefit to such tenant that Landlord was not required, or were for a service in
excess of the service that Landlord was required, to provide Tenant hereunder;
and (xvi) costs of Landlord's general corporate overhead and general
administrative expenses, organizational fees, and partnership expenses.
5. Notwithstanding any language in the Lease seemingly to the contrary,
if the Building is not fully occupied during any calendar year of the Lease
Term, actual Basic Costs and the Excess for purposes of this Exhibit "C" shall
be determined as if the Building had been ninety-five percent (95%) occupied
during such year. This paragraph does not apply in any way to the ninety-five
percent (95 %) provision in Paragraph I hereof.
-Page 30-
<PAGE>
EXHIBIT "D"
WORK LETTER AGREEMENT
This Work Letter Agreement supplements and is hereby incorporated in that
certain lease (hereinafter referred to as the "LEASE") dated and executed
concurrently herewith by and between 14850 QUORUM ASSOCIATES, LTD. (hereinafter
referred to as "LANDLORD") and OBJECTSPACE, INC., a Texas corporation
(hereinafter referred to as "Tenant") with the terms defined in the Lease to
have the same definition where used herein.
1. The Premises are leased to Tenant in their "AS IS" condition and this
Work Letter Agreement is intended to set forth the obligations of Landlord and
Tenant with respect to the preparation of the Premises for Tenant's occupancy.
All improvements described in this Work Letter Agreement to be constructed in
and upon the Premises are hereinafter referred to as the "Tenant Improvements."
It is agreed that construction of the Tenant Improvements will be completed in
accordance with the procedures set forth in this Work Letter Agreement.
2. Tenant shall devote such time in consultation with Landlord or
Landlord's agent as may be required to provide all necessary information to
Landlord or Landlord's agent as Landlord deems necessary in order to enable
Landlord to complete, and obtain Tenant's written approval of, the final layout,
drawings, and plans for the Premises. If Tenant fails to furnish any such
information on or before June 13, 1997 or fails to approve layout, drawings or
plans within five (5) Business Days after written request, Tenant agrees to pay
on demand all costs and expenses and increased unit prices incurred by Landlord
on account of Tenant's failure to furnish such information and approved drawings
within such prescribed times and any scheduled dates for completion of the
Tenant Improvements shall be extended day-for-day for the delay caused by
Tenant. All of Tenant's plans and specifications shall be subject to Landlord's
consent, the granting or denial of which shall be in Landlord's sole discretion.
3. Space planning and construction drawings, and when deemed necessary by
Landlord, engineering drawings, shall be prepared by Landlord's architect or
designer. Landlord shall bear the cost of the initial space planning drawings,
to include one revision, which shall be prepared by Landlord's architect or
designer. Unless otherwise provided in EXHIBIT "D-2", Tenant shall pay for
additional space planning services beyond those specified above, for Landlord's
standard construction and engineering drawings covering Landlord's Building
Standard materials as defined in EXHIBIT "D-1", and for any nonstandard
construction and engineering drawings, or any additional costs for drawings
occasioned by special installation other than Building Standard. Tenant may pay
for services out of the Allowance, if any, provided in EXHIBIT "D-2". Tenant
shall furthermore be responsible for the design, function and maintenance of all
special improvements, whether installed by Landlord at Tenant's request or
installed by Tenant with Landlord's prior written approval. Tenant shall use the
Building Standard materials unless other materials are expressly approved in
writing by Landlord.
4. Prior to commencing any construction of Tenant Improvements, Landlord
shall submit to Tenant a written estimate setting for the anticipated cost of
the Tenant Improvements (excluding any costs which may be specified herein or in
EXHIBIT "D-2" as being borne by Landlord), including but not limited to labor
and materials, contractor's fees (whether paid to independent contractors or the
five percent (5%) fee charged by Landlord for acting as a general contractor),
permit fees, and space planning, construction, and engineering drawing costs
which are the responsibility of Tenant. Within five (5) Business Days Tenant
shall either notify Landlord in writing of its approval of the cost estimate, or
specify its objections thereto and desired changes to the proposed Tenant
-Page 31-
<PAGE>
Improvements. In the event Tenant notifies Landlord of such objections and
desired changes, Tenant shall work with Landlord to reach acceptable plans and
cost estimate; provided, however, if Tenant fails to give written approval of
a cost estimate within ten (10) Business Days following delivery to Tenant of
the original cost estimate, Tenant shall be chargeable with one day of Delay
for each day thereafter until Tenant provides to Landlord in writing its
approval of a cost estimate.
5. In the event Landlord's estimate and/or the actual cost of
construction shall exceed the Allowance, (as defined in EXHIBIT "D-2" attached
hereto), if any (such amounts exceeding the Allowance being herein referred to
as the "EXCESS COSTS"), Tenant shall pay to Landlord such Excess Costs as
follows:
(a) Tenant shall deliver to Landlord, with its approval of the
Landlord's estimate, and in any event prior to commencement of
construction, an amount equal to fifty percent (50%) of the Excess Costs as
then estimated by Landlord.
(b) After substantial completion of the Tenant Improvements, but
prior to occupancy of the Premises by Tenant, Tenant shall pay to Landlord
on demand an amount which when added to the initial payment described in
subparagraph (a) above equals ninety percent (90%) of the Excess Costs as
then estimated by Landlord.
(c) As soon as the final accounting can be prepared and submitted to
Tenant, Tenant shall pay on demand to Landlord the entire balance of the
Excess Costs based upon the actual cost of construction.
The statements of costs submitted by Landlord's contractors shall be
conclusive for purposes of determining the actual cost of the items
described therein. The amounts payable hereunder constitute other rent
payable pursuant to the Lease, and the failure to timely pay same
constitutes an event of default under the Lease.
6. If Tenant shall request any change, addition or alteration in the
working drawings, after approval by Landlord and Tenant, Landlord shall have
such working drawings prepared, and Tenant shall promptly reimburse Landlord for
the cost thereof. Promptly upon completion of the revisions, Landlord shall
notify Tenant in writing of the cost which will be chargeable to Tenant by
reason of such change, addition or deletion. Tenant shall, within three (3)
Business Days, notify Landlord in writing whether it desires to proceed with
such change, addition or deletion. In the absence of such written authorization,
Landlord shall have the option to continue work on the Premises disregarding the
requested change, addition or alteration, or Landlord may elect to discontinue
work on the Premises, in which event Tenant shall be chargeable with a Delay in
completion of the Premises resulting therefrom in accordance with Paragraph 3(a)
of the Lease. In the event such revisions result in a higher estimate of the
cost of construction, Tenant shall pay to Landlord an amount sufficient to
provide Landlord with the above described fifty percent (50%) (or if applicable
ninety percent (90%)) payment toward Excess Costs.
7. Following approval of the plans and the payment by Tenant of the
required portion of the Excess Costs, if any, Landlord shall cause the Tenant
Improvements to be constructed in accordance with the approved plans. Unless
otherwise specifically provided in the approved plans, all material used in the
construction of the Tenant's Improvements shall be of such quality as determined
by the Landlord's architect or designer, but at least shall be of Building
Standard quality. Landlord shall notify Tenant of substantial completion of the
Tenant Improvements.
-Page 32-
<PAGE>
8. Any changes to Tenant's plans and specifications required by any
governing Authority to conform to local, state or federal laws will be at the
sole cost of Tenant, in addition to any other previously agreed upon improvement
costs.
9. Prior to the commencement of construction of the Tenant Improvements,
Tenant shall provide Landlord the Improvement Letter of Credit.
10. Tenant's Allowance (as defined in Exhibit D-2) also shall be applied
to the costs of permits and fees paid to the City of Addison and a management
fee of five percent (5%) of the total amount of the Tenant Improvements to
compensate Landlord's agent for managing the construction of the Tenant
Improvements and assisting in getting appropriate permits.
11. Any other language in this Exhibit D notwithstanding, the Tenant
Improvements shall be constructed by one of the twenty general contractors
previously approved by Landlord or by one general contractor of Tenant's choice,
provided that this latter contractor meets the insurance and reference
requirements of Landlord. A minimum of three bids to construct the Tenant
Improvements will be received. Tenant shall have the right to review the bids
and be involved with Landlord in the selection of the general contractor to
perform the work.
12. Tenant shall have the option to utilize any items currently in place
in the Premises.
13. In the event The Staubach Company acts as a project manager on behalf
of Tenant, any cost of that service may be paid from the Allowance or may be
paid by Tenant directly.
-Page 33-
<PAGE>
EXHIBIT "D-1"
13. The BUILDING STANDARD (herein so called) materials are the following,
which will be new or in a condition approved by Tenant:
<TABLE>
<S> <C>
A. FLOORING: Grade and quality of carpeting to be
selected by Landlord, with color to be
selected by Tenant from those offered by
Landlord.
B. WINDOW COVERING: Miniblinds or drapes in Landlord's
uniform color.
C. CEILING: Acoustical tiles - Grid system.
D. PARTITIONS: Sheetrock partitions with tape, bed,
texture and paint finish, and/or vinyl
pre-clad sheetrock.
E. DOORS: Solid core door with metal frame and
hardware.
F. ELECTRICAL POWER: Standard 110 volt duplex wall-outlets:
mounted convenience outlets.
G. LIGHT SWITCHES: Single pole light switches.
H. TELEPHONE FACILITIES: Standard unwired telephone outlets (ring
and string) mounted on partitions.
Tenant must make timely arrangements for
telephone installation and is
responsible for all charges related to
such installation.
I. LIGHT FIXTURES: Recessed fluorescent lighting fixtures.
</TABLE>
-Page 34-
<PAGE>
EXHIBIT "D-2"
Landlord agrees to provide Tenant an allowance (the "ALLOWANCE") of $9.00 per
square foot of Rentable Area in the Premises (which for purposes hereof is
agreed to be 25,260 square feet), being the total sum of $227,340.00 toward the
cost of the Tenant Improvements. Tenant shall not be entitled to any credit for
any amount not applied to the cost of the Tenant Improvements. In the event the
Allowance shall not be sufficient to complete the improvements contemplated by
the approved plans, Tenant shall pay the Excess Costs as prescribed in EXHIBIT
"D".
Tenant shall be able to receive a portion of the Allowance to reimburse Tenant
for Tenant's cost of telephone and data cabling, moving into the Premises and
space planning and construction document preparation. Landlord shall pay Tenant
the amount allocated to those expenses within 30 days after receipt by Landlord
of Tenant's paid invoices therefor.
As part of the initial Tenant Improvements only, Tenant shall be allowed to
amortize over the Lease Term at 12% per annum, an ADDITIONAL allowance for
Tenant Improvements of $5.00 per square foot of Rentable Area, being the total
sum of $126,300.00, provided that Landlord approves Tenant's financial
statements before the beginning of any Tenant Improvements to which this
additional allowance shall be applied. The amortized payments of this additional
sum shall be part of the Base Rental due under the Lease, except in the last
year of the Lease Term, during which year Tenant shall continue to make payments
of the amortized amount, any other provision of the Lease notwithstanding.
-Page 35-
<PAGE>
EXHIBIT "E"
PARKING
Landlord shall make available to Tenant during of the term of this Lease
the use of 76 of the Building's parking spaces (the "SPACES") in the Building
parking garage (the "PARKING GARAGE") on an unreserved basis. The number of
Spaces may be reduced if city ordinances or other laws require the reduction.
Tenant shall not use more Spaces than designated above without the prior written
consent of Landlord. There shall be no charge to Tenant for use of the Spaces
during the initial Lease Term. If this Lease is renewed or if the Premises are
expanded, Tenant shall be charged for the then Spaces based on current market
charges for such parking spaces.
It is hereby agreed and understood that Landlord's sole obligation
hereunder is to make the Spaces available to Tenant. Tenant's right to the use
of such Spaces shall be subject to compliance with the rules and regulations
promulgated from time to time by the manager of such Parking Garage, and shall
be subject to termination for violation of any such rules or regulations upon
notice from such manager. Landlord shall have no liability whatsoever for any
property damage, loss or theft and/or personal injury which might occur as a
result of or in connection with the use of the Spaces by Tenant, its employees,
agents, servants, customers, invitees and licensees, and Tenant hereby agrees to
indemnify and hold Landlord harmless from and against any and all costs, claims,
expenses, and/or causes of action which Landlord may incur in connection with or
arising out of Tenant's use of the Spaces. The failure, for any reason, of
Landlord to provide or make available the Spaces to Tenant or the inability of
Tenant to utilize these Spaces shall under no circumstances be deemed a default
by Landlord pursuant to the terms of the Lease or give rise to any claim or
cause of action by Tenant against Landlord, the same being hereby expressly
waived by Tenant.
-Page 36-
<PAGE>
EXHIBIT "F"
CERTIFICATE OF INSURANCE FOR TENANT
[CERTIFICATE]
<PAGE>
EXHIBIT "H"
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to all leased
premises, the Building, the parking garage associated therewith, the land
situated beneath the Building and the appurtenances thereto. Tenant will
faithfully observe and comply with these Rules and Regulations attached to the
Lease. Landlord will not be responsible to Tenant for the noncompliance with
any of the Rules and Regulations by any other tenant or occupant of the
Building.
1. Sidewalks, doorways, vestibules, halls, stairways and other similar
areas shall not be obstructed by Tenant or used by any Tenant for any purpose
other than ingress and egress to and from the leased premises and for going from
one to another part of the Building. At no time shall Tenant, its agents or
employees store any items in the Common Areas of the Building or elsewhere on
the Property.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or placed therein. Damage resulting to any such fixtures or
appliances from misuse by a Tenant or such Tenant's agents, employees or
invitees, shall be paid by such Tenant, and Landlord shall not in any case be
responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows, doors or other parts of such Building except those of such
color, size, style and in such places as shall be first approved in writing by
Landlord. No nails, hooks or screws shall be driven or inserted in any part of
the Building except by the Building maintenance personnel nor shall any part of
the Building be defaced by Tenants. No curtains or other window treatments
shall be placed between the glass and the Building standard window treatment.
4. Landlord will provide and maintain an alphabetical directory board for
all Tenants in the first floor (main lobby) of the Building and no other
directory shall be permitted unless previously consented to by Landlord in
writing.
5. Landlord shall provide all locks for doors in each Tenant's leased
premises, at the cost of such Tenant, and no Tenant shall place any additional
lock or locks on any door in its leased area without Landlord's prior written
consent. A reasonable number of keys to the locks on the doors in each Tenant's
leased premises shall be furnished by Landlord to each Tenant, at the cost of
such Tenant (which cost shall be Landlord's cost plus a fifteen percent (15%)
administrative fee), and the Tenant shall not have any duplicate keys made.
6. All Tenants will refer all contractors, contractors representatives
and installation technicians to Landlord for Landlord's supervision, approval
and control before the performance of any contractual services. This provision
shall apply to all work performed in the Building including, but not limited to
installations of telephones, telegraph equipment, electrical devices and
attachments, doors, entranceways, and any and all installations of every nature
affecting floors, walls, woodwork, trim windows, ceilings, equipment and any
other physical portion of the Building.
7. Movement in or out of the Building of furniture, office equipment,
safes, heavy equipment, bulky material, merchandise or materials which require
the use of elevators or stairways, or movements through the Building entrances
or lobby shall be restricted to such hours as Landlord shall
-Page 38-
<PAGE>
designate. All such movement shall be under the supervision of Landlord and
shall proceed in a manner agreed upon between the Tenants and Landlord by
prearrangement before performance so as to arrive at the optimum time, method
and routing of such movement; subject, however, to Landlord's decision and
control, to prohibit any such article from being brought into the Building
for safety or other concerns. The Tenants are to assume all risks as to the
damage to articles moved and injury to persons or public engaged or not
engaged in such movement, including equipment, property and personnel of
Landlord if damaged or injured as a result of acts in connection with
carrying out this service for a Tenant from the time of entering the property
to completion of work; and Landlord shall not be liable for acts of any
person engaged in, or any damage or loss to any of said property or persons
resulting from, any act in connection with such service performed for a
Tenant.
8. Landlord shall have the power to prescribe the weight and position of
safes and other heavy equipment or items which shall in all cases, to distribute
weight, stand on supporting devices approved by Landlord. All damages done to
the Building by the installation or removal of any property of a Tenant, or done
by a Tenant'' property while in the Building, shall be repaired at the expense
of such Tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Each Tenant shall cooperate with Landlord's employees in keeping its
leased premises neat and clean. Tenants shall not employ any person for the
purpose of such cleaning other than the Building's cleaning and maintenance
personnel. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts or stairways.
11. To ensure orderly operation of the Building, no ice, mineral or other
water, towels, newspapers, etc. shall be delivered to any leased area except by
persons appointed or approved by Landlord in writing.
12. Should a Tenant require telegraphic, telephonic, annunciator or other
communication service, Landlord will direct the electrician where and how wires
are to be introduced and placed and none shall be introduced or placed except as
Landlord shall direct. Electric current shall not be used for power or heating
without Landlord's prior written permission.
13. Tenant shall not make or permit any improper, objectionable or
unpleasant noises or odors in the Building or otherwise interfere in any way
with other Tenants or persons having business with them. No food shall be
prepared in or distributed from the Premises without prior written approval of
the manager of the Building.
14. No birds or animals shall be brought into or kept in, on or about any
Tenant's leased premises.
15. No inflammable or explosive fluid or substance shall be used or kept
in the Building.
16. No portion of any Tenant's leased premises shall at any time be used
or occupied as sleeping or lodging quarters; nor shall they be used for immoral
or illegal purposes, including but not limited to, the manufacture or sale of
liquor, narcotics or other drugs in any form.
17. Tenant shall not cause, maintain or permit any outside storage on or
about the Premises or Property.
-Page 39-
<PAGE>
18. Electrical space heaters and fans are not allowed in the Building.
Tenant shall comply with all emergency and safety procedures established by
Landlord, the Addison Fire Department, and/or any other governmental agency
having jurisdiction over the Building including, without limitation,
participation in periodic drills, familiarization with emergency procedures and
the designation of individuals who shall be responsible for the implementation
of emergency action. Landlord has the right to evacuate the Building in the
event of an emergency or catastrophe.
19. Tenant shall place solid pads under all rolling chairs.
20. Tenant agrees to cooperate and assist Landlord in the prevention of
canvassing, soliciting, and peddling within the Building. Said activities are
prohibited in the Building and on the Property at all times.
21. Tenant shall, before leaving the Premises unattended, close and lock
outside doors, turn off lights, coffee pots, and other office equipment. Damage
resulting from failure to do so shall be the sole responsibility of and shall be
paid for by Tenant. Landlord will not be responsible for lost or stolen
property, equipment, money or any article taken from the Premises, regardless of
how or when loss occurs.
22. Landlord reserves the right to rescind any of the rules and
regulations and to make such other and further rules and regulations as in its
judgement shall from time to time be needful for the safety, protection, care
and cleanliness of the Building, the operation thereof, the preservation of good
order therein and the protection and comfort of the Tenants and their agents,
employees, licensees and invitees, which rules and regulations, when made and
written notice thereof is given to a Tenant, shall be binding upon it in like
manner as if originally herein prescribed.
-Page 40-
<PAGE>
EXHIBIT "I"
RENEWAL OPTION
Provided that no event of default has ever occurred under any term or
provision contained in this Lease and no condition exists which with the passage
of time or the giving of notice or both would constitute an event of default
pursuant to this Lease and provided that Tenant has continuously occupied the
Premises for the Permitted Use during the Lease Term, Tenant (but not any
assignee or subtenant) shall have the right and option (the "RENEWAL OPTION") to
renew this Lease, by written notice delivered to Landlord no later than nine (9)
months prior to the expiration of the initial Lease Term, for an additional term
(the "RENEWAL TERM") of sixty (60) months under the same terms, conditions and
covenants contained in the Lease, except that (a) no abatements or other
concessions, if any, applicable to the initial Lease Term shall apply to the
Renewal Term; (b) the Base Rental shall be equal to the market rate for
comparable office space located in the Building as of the end of the initial
Lease Term as determined by Landlord giving consideration to market allowances
and concessions for renewal tenants; (c) a new base year for the "EXPENSE BASE"
referenced in the Lease shall be established; (d) Tenant shall have no option to
renew this Lease beyond the expiration of the Renewal Term; and (e) all
leasehold improvements within the Premises shall be provided in their then
existing condition (on an "as is" basis) at the time the Renewal Term commences.
Failure by Tenant to notify Landlord in writing of Tenant's election to exercise
the Renewal Option herein granted within the time limits set forth for such
exercise shall constitute a waiver of such Renewal Option. In the event Tenant
elects to exercise the Renewal Option as set forth above, Landlord shall, within
thirty (30) days thereafter, notify Tenant in writing of the proposed rental for
the Renewal Term (the "PROPOSED RENEWAL RENTAL"). Tenant shall within thirty (N)
days following delivery of the Proposed Renewal Rental by Landlord notify
Landlord in writing of the acceptance or rejection of the Proposed Renewal
Rental. If Tenant accepts Landlord's proposal, then the Proposed Renewal Rental
shall be the rental rate in effect during the Renewal Term. Failure of Tenant to
respond in writing during the aforementioned thirty (30) day period shall be
deemed an acceptance by Tenant of the Proposed Renewal Rental. Should Tenant
reject Landlord's Proposed Renewal Rental during such thirty (30) day period,
then Landlord and Tenant shall negotiate during the thirty (30) day period
commencing upon Tenant's rejection of Landlord's Proposed Renewal Rental to
determine the rental for the Renewal Term. In the event Landlord and Tenant are
unable to agree to a rental for the Renewal Term during said thirty (30) day
period, then the Renewal Option shall terminate and be null and void and the
Lease shall, pursuant to its terms and provisions, terminate at the end of the
original Lease Term.
Upon exercise of the Renewal Option by Tenant and subject to the conditions
set forth hereinabove, the Lease shall be extended for the period of such
Renewal Term without the necessity of the execution of any further instrument or
document, although if requested by either party, Landlord and Tenant shall enter
into a written agreement modifying and supplementing the Lease in accordance
with the provisions hereof. Any termination of the Lease during the initial
Lease Term shall terminate all renewal rights hereunder. The renewal rights of
Tenant hereunder shall not be severable from the Lease, nor may such rights be
assigned or otherwise conveyed in connection with any permitted assignment of
the Lease. Landlord's consent to any assignment of the Lease shall not be
construed as allowing an assignment of such rights to any assignee.
-Page 41-
<PAGE>
ADDENDUM
This Addendum is to be attached to and made a part of that certain office Lease
(the "LEASE") dated May 30, 1997, between 14850 Quorum Associates, Ltd.
("LANDLORD") and ObjectSpace, Inc. ("TENANT"). All capitalized items used but
not expressly defined in this Addendum shall have the meanings assigned to them
in the body of the Lease. The provisions of this Addendum shall control if in
conflict with any of the foregoing provisions of the Lease.
1. AREA DETERMINATIONS. The useable and rentable area of the Premises and the
Building and Tenant's Pro Rata Share shall be determined in accordance with
BOMA. Tenant shall have the right from time to time to independently confirm the
rentable and useable area square footage calculations at its own expense. As
Tenant is given this latter right prior to execution of the Lease, Tenant shall
have no claims against Landlord whatsoever regarding the accuracy of the
rentable and usable areas of the Premises and the Building. (See Lease, Section
1[h]).
2. CONSTRUCTION DELAY. No Delay shall result from contractor's delay or from
acts beyond the reasonable control of Tenant. Tenant's changes in plans and
specifications shall be deemed to cause a Delay only if Delay actually results.
(See Lease, Section 3[a]).
3. SUBSTANTIAL COMPLETION. The substantial completion of the Premises shall
not occur until a certificate of occupancy has been issued for all of the
Premises, the punch list consists of matters that can be completed in 30 days or
less and do not interfere with Tenant's use and occupancy of the Premises, and
Tenant, acting reasonably, can make full use of the Premises for the purposes
intended. (See Lease, Section 3[a]).
4. TERMINATION. If the Commencement Date does not occur by September 1, 1997
for reasons other than Delay, Tenant shall have the right to terminate this
Lease. (See Lease, Section 1[e]).
5. PERMITTED USE. Tenant's permitted use shall include non-commercial kitchen
and eating facilities, computer and telecommunications facilities, data
processing and transmission, including rooftop satellite communications,
accounting facilities, conference and meeting facilities, copying facilities,
and other uses typically made (and to be hereafter made) by other office tenants
in the Dallas/Ft. Worth metropolitan area. Tenant shall be permitted to have
vending machines. Tenant's intended use of the Premises shall not increase
applicable insurance premiums. (See Lease, Section 4).
6. SECURITY SERVICES. Tenant shall be provided access to the Premises
twenty-four hours a day, seven days a week. Tenant also shall have the right, at
its sole cost and expense, to install and operate such additional access control
systems as it shall determine for the purpose of limiting access to or within
the Premises as long as Landlord is given access to those control systems
twenty-four hours a day, seven days a week. (See Lease, Section 7[g]).
7. SIGNAGE. Tenant shall be entitled to directory listings in the elevator
lobby and signage on the floor on which the Premises are located, at Tenant's
expense, but the cost of such signage may be deducted from the Allowance (as
defined in Exhibit D-2). Tenant shall have the exclusive right to exterior
signage at top of Building and non-exclusive right to Signage on Building
monument signs. Signage on multi-tenant floor shall be Building Standard
graphics. Signage on single tenant floor and exterior of Building need not be
Building Standard but must be approved by Landlord, which approval shall not be
unreasonably withheld. (See Lease, Section 9).
-Page 42-
<PAGE>
8. LANDLORD'S MAINTENANCE. With the exception of maintenance required of
Tenant elsewhere in the Lease, Landlord shall maintain the Building, all
structural components thereof, all base building improvements, all mechanical,
electrical, and plumbing facilities, all utilities, all parking areas, and all
common areas in a good, workmanlike condition comparable to other buildings of
similar quality in the Dallas, Texas metropolitan area. (See Lease, Section 7).
9. ELECTRICAL CAPACITY. Electrical capacity shall be available to the Premises
without additional charge to Tenant sufficient for (a) low voltage capacity
(120/208 volts) for up to 5 watts per square foot of rentable area to operate
machines of low voltage electrical consumption, such as typewriters,
calculators, photocopiers, telecommunication equipment, desktop and stand alone
and network computers and word processors, and (b) high voltage capacity
(277/480 volts) for up to 2 watts per square foot of rentable area to operate
fluorescent lighting and equipment of high voltage electrical consumption.
Tenant shall have the right to submeter electrical usage in which event Basic
Costs shall exclude electrical source and Tenant shall pay the cost of
electrical service reflected by the submeter. (See Lease, Section 7[d]).
10. ASSIGNMENT AND SUBLETTING. The language of Section 13(c) of the Lease
notwithstanding, in the event, of a sublease or assignment of the Lease which
generates rental payments greater than Tenant's then existing total monthly
monetary obligations to Landlord, Tenant shall pay to Landlord the excess
consideration received by Tenant after Tenant has deducted its reasonable costs
incurred in securing a permitted subtenant or assignee, which costs may include
marketing, legal, brokerage, and improvements required to secure subtenant or
assignee, together with the cost of any Tenant Improvements that may have been
paid for directly by Tenant, provided Tenant provides Landlord reasonable proof
of the cost of the sums deducted prior to payment of the excess amount to
Landlord. Tenant shall provide Landlord the accountings for Tenant's referenced
costs and the payments of excess rent within 15 days after Tenant receives each
rental payment from the assignee or subtenant. (See Lease, Section 13[c]).
1l. LANDLORD'S ACTS. Tenant shall not be obligated to indemnify Landlord
against, and Tenant does not waive any claims arising out of, Landlord's gross
negligence or willful misconduct. Landlord will indemnify and hold Tenant
harmless from and against any claims, losses, demands, liabilities, damages, and
expenses (including legal fees) caused solely by the gross negligence or willful
misconduct of Landlord, its agents, servants, and employees. (See Lease, Section
17).
12. NON-DISTURBANCE. If this Lease shall become subordinate to any mortgage,
ground lease, or master lease, Landlord shall use reasonable efforts to obtain a
non-disturbance agreement regarding Tenant. (See Lease, Section 29).
13. ROOF ACCESS. Tenant shall be provided access to the roof of the Building to
install a satellite dish and communications equipment as set forth in the Roof
License Agreement which is attached as part of this Lease.
-Page 43-
<PAGE>
ROOF LICENSE AGREEMENT
THIS ROOF LICENSE AGREEMENT made as of this 30th day of May, 1997, between 14850
Quorum Associates, Ltd. ("LICENSOR") and Objectspace, Inc., a Texas Corporation
("LICENSEE"), having an address at 14850 Quorum Drive, Suites 400 and 500,
Dallas, Texas 75240.
WITNESSETH
Licensor or its predecessor in interest, and Licensee or its predecessor in
interest, have heretofore entered into that certain lease dated May 30, 1997,
for the premises described as Suite Nos. 400 and 500, initially containing
approximately 25, 260 rentable square feet (the "LEASE") in the property
("PROPERTY") known as Quorum II, located at 14850 Quorum Drive, Dallas, Dallas
County, Texas, 75240 which lease has been amended by instruments dated: None
A. BASIC TERMS. The following terms shall have the following meanings
throughout this Agreement.
1. PROPERTY NAME: Quorum II
2. PROPERTY ADDRESS: 14850 Quorum Drive, Dallas, Texas 75240
3. PREMISES: The space at the Property comprising a portion of
the roof area of the Property shown on the drawing attached hereto as
EXHIBIT A ("PREMISES") and which Licensor reserves the right to reasonably
revise or relocate at any time.
4. TERM: Commencing on July 1, 1997 and ending on March 31,
2003, subject to amendment, or earlier termination by agreement of the
parties.
5. TYPE OF ACTIVITY AND PURPOSE. Location for Licensee's satellite dish
or communication equipment which shall be installed in a location
designated by Licensor and the cable from such dish or communications
equipment shall enter the building at the point designated by Licensor.
B. LICENSE. Licensor hereby licenses to Licensee, on a non-exclusive
basis, the use of the Premises for the Term set forth above, unless
terminated sooner in accordance herewith, subject to the terms and
conditions hereof.
C. TERMS AND CONDITIONS. In consideration of the license granted to
Licensee herein, Licensee agrees to the following:
1. PURPOSE. Licensee shall use the Premises only for the Type of
Activity and Purpose set forth above and for no other purpose.
2. INSURANCE. Licensee shall ensure that the insurance provisions
of the above described Lease, by and between 14850 Quorum
Associates, Ltd. ("LANDLORD") and ObjectSpace, Inc., a Texas
Corporation ("TENANT"), are extended tot he premises described in
this license Agreement.
3. WAIVER OF CLAIMS AND INDEMNITY. To the extent not prohibited by
law, Licensee shall indemnify, defend and save harmless Licensor
and its partners,
-Page 44-
<PAGE>
beneficiaries, trustees, officers, directors, employees and
agents, from and against any and all liability, claims,
damages, costs and expenses, including without limitation,
attorney's fees, resulting from or in connection with
Licensee's use and occupancy of the Roof Premises unless
caused by the gross negligence or willful misconduct of
Licensor or Licensor's agent. To the extent not prohibited by
law, Licensee waives all claims against Licensor and its
partners, beneficiaries, trustees, officers, directors,
employees and agents for injury to persons, damage to property
or to any other interests of Licensee sustained by Licensee or
any person claiming through Licensee resulting from any
occurrence in or upon the Premises or the Property. Without
limitation, all of Licensee's personal property which may at
any time be at the Premises shall be at Licensee's sole risk
unless damage to said personal property of Licensee is caused
by the gross negligence or willful misconduct of Licensor or
its agents.
4. COSTS OF LITIGATION. If Licensor or its agents shall without
fault on their part be made a party to any litigation rising out
of any act or omission of Licensee, Licensee shall pay all cost
and expenses, including attorney's fees, incurred by said parties
on account of said litigation. In the event of any litigation
between parties of this Agreement, the prevailing party shall be
entitled to recover from the unsuccessful party its reasonable
attorney's fees and costs as part of the judgment.
5. RELOCATION, POSTPONEMENT AND EARLY TERMINATION. The location of
the satellite dish or communications equipment on the Premises
shall be shown on the plans submitted to Licensor for its
approval. In the event that Licensee desires to move the
satellite dish or communications equipment to a different place
on the Premises, then new plans showing such new locations must
be submitted to Licensor for its approval. Licensee must give
Licensor at least ten (10) days notice of relocation. All costs
of such relocation shall be borne by Licensee. Licensor may
terminate the License granted herein upon a violation by Licensee
of any provision hereof or of the Lease after the notice and cure
period provided in the Lease.
6. REMOVAL OF PROPERTY; HOLDING OVER. Prior to the end of the Term
of this license, Licensee shall remove all of its satellite dish
and communications equipment from the Premises and shall leave
the Premises in a clean condition and in as good or better
condition as when Licensee took possession of the Premises,
making any necessary repairs to the roof or the building. For
each day or part of a day after the end of the Term that Licensee
shall have failed to do the foregoing, Licensee shall pay the
Licensor Two Hundred Dollars ($200.00). If Licensee fails to
remove its satellite dish and communications equipment by the end
of the Term, Licensor may take possession of said satellite dish
and communications equipment and dispose of said satellite dish
and communications equipment in such lawful manner as it shall
determine.
7. ASSIGNMENT. This Agreement is personal to Licensee. Licensee
shall not assign, sublicense or in any other manner transfer or
encumber this Agreement or Licensee's rights hereunder, by
operation of law or otherwise, except under the
-Page 45-
<PAGE>
same terms and conditions as Tenant may transfer all the Premises
under the Lease.
8. INSPECTION. Licensor reserves the right to inspect the Premises
at any time, and to enter the same for any other reasonable
cause, including without limitation, the making of repairs to the
Building or grounds.
9. OPERATION. Licensee shall operate, maintain and repair the
Premises, and any communications equipment affixed thereto, for
the activity and purpose described above during normal business
hours, unless Licensor shall agree otherwise in writing. If
Licensee shall fail to so operate, Landlord may declare Tenant in
default under the Lease after complying with the notice
provisions of Section 23 (a)(ii) of the Lease (without limiting
Licensor's remedies for other breaches of this Agreement).
10. RULES. Licensee shall comply with each of the Rules set forth
on Exhibit "D" of the Lease which are incorporated herein by
reference and made a part hereof for all purposes. Licensee shall
also comply with any additional Rules or modifications of the
Rules that Licensor reasonably may promulgate and notify Licensee
after the date hereof.
11. COMPLIANCE WITH LAWS. Licensee shall at Licensee's sole cost and
expense install, operate, maintain and remove the satellite dish
and communications equipment in accordance with all governmental
laws, rules, regulations, codes and ordinances and shall obtain
all FCC, FAA and other governmental licenses, permits and
approvals required to install, operate, maintain and remove the
satellite dish and communications equipment.
-Page 46-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Roof License Agreement
as of the day and year first above written.
LICENSOR:
14850 Quorum Associates, Ltd., a Texas Limited
Partnership
By: Commercial Properties 3, L.P.
a Virginia limited partnership, General
Partner
By: Real Estate Services VII, Inc.,
a Delaware corporation, General Partner
By: /s/ LAWRENCE M. OSTOW
-----------------------------------------
Lawrence M. Ostow
Vice President
LICENSEE:
ObjectSpace, Inc., a Texas Corporation
By: /s/ JOHN W. PRITCHETT
-----------------------------------------
Name: John W. Pritchett
-----------------------------------------
Title: Chief Financial Officer
-----------------------------------------
-Page 47-
<PAGE>
BASIC LEASE INFORMATION
(Office Lease Agreement)
LANDLORD: Brookdale Investors, L.P.
<TABLE>
<S> <C> <C>
A. BUILDING: The Belvedere
B. ADDRESS (for notices): 14881 Quorum Drive A COPY TO: 3343 Peachtree Road, Suite 510
Dallas, Texas 75240 Atlanta, Georgia 30326
Attn: Property Manager Attention: Fred H. Henritze
C. TELEPHONE: 214-866-8808
</TABLE>
TENANT: ObjectSpace, Inc., a Texas Corporation
A. PREMISES: The spaces known as Suite 600 as identified on EXHIBIT "B"
hereto located on floor 6 of the Building as described in the Lease.
B. ADDRESS (for notices):
Prior to occupancy: After occupancy:
14881 Quorum Drive 14881 Quorum Drive
Suite 400 Suite 600
Dallas, Texas 75240 Dallas, Texas 75240
Attn: __________________ Attn: __________________
Telephone: _____________ Telephone: _____________
BASE RENTAL: February 13, 1998 - February 28, 1999 $21,755.00 per month
March 1, 1999 - February 29, 2000 $22,298.88 per month
March 1, 2000 - February 28, 2001 $23,842.75 per month
March 1, 2001 - February 28, 2002 $23,386.63 per month
March 1, 2002 - March 31, 2003 $23,930.50 per month
SECURITY DEPOSIT:
A. Within ten (10) days of execution of the Lease by Landlord and Tenant,
$12,939.00, to be added to the $8,816.00 Tenant currently has deposited
with Landlord, for a total of $21,755.00.
B. On January 30, 1998, the Letter of Credit in the amount of $156,545.00, to
be held by Landlord until March 1, 1999, at which time the Letter of Credit
shall be reduced by one-third (1/3) annually.
PREPAID RENTAL: $21,755.00 due and payable upon execution of the Lease.
EXPENSE BASE: 1998 actuals.
TENANT'S PRO RATA SHARE: 9.26%
COMMENCEMENT DATE: The day after the end of the Lease Term (as therein defined)
of the Previous Lease, subject to modification pursuant to Paragraph 3(a) of the
Lease which is hereby stipulated to be February 13, 1998 at 12:01 a.m.
1
<PAGE>
LEASE TERM: A period of sixty-one (61) months from the Commencement Date;
provided that if the Commencement Date is a date other than the first day of a
calendar month the Lease Term shall consist of sixty-one (61) calendar months in
addition to the remainder of the calendar month in which the Commencement Date
occurs.
RENTABLE AREA IN THE PREMISES: 13,053 square feet of Rentable Area.
RENTABLE AREA IN THE BUILDING: 140,981 square feet of Rentable Area.
LANDLORD'S AGENT(S): Transwestern Property Company/Tommy Van Zandt
SPACE PLAN APPROVAL DATE: Not Applicable
PERMITTED USE: General office.
The foregoing Basic Lease Information shall be construed in conjunction
with the references thereto contained in other provisions of the Lease and shall
be limited by such other provisions. Each reference in the Lease to any of the
foregoing Basic Lease Information shall be construed to incorporate each term
set forth hereinabove as so limited. In the event of any conflict between any
Basic Lease Information and the Lease, the terms of the Lease shall control.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2. Lease Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3. Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5. Base Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6. Security Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7. Services to be Furnished by Landlord. . . . . . . . . . . . . . . . . . . . . .7
8. Improvements to be Made by Landlord . . . . . . . . . . . . . . . . . . . . . .9
9. Graphics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
10. Repairs and Alterations by Tenant . . . . . . . . . . . . . . . . . . . . . . .9
11. Use of Electrical Services by Tenant. . . . . . . . . . . . . . . . . . . . . .9
12. Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14. Mechanic's Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
15. Property Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
16. Liability and Worker's Compensation Insurance . . . . . . . . . . . . . . . . 12
17. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
18. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
19. Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
20. Casualty Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
21. Damages from Certain Causes . . . . . . . . . . . . . . . . . . . . . . . . . 15
22. Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
23. Events of Default/Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Default by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Landlord's Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 16
24. Tenant Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
25. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
26. Event of Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
27. Peaceful Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
28. Substitution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
29. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
30. Subordination to Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . 21
31. Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
32. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
33. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
35. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
36. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
37. Time of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
38. Transfers by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
39. Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
40. Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . . . . 22
41. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
42. Financial Condition of Tenant . . . . . . . . . . . . . . . . . . . . . . . . 23
43. Effect of Delivery of This Lease. . . . . . . . . . . . . . . . . . . . . . . 23
44. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
45. Roof Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
3
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OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "LEASE"), made and entered into on this
the 5TH day of SEPTEMBER, 1997, between BROOKDALE INVESTORS, L.P. ("LANDLORD")
and OBJECTSPACE, INC., a Texas Corporation ("TENANT").
Previously, Landlord and Tenant have entered into that certain Lease
Agreement dated August 18, 1993 as amended by Amendment I dated November 30,
1994; amended by Amendment 11 dated May 9, 1995; amended by Amendment III dated
July 24, 1995; and amended by Amendment IV dated September 6, 1995; and
supplemented by Supplement I dated effective February 9, 1996, and Supplement 11
dated effective December 5, 1996, all regarding the Premises (hereinafter
defined). All of those documents together shall be referred to herein as the
"Previous Lease". The Previous Lease is replaced in its entirety by this Lease
as of the Commencement Date (hereinafter defined) of this Lease.
W I T N E S S E T H
1. DEFINITIONS. The following are definitions of some of the defined
terms used in this Lease. The definition of other defined terms are found
throughout this Lease.
(a) "BUILDING" shall mean the office building located upon the
real property (the "PROPERTY") together with all appurtenances thereto,
with a street address of 14881 Quorum Drive, Dallas, Texas.
(b) "BASE RENTAL" shall mean the following sums per month for
each of the stated years of the Lease Term for a total of $1,406,927.05
during the Lease Term, as adjusted pursuant to EXHIBIT "C" hereto:
<TABLE>
<S> <C>
February 13, 1998 - February 28, 1999 $21,755.00 per month
March 1, 1999 - February 29, 2000 $22,298.88 per month
March 1, 2000 - February 28, 2001 $23,842.75 per month
March 1, 2001 - February 28, 2002 $23,386.63 per month
March 1, 2002 - March 31, 2003 $23,930.50 per month
</TABLE>
The Base Rental due for the first month during file "Lease Term"
(hereinafter defined) has been deposited with Landlord by Tenant
contemporaneously with the execution hereof.
(c) "BASIC COSTS" shall mean all direct and indirect costs and
expenses incurred in connection with the Building as more fully
defined in EXHIBIT "C" attached hereto.
(d) "SECURITY DEPOSIT" shall mean:
(1) The slim of $12,939.00 to be paid by Tenant to
Landlord within ten (10) days after the execution of this
Lease by Landlord and Tenant which shall be added to the
$8,816.00 Tenant currently has deposited with Landlord, for
a total of $21,755.000; and
(2) An irrevocable, automatically renewable letter of
credit (the "LETTER OF CREDIT") to Landlord's benefit, on
terms acceptable to Landlord, in the amount of $156,545.00,
shall be delivered by Tenant to Landlord on January 30,
1998. The Letter of Credit shall be held by Landlord as
additional security for Tenant's obligations under this
Lease until March 1, 1999, at which time the amount of the
Letter of Credit shall be reduced by onethird (1/3), with
additional annual reductions in the same amount each March
1 thereafter.
(e) "COMMENCEMENT DATE" shall mean the day after the date which
is the end of the Lease Term (as therein defined) of the Previous
Lease which is hereby stipulated to be February 13, 1998 at 12:01
a.m. (except as the same may be delayed pursuant to the provisions
of Paragraph 3(a) hereof).
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<PAGE>
(f) "LEASE TERM" shall mean a term commencing on the
Commencement Date and continuing until March 31, 2003.
(g) "PREMISES" shall mean Suite 600 located within the Building
and outlined on EXHIBIT "B" to this Lease. The Premises are
stipulated for all purposes to contain approximately 13,053 square
feet of "Rentable Area" (as defined below).
(h) "RENTABLE AREA" shall mean the area contained within the
demising walls of the Premises and any other area designated for
the exclusive use of Tenant plus an allocation of the (as defined
below). The Rentable Area in the Building is deemed to be 140,981
square feet.
(i) "COMMON AREAS" shall mean those areas devoted to corridors,
elevator foyers, mail rooms, restrooms, mechanical rooms, elevator
mechanical rooms, janitorial closets, electrical and telephone
closets, vending areas, and lobby areas (whether at ground level
or otherwise), and other similar facilities provided for the
common use or benefit of tenants generally and/or the public.
(j) "SERVICE AREAS" shall mean those areas within the outside
walls of the Building used for stairs, elevator shafts, flues,
vents, stacks, pipe shafts and other vertical penetrations (but
shall not include any such areas for the exclusive use of a
particular tenant).
(k) "BUILDING STANDARD" when used herein, shall mean the type,
brand, quality and/or quantity of materials Landlord designates
from time to time to be the minimum quality and/or quantity to be
used in the Building or the exclusive type, grade, quality and/or
quantity of material to be used in the Building and shall include,
but not be limited to, the Building Standard Materials defined in
the Work Letter Agreement attached hereto as EXHIBIT "D".
(l) "MAXIMUM RATE", when used herein, shall mean the greatest
of the rates of interest from time to time permitted under
applicable federal and state law. To the extent of the
applicability of Article 5069-1.04, as amended, Texas Revised
Civil Statutes, the Maximum Rate shall be the highest permitted
rate based upon the "indicated rate ceiling", but to the extent
now or hereafter permitted by Texas law, Landlord may from time to
time implement, withdraw and reinstate any ceiling as an
alternative to the indicated rate ceiling, including the right to
reinstate the indicated rate ceiling.
(m) "PRIME RATE" shall mean the per annum interest rate
announced by Texas Commerce Bank from time to time (whether or not
charged in each instance) as its prime or base rate.
(n) "NORMAL BUSINESS HOURS" for the Building shall mean 8:00
a.m. to 6:00 p.m. Mondays through Fridays, and 8:00 a.m. to 1:00
p.m. on Saturdays, exclusive of the normal business holidays of
New Years Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
(o) "BUSINESS DAY(s)" shall mean Mondays through Fridays
exclusive of the normal business holidays of New Year's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
2. LEASE GRANT. Subject to and upon the terms herein set forth,
Landlord leases to Tenant and Tenant leases from Landlord the Premises.
3. LEASE TERM.
(a) Subject to and upon the terms and conditions set forth in
this Lease, this Lease shall continue in force for the Lease Term.
5
<PAGE>
(b) The taking of possession of the Premises by Tenant shall be
conclusive evidence against Tenant that (i) Tenant warrants and
represents to Landlord that it has conducted its own independent
investigation of the Premises and that the Premises are suitable
for the purpose for which the same are leased, (ii) the Property
and the Building and each and every part and appurtenance thereof
are in good and satisfactory condition, except for any defect
which is not discoverable upon a reasonable inspection, and (iii)
Tenant waives any defects in the Premises and its appurtenances
and in all other parts of the Building and the appurtenances
thereto, except for any defect which is not discoverable upon a
reasonable inspection, but such acceptance shall not limit
Landlord's obligations set forth elsewhere in this Lease.
4. USE. The Premises shall be used for office purposes, which
includes, but is not limited to, conference and computer facilities, a
non-commercial employee kitchen and related facilities, and other legally
permitted business office uses consistent with the characteristics of a
first-class office building in Dallas, Texas, (the "PERMITTED USE") and
for no other purpose. Tenant agrees not to use or permit the use of the
Premises for any purpose which is illegal, dangerous to life, limb or
property or which, in Landlord's opinion, creates a nuisance or which
would increase the cost of insurance coverage with respect to the
Building. In the event there shall be any increase in the cost of
insurance coverage with respect to the Building which results from
Tenant's acts or conduct of business, then Tenant hereby agrees to pay
the amount of such increase on demand. Tenant will conduct its business
and control its agents, servants, employees, customers, licensees, and
invitees in such a manner as not to interfere with, annoy or disturb
other tenants or Landlord in the management of the Building. Tenant will
maintain the Premises in a clean and healthful condition, and comply with
all laws, ordinances, orders, rules and regulations of any governmental
entity with reference to the use, condition or occupancy of the Premises.
Tenant will comply with the rules and regulations of the Building adopted
and altered by Landlord from time to time and will cause all of its
agents, employees, invitees and visitors to do so. All changes to such
rules and regulations will be sent by Landlord to Tenant in writing. A
copy of the existing rules and regulations is attached hereto as Exhibit
"H" and made a part hereof. Tenant agrees not to commit or allow any
waste to be committed on any portion of the Premises, and at the
termination of this Lease to deliver up the Premises to Landlord in as
good condition as at the Commencement Date, ordinary wear and tear
excepted. The terms of this Lease shall control over any conflict with
rules and regulations. Rules and regulations cannot impose additional
economic obligations on Tenant and shall be fairly applied and enforced
by Landlord.
5. BASE RENTAL.
(a) Tenant covenants and agrees to pay during the Lease Term,
to Landlord, without any setoff or deduction whatsoever, the Base
Rental, and all such other sums of money as shall become due
hereunder as additional rent, all of which are sometimes herein
collectively called "rent." In the event of nonpayment of any such
rent, Landlord shall be entitled to exercise all such rights and
remedies as are herein provided in the case of the nonpayment of
Base Rental. Except as otherwise provided herein, the annual Base
Rental for each calendar year or portion thereof during the Lease
Term, together with any estimated adjustment thereto pursuant to
Exhibit "C" hereof then in effect, shall be due and payable in
advance in twelve (12) equal installments on the first day of each
calendar month during the initial term of this Lease and any
extensions or renewals hereof, and Tenant hereby agrees to pay
such Base Rental and any adjustments thereto to Landlord at
address provided herein (or such other address as may be
designated by Landlord in writing from time to time) monthly, in
advance, and without demand. If the term of this Lease commences
on a day other than the first day of a month or terminates on a
day other than the last day of a month, then the installments of
Base Rental and any adjustment thereto for such month or months
shall be prorated, based on the number of days in such month. The
Base Rental for the first partial month, if any, shall be payable
at the beginning of said period. All such payments shall be by a
good and sufficient check (subject to collection) drawn on a bank
acceptable to Landlord. No payment by Tenant or receipt or
acceptance by Landlord of a lesser amount than the correct
installment of rent due under this Lease shall be deemed to be
other than a payment on account of the earliest rent due
hereunder, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment be deemed an accord
and
6
<PAGE>
satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance or
pursue any other remedy provided by this Lease or applicable law.
The acceptance by Landlord of an installment of rent on a date
after the due date of such payment shall not be construed to be a
waiver of Landlord's right to declare a default for any other late
payment. If Tenant fails to timely pay any two (2) installments of
rent in any consecutive twelve month period, Landlord may require
Tenant to pay rent (as estimated by Landlord, if necessary)
quarterly in advance, and, in such event, all future payments
shall be made on or before the due date in cash or by cashier's
check or money order, and the delivery of Tenant's collectible
personal or corporate check shall no longer constitute payment
thereof. Any acceptance of Tenant's collectible personal or
corporate check thereafter by Landlord shall not be construed as a
waiver of the requirement that such payments be made in cash or by
cashier's check or money order. All amounts received by Landlord
from Tenant hereunder shall be applied first to the earliest
accrued and unpaid rent then outstanding.
(b) All installments of rent not paid when due and payable
shall bear interest until paid at a per annum rate equal to the
lesser of (i) the Prime Rate plus five percent (5%) or (ii) the
Maximum Rate.
(c) The Base Rental payable hereunder shall be adjusted upward
from time to time in accordance with the provisions of EXHIBIT "C"
attached hereto and incorporated herein for all purposes.
6. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord
without liability for interest and as security for the performance by
Tenant of Tenant's covenants and obligations under this Lease including
but not limited to those set forth in Paragraph 10 hereof, it being
expressly understood that the Security Deposit shall not be considered an
advance payment of rent or a measure of Tenant's liability for damages in
case of default by Tenant. Landlord may commingle the Security Deposit
with Landlord's other funds. Landlord may, from time to time, without
prejudice to any other remedy, use the Security Deposit to the extent
necessary to make good any arrearages of rent or to satisfy any other
covenant or obligation of Tenant hereunder. Following any such
application of the Security Deposit, Tenant shall pay to Landlord on
demand the amount so applied in order to restore the Security Deposit to
its original amount. If Tenant is not in default at the termination of
this Lease, the balance of the Security Deposit remaining after any such
application shall be returned by Landlord to Tenant. If Landlord
transfers its interest in the Premises during the term of this Lease,
Landlord shall assign the Security Deposit to the transferee and
thereafter shall have no further liability for the return of such
Security Deposit. Tenant agrees to look solely to such transferee or
assignee or successor thereof for the return of the Security Deposit.
Landlord and its successors and assigns shall not be bound by any actual
or attempted assignment or encumbrance of the Security Deposit by Tenant.
7. SERVICES TO BE FURNISHED BY LANDLORD. Landlord shall provide to
Tenant, at no additional or separate charge to Tenant, for the services
listed in this Paragraph 7, the level and quality of services typically
provided by landlords of buildings of the same quality as the Building
within a radius of two miles of the Building and Tenant shall be entitled
to install and operate photocopiers, telephone and telecopy equipment,
word processing equipment, computers and other equipment customarily used
in first class office space in such area without additional charge.
Charges for additional services shall not exceed Landlord's reasonable
charges. The services Landlord is obligated to provide shall include:
(a) Hot and cold water at those points of supply provided for
general use of tenants in the Building, central heat and air
conditioning in season, at such temperatures and in such amounts
as are considered by Landlord to be standard for comparable
buildings or as required by governmental authority; provided,
however, heating and air conditioning service at times other than
for Normal Business Hours for the Building shall be furnished only
upon the written request of Tenant delivered to Landlord prior to
3:00 p.m. at least one Business Day in advance of the date for
which such usage is requested. Tenant shall bear the entire cost
of additional service as such costs are determined by Landlord
from time to time. Tenant shall have the right to install separate
HVAC equipment, which will be separately metered and paid by
Tenant. The current after hours rate for HVAC is $49.00 per
7
<PAGE>
hour, with a two hour minimum, during the Lease Term. This rate
is subject to change due to changes in electricity rates charged
to Landlord.
(b) Routine maintenance and electric lighting service for all
Common Areas and Service Areas of the Building in the manner and
to the extent deemed by Landlord to be standard.
(c) Janitor service on Business Days; provided, however, if
Tenant's floor covering or other improvements require special
treatment, Tenant shall pay the additional cleaning cost
attributable thereto as additional rent upon presentation of a
statement therefor by Landlord.
(d) Subject to the provisions of Paragraph 11 hereof,
facilities to provide all electrical current required by Tenant in
its use and occupancy of the Premises.
(e) All fluorescent bulb replacement in the Premises necessary
to maintain the lighting provided by Landlord as set forth in the
Work Letter Agreement attached hereto as Exhibit "D" as a part of
the Building Standard Materials and fluorescent and incandescent
bulb replacement in the Common Areas and Service Areas.
(f) Passenger elevators for ingress and egress to and from the
floor of the Premises during Normal Business Hours and with at
least one passenger elevator available at all other times.
(g) Access control to the Building during other than Normal
Business Hours shall be provided in such form as Landlord deems
appropriate consistent with buildings of the same quality as the
Building within a radius of two miles of the Building. Coded
access cards will be provided to Tenant's authorized employees for
after hours access to the Building, and a fee will be charged by
Landlord based on its costs for such cards. Tenant also shall have
the right, at its sole cost and expense, to install and operate
such additional access control systems as it shall determine for
the purpose of limiting access to or within the Premises, provided
that Tenant gets Landlord's written approval of such systems
before installation and provided that Landlord shall be provided
access to such systems to enter Tenant's space at any time. Tenant
shall cooperate fully in Landlord's efforts to maintain access
control to the Building and shall follow all regulations
promulgated by Landlord with respect thereto.
(h) Access to Landlord's delivery docks, if any, for use only
during the construction of the Tenant Improvements (as hereinafter
defined), subject to Landlord's rules and regulations regarding
use of the delivery docks and subject to Landlord's prior written
approval of Tenant's proposed use of the delivery docks.
Except as otherwise expressly provided herein, the failure by Landlord to
any extent to furnish, or the interruption or termination of these
defined services in whole or in part, resulting from adherence to laws,
regulations and administrative orders, FORCE MAJEURE or any other causes
beyond the reasonable control of Landlord shall not render Landlord
liable in any respect nor be construed as an eviction of Tenant, nor work
an abatement of rent, nor relieve Tenant from the obligation to fulfill
any covenant or agreement hereof. Should any of the equipment or
machinery used in the provision of such services for any cause cease to
function properly, Landlord shall use reasonable diligence to repair such
equipment or machinery but, except as otherwise expressly provided
herein, Tenant shall have no claim for offset or abatement of rent or
damages on account of an interruption in service thereby or resulting
therefrom. Except as expressly provided herein, Landlord shall not be
required to make any repairs to or maintain the Premises. However, if
services are interrupted or abated for any reason, or if Landlord
interferes with Tenant's operations as a result of the exercise by
Landlord of its right to enter into the Premises, or perform services or
work with respect to any other portion of the Building, and as a result
of such interruption, Tenant cannot use the Premises in substantially the
same manner as prior to such interruption for five (5) consecutive
business days, Tenant shall have the right to abate rent on a pro rata
basis based on the amount of the Premises which are substantially
unusable until such interference is remedied. Landlord shall maintain the
Building, all structural components thereof, all base building
improvements, all mechanical, electrical, and plumbing facilities,
outside of the Premises, not including any HVAC equipment installed by
Tenant, the roof and roof membrane, all utilities, all parking areas, and
all common areas in a condition comparable to that of other buildings
comparable to the Building within a two mile radius of the Building.
8
<PAGE>
8. IMPROVEMENTS TO BE MADE BY LANDLORD. Except as otherwise provided
in the Work Letter Agreement attached hereto as EXHIBIT "D", all
installations and improvements now or hereafter placed on or in the
Premises shall be subject to the provisions of Paragraph 10 hereof and
shall be for Tenant's account and at Tenant's cost (and Tenant shall pay
ad valorem taxes and increased insurance thereon or attributable
thereto), which cost shall be payable by Tenant to Landlord upon demand
as additional rent.
9. GRAPHICS. Landlord shall provide and install, at Tenant's cost,
all letters or numerals on the exterior of the Premises; all such letters
and numerals shall be in the standard graphics for the Building and no
others shall be used or permitted on the Premises without Landlord's
prior written consent. Tenant acknowledges that the standard Building
graphics are acceptable to Tenant. Additionally Landlord, at Tenant's
sole cost, may install a monument sign bearing only Tenant's name. Before
any such installation, Landlord shall have the right to approve the
location, size, design and materials used in the sign. The sign shall be
subject to approval by all city officials and agencies governing the sign
and shall comply with all applicable laws and ordinances. At the end of
the Lease Term (and the Renewal Term, if applicable), at Landlord's
option, Tenant at Tenant's sole cost, shall remove the sign and shall
restore the Building and the Property to a condition at least as good as
that condition which existed immediately prior to the installation of the
sign.
10. REPAIRS AND ALTERATIONS BY TENANT. Tenant covenants and agrees
with Landlord, at Tenant's own cost and expense, to keep the Premises in
good condition and repair and to repair or replace any damage done to the
Building, or any part thereof, caused by Tenant or Tenant's agents,
servants, employees, customers, licensees, or invitees. Tenant further
covenants and agrees that such repairs shall restore the Building to as
good a condition as it was in prior to such damage and that such repairs
shall be effected in compliance with all applicable laws. If Tenant fails
to make such repairs or replacements promptly, Landlord may, at its
option, make such repairs or replacements, and Tenant shall pay the cost
thereof to the Landlord on demand as additional rent. Tenant agrees with
Landlord not to make or allow to be made any alterations to the Premises,
install any vending machines on the Premises, or place signs on the
Premises which are visible from outside the Premises, without first
obtaining the written consent of Landlord in each such instance, which
consent may be refused or given on such conditions as Landlord may elect.
Any and all alterations, additions and improvements to the Premises, all
attached furniture, equipment and fixtures, and any unattached and
movable equipment, furniture, trade fixtures or other personality which
was acquired with funds provided by or on behalf of Landlord shall become
the property of Landlord upon termination of this Lease. In addition, all
other personal property which shall remain in the Premises for more than
five (5) days following either the termination of this Lease or the entry
of the Premises by Landlord following Tenant's default hereunder shall,
at Landlord's option, become the property of Landlord. Landlord shall,
nonetheless, require Tenant to remove such fixtures, furniture, trade
fixtures, equipment, improvements, alterations, additions and personal
property installed on or located in the Premises as are designated by
Landlord at the time plans are approved by Landlord (the "REQUIRED
REMOVABLES") at Tenant's sole cost including without limitation, any
cabling or other computer, satellite or telecommunications equipment or
hardware, whether or not such equipment cabling or hardware is located in
the Premises and repair any damage to the Premises or the Building caused
by such removal. In the event that Landlord so elects, and Tenant fails
to remove the Required Removables, Landlord may remove the Required
Removables at Tenant's cost, and Tenant shall pay Landlord on demand all
costs incurred in removing, storing and/or disposing of the Required
Removables.
11. USE OF ELECTRICAL SERVICES BY TENANT. Tenant's use of electrical
services furnished by Landlord shall not exceed, either in voltage, rated
capacity, or overall load that which Landlord deems to be standard for
the Building. In the event Tenant shall request that it be allowed to
consume electrical services in excess of that deemed by Landlord to be
standard for the Building, Landlord may refuse to consent to such usage
or
9
<PAGE>
may consent upon such conditions as Landlord elects (including the
requirement that submeters be installed at Tenant's expense).
12. ENTRY BY LANDLORD. Tenant agrees to permit Landlord or its agents
or representatives to enter into and upon any part of the Premises at all
reasonable hours (and in emergencies at all times, by any means Landlord
may deem proper, and without liability therefor) to inspect the same, or
to show the Premises to prospective purchasers, mortgagees, tenants (only
during the last nine months of the Lease Term) or insurers, or to clean
or make repairs, alterations or additions thereto, and Tenant shall not
be entitled to any abatement or reduction of rent by reason thereof.
13. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign, sublease, transfer or encumber
this Lease or any interest therein or grant any license,
concession or other right of occupancy of the Premises or any
portion thereof or otherwise permit the use of the Premises or any
portion thereof by any party other than Tenant (any of which
events is hereinafter called an "ASSIGNMENT") without the prior
written consent of Landlord. Any such attempted assignment in
violation of the terms and covenants of this Paragraph shall, at
Landlord's option, exercisable in Landlord's sole and absolute
discretion, be void. Consent by Landlord to one or more
assignments shall not operate as a waiver of Landlord's rights as
to any subsequent assignments. In addition, Tenant shall not,
without Landlord's consent, publicly offer to assign the Lease nor
advertise the Lease for assignment in any media, including but not
limited to newspapers, periodicals, radio, television, circulars
or brochures. In the event Tenant or any agent, representative or
broker acting on behalf of Tenant or with Tenant's knowledge
violates the provisions of the foregoing sentence, in addition to
all of the remedies which Landlord may have at law, in equity, or
pursuant to the terms of this Lease, Landlord shall be entitled to
seek injunctive relief preventing such action and Tenant shall be
responsible for all costs incurred by Landlord in connection with
seeking such injunctive relief.
(b) If Tenant requests Landlord's consent to an assignment,
Tenant shall submit to Landlord, in writing, the name of the
proposed assignee and the nature and character of the business of
the proposed assignee, the term, use, rental rate and all other
material terms and conditions of the proposed assignment,
including, without limitation, evidence satisfactory to Landlord
that the proposed assignee is financially responsible. Landlord
shall either (i) consent to or refuse to consent to such
assignment in writing (but no such consent to an assignment shall
relieve Tenant or any guarantor of Tenant's obligations under this
Lease of any liability hereunder), or (ii) negotiate directly with
the proposed assignee and (in the event Landlord is able to reach
agreement with such proposed assignee) upon execution of a lease
with such assignee, terminate this Lease (in part or in whole, as
appropriate) upon ninety (90) days' notice. If Landlord should
fail to notify Tenant in writing of its decision within a thirty
(30) day period after the later of the date Landlord is notified
in writing of the proposed assignment or the date Landlord has
received all required information concerning the proposed assignee
and the proposed assignment, Landlord shall be deemed to have
refused to consent to such assignment, and to have elected to keep
this Lease in full force and effect. In the event Landlord
consents to any such assignment, the assignment shall be on a form
approved by Landlord, and Tenant shall bear all costs and expenses
incurred by Landlord in connection with the review and approval of
such documentation. Landlord will have no right to consent or to
terminate this Lease as a result of any assignment or sublease to
any affiliate of Tenant or to any entity that acquires all or
substantially all of the assets of Tenant provided that the
financial condition of said affiliate is at least equal to that of
Tenant prior to the transfer and provided Tenant gives Landlord
written notice of such action at least thirty (30) days before the
action is taken. Changes in ownership of Tenant shall not be an
assignment and sales of stock in Tenant shall not be considered an
assignment provided that the financial condition of the Tenant
after such sales or changes of ownership is at least as good as
its financial condition prior to such sales or change of
ownership. An "AFFILIATE" shall be defined as an entity that owns
at least fifty-one percent (51%) of the equity and
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voting control of Tenant or an entity of which Tenant owns at
least fifty-one percent (51%) of the equity and voting control.
(c) All cash or other proceeds of any assignment of Tenant's
interest in this Lease and/or the Premises, whether consented to
by Landlord or not, shall be paid to Landlord notwithstanding the
fact that such proceeds exceed the rentals called for hereunder,
unless Landlord agrees to the contrary in writing, and Tenant
hereby assigns all rights it might have or ever acquire in any
such proceeds to Landlord. In addition to the rent hereunder,
Tenant hereby covenants and agrees to pay to Landlord all rent and
other consideration which it receives which is in excess of the
rent payable hereunder within ten (10) days following receipt
thereof by Tenant. This covenant and assignment shall benefit
Landlord and its successors in ownership of the Building and shall
bind Tenant and Tenant's heirs, executors, administrators,
personal representatives, successors and assigns. In addition to
any other rights and remedies which Landlord may have hereunder,
at law or in equity, in the event Tenant has failed to pay any
rent due hereunder on or before five (5) days following the date
on which it is due, Landlord shall have the right to contact any
assignee and require that from that time forward all payments made
pursuant to the assignment shall be made directly to the Landlord.
Any assignee of Tenant's interest in this Lease (all such
assignees being hereinafter referred to as "Successors"), by
occupying the Premises and/or assuming Tenant's obligations
hereunder, shall be deemed to have assumed liability to Landlord
for all amounts paid to persons other than Landlord by such
Successors in consideration of any such assignment in violation of
the provisions hereof Tenant shall pay to Landlord the excess
consideration received only from a non-affiliated sublease or
assignment after Tenant has recouped brokerage commissions and the
costs of Tenant Improvements incurred by Tenant in assigning or
subleasing so that the excess consideration being paid is profit
to Tenant net of the two listed costs. In the case of an
affiliated assignment or sublease, no excess consideration will be
paid to Landlord.
(d) If Tenant is a corporation and if at any time during the
Lease Term the person or persons who own the voting shares at the
time of the execution of this Lease cease for any reason,
including but not limited to merger, consolidation or other
reorganization involving another corporation, to own a majority of
such shares or if Tenant is a partnership and if at any time
during the Lease Term the general partner or partners who own the
general partnership interests in the partnership at the time of
the execution of this Lease, cease for any reason to own a
majority of such interests (except as the result of transfers by
gift, bequest or inheritance to or for the benefit of members of
the immediate family of such original shareholder(s) or
partner(s)), such an event shall be deemed to be an assignment.
The preceding sentence shall not apply whenever Tenant is a
corporation the outstanding stock of which is listed on a
recognized security exchange, or if at least eighty percent (80%)
of its voting stock is owned by another corporation, the voting
stock of which is so listed , or as provided in Paragraph 13(b).
14. MECHANIC'S LIENS. Tenant will not permit any mechanic's liens or
other liens to be placed upon the Premises, the Building, or the Property
and nothing in this Lease shall be deemed or construed in any way as
constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any person for the performance of any labor or
the furnishing of any materials to the Premises, the Building, or the
Property or any part thereof, nor as giving Tenant any right, power, or
authority to contract for or permit the rendering of any services or the
furnishing of any materials that would give rise to any mechanic's or
other liens against the Premises, the Building, or the Property. In the
event any such lien is attached to the Premises, the Building, or the
Property, then, in addition to any other right or remedy of Landlord,
Landlord may, but shall not be obligated to, discharge the same. Any
amount paid by Landlord for any of the aforesaid purposes including, but
not limited to, attorneys fees, shall be paid by Tenant to Landlord
promptly on demand as additional rent. In the event Landlord does consent
to the performance of any labor or the furnishing of any materials to the
Premises, the Building, or the Property by any party, which consent must
be in writing, Tenant shall be responsible for insuring that all such
persons procure and maintain insurance coverage against such risks, in
such amounts and with such companies as Landlord may require, including,
but not limited to, Builder's Risk and Worker's Compensation insurance.
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15. PROPERTY INSURANCE.
(a) Landlord shall maintain fire and extended coverage
insurance on the Building and the Premises in an amount not less
than the full replacement cost of the Building, including parking
areas with a reasonable deductible to be determined by Landlord.
The cost of such insurance shall be included as a part of the
Basic Costs, and payments for losses thereunder shall be made
solely to Landlord or the mortgagees of Landlord as their
interests shall appear.
(b) Tenant shall maintain at its expense, in an amount equal to
full replacement cost, fire and extended coverage insurance on all
of its personal property, including removable trade fixtures and
leasehold and tenant improvements, located in the Premises and in
such additional amounts as are required to meet Tenant's
obligations pursuant to Paragraph 19 hereof. Tenant shall furnish
evidence satisfactory to Landlord of the maintenance and timely
renewal of such insurance, and Tenant shall obtain and deliver to
Landlord a written obligation on the part of each insurer to
notify Landlord at least thirty (30) days prior to the
modification, cancellation or expiration of such insurance
policies. In the event Tenant shall not have delivered to Landlord
a policy or certificate evidencing such insurance at least thirty
(30) days prior to the expiration date of each expiring policy,
Landlord may obtain such insurance as Landlord may reasonably
require to protect Landlord's interest (which obtaining of
insurance shall not be deemed to be a waiver of Tenant's default
hereunder). The cost to Landlord of obtaining such policies, plus
an administrative fee in the amount of fifteen percent (15%) of
the cost of such policies shall be paid by Tenant to Landlord as
additional rent upon demand.
(c) Landlord and Tenant each hereby waives on behalf of itself
and its insurers (none of which shall ever be assigned any such
claim or be entitled thereto due to subrogation or otherwise) any
and all rights of recovery, claim, action, or cause of action,
against the other, its agents, officers or employees, for any loss
or damage that may occur to the Premises, or any improvements
thereto or the Building of which the Premises are a part, or any
improvements thereto, or any personal property of such party
therein, by reason of fire, the elements, or any other cause(s)
which are, or could be, insured against under the terms of the
standard tire and extended coverage insurance policies referred to
in this Paragraph 15, regardless of whether such insurance is
actually maintained and regardless of the cause or origin of the
damage involved, including sole, joint or concurrent, negligence
of the other party hereto, its agents, officers, or employees.
16. LIABILITY AND WORKER'S COMPENSATION INSURANCE.
(a) Tenant and Landlord shall, each at its own expense,
maintain during the term of this Lease a policy or policies of
comprehensive general liability insurance (including endorsement
or separate policy for owned or non-owned automobile liability)
with respect to the respective activities of each in the Building
and on the Property, with the premiums thereon fully paid on or
before the due date, issued by and binding upon an insurance
company or companies reasonably approved by Landlord. Such
insurance shall afford minimum protection of not less than
$1,000,000.00 per occurrence per person coverage for bodily
injury, property damage, personal injury, or combination thereof.
The term "personal injury" herein used means false arrest,
detention or imprisonment, malicious prosecution, wrongful entry,
libel and slander. If only a combined single limit coverage is
available, it shall be for at least $1,000,000.00 per occurrence
with an umbrella policy of at least $5,000,000.00 combined single
limit per occurrence. Tenant's insurance policy shall name
Landlord as an additional insured and shall include coverage for
the contractual liability of Tenant to indemnify Landlord pursuant
to Paragraph 17 of this Lease.
(b) Tenant shall obtain and maintain in force worker's
compensation and employer's liability insurance to cover Tenant's
liability to its employees.
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(c) Landlord and Tenant each hereby waives subrogation on its
behalf and on behalf of its insurer, to the extent subrogation on
a paid claim can be legally waived prior to loss by contract
between the parties, in respect of any payment made by such
insurer under any liability or worker's compensation policy.
Neither Landlord nor Tenant shall be liable to the other or any
insurance company (by way of subrogation or otherwise) insuring
the other party for any loss or damage to any building, structure
or other tangible property, or bodily injury or personal injury,
or any resulting loss of income, or losses from workers'
compensation laws and benefits, even though such loss or damage
might have been occasioned by the negligence of such party, its
agents or employees, if any such loss or damage is covered by
insurance benefiting the party suffering such loss or damage or
was required to be covered by insurance pursuant to this Lease.
(d) Each party shall use its good faith efforts to cause its
general liability, automobile liability and worker's compensation
policies to be endorsed by the issuing insurer waiving rights of
subrogation of such insurer against the other party hereto. The
failure of any insurer to issue such endorsement shall not be
deemed to limit or alter the force and effect of Paragraph 16(c)
of this Lease.
17. INDEMNITY. Neither Landlord or Building Manager nor any of their
respective officers, directors, employees, or agents shall be liable to
Tenant, or to Tenant's agents, servants, employees, customers, licensees,
or invitees for any injury to person or damage to property caused by any
act, omission, or neglect of Tenant, its agents, servants, employees,
customers, invitees, licensees or any other person entering the Building
or upon the Property under the invitation of Tenant or arising out of the
use of the Property, Building or Premises by Tenant and the conduct of
its business or out of a default by Tenant in the performance of its
obligations hereunder. TENANT HEREBY INDEMNIFIES AND HOLDS LANDLORD AND
BUILDING MANAGER AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AND
AGENTS ("INDEMNITEES"), HARMLESS FROM ALL LIABILITY AND CLAIMS FOR ANY
PROPERTY DAMAGE, OR BODILY INJURY OR DEATH OF, OR PERSONAL INJURY TO, A
PERSON IN OR ON THE PREMISES, OR AT ANY OTHER PLACE, INCLUDING THE
PROPERTY OR THE BUILDING, CAUSED, IN WHOLE OR IN PART, BY THE NEGLIGENCE
OR WILLFUL MISCONDUCT OF TENANT, ITS EMPLOYEES, AGENTS, SERVANTS,
CUSTOMERS, INVITEES OR LICENSEES AND THIS INDEMNITY SHALL BE ENFORCEABLE
TO THE FULL EXTENT WHETHER OR NOT SUCH LIABILITY AND CLAIMS ARE THE
RESULT OF THE SOLE, JOINT OR CONCURRENT ACTS, NEGLIGENT OR INTENTIONAL,
OR OTHERWISE, OF TENANT, OR ITS EMPLOYEES, AGENTS, SERVANTS, CUSTOMERS,
INVITEES OR LICENSEES. SUCH INDEMNITY FOR THE BENEFIT OF INDEMNITEES
SHALL BE ENFORCEABLE EVEN IF INDEMNITEES, OR ANY ONE OR MORE OF THEM HAVE
OR HAS CAUSED OR PARTICIPATED IN CAUSING SUCH LIABILITY AND CLAIMS BY
THEIR JOINT OR CONCURRENT ACTS, NEGLIGENT OR INTENTIONAL, OR OTHERWISE.
Landlord will indemnify and hold Tenant harmless from and against any
claims, losses, demands, liabilities, damages, and expenses (including
legal fees) caused by the willful misconduct or gross negligence of
Landlord, its agents, servants, and employees.
18. HAZARDOUS MATERIALS. Tenant represents and warrants that Tenant
and all of its agents, servants, employees, customers, invitees,
licensees or any other persons on or adjacent to the Building for the
purpose of engaging in business or providing services for the Tenant,
shall not (either with or without negligence) cause or permit the escape,
disposal or release of any biologically or chemically active or other
hazardous substances, or material. Tenant shall not allow the storage or
use of such substances or materials in any manner not sanctioned by law
or by the highest standards prevailing in the industry for the storage
and use of such substances or materials, nor allow to be brought into the
Building or onto the Property any such materials or substances except to
use in the ordinary course of Tenant's business, and then only after
written notice is given to Landlord of the identify of such substances or
materials. Without limitation, hazardous substances and materials shall
include those described in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq., any applicable state or local laws and the regulations
adopted under these acts. If any lender or governmental agency shall
ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall
be reimbursed by Tenant to Landlord upon demand as additional charges if
such requirement applies to the Premises. In addition, Tenant shall
execute affidavits, representations and the like from time to time at
Landlord's request concerning Tenant's best knowledge and belief
regarding the presence of hazardous substances or materials on the
Premises. In the event that
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Tenant receives any notice form any governmental authority with regard
to biologically or chemically active or other hazardous material, or
substances on, from or affecting the Building, Tenant shall promptly
notify Landlord. TENANT HEREBY INDEMNIFIES AND HOLDS INDEMNITEES
HARMLESS FROM ALL LIABILITY, ACTIONS, PENALTIES, LIENS AND/OR CLAIMS
ARISING FROM, CAUSED BY, IN WHOLE OR IN PART, BY THE ESCAPE, DISPOSAL,
RELEASE, IMPROPER USE, STORAGE, INSTALLATION OR OTHER ACTION INVOLVING
ANY BIOLOGICALLY OR CHEMICALLY ACTIVE OR HAZARDOUS MATERIALS OR
SUBSTANCES BY THE TENANT, ITS EMPLOYEES, AGENTS, SERVANTS, CUSTOMERS,
INVITEES OR LICENSEES. THIS INDEMNITY SHALL BE ENFORCEABLE TO THE FULL
EXTENT WHETHER OR NOT SUCH LIABILITY AND CLAIMS ARE THE RESULT OF THE
SALE, JOINT OR CONCURRENT SETS, NEGLIGENT OR INTENTIONAL, OR
OTHERWISE, OF TENANT, OR ITS EMPLOYEES, AGENTS, SERVANTS, CUSTOMERS,
INVITEES OR LICENSEES. Landlord shall be responsible, at its cost, and
not as an Operating Expense, to keep the Building free of all
Hazardous Materials, the presence of which was caused by Landlord's
willful misconduct or gross negligence, and indemnifies Tenant from
all loss, liability, damage and expense arisen from the presence of
Hazardous Materials, the presence of which was caused by Landlord's
willful misconduct or gross negligence. Hazardous Materials shall be
deemed not to include materials customarily used by office building
tenants, contractors and vendors in quantities that do not violate
Environmental Laws.
19. EVIDENCE OF INSURANCE. On or before five (5) days following the
date of this Lease, Tenant will cause its insurer(s) to issue and deliver
to Landlord certificate(s) of insurance in the form attached hereto as
EXHIBIT "F" evidencing the existence and coverage of insurance required
herein.
20. CASUALTY DAMAGE. If the Premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written
notice thereof to Landlord. In case the Building shall be so damaged that
substantial alteration or reconstruction of the Building (meaning more
than fifty percent [50%] of the Building) shall, be required (whether or
not the Premises shall have been damaged by such casualty) or in the
event of any material uninsured loss to the Building (meaning more than
fifty percent [50%] of the Building), Landlord may, at its option,
terminate this Lease by notifying Tenant in writing of such termination
within ninety (90) days after the date of such casualty. If Landlord
chooses to complete the repair work, but Landlord cannot reasonably be
expected to substantially complete its repair work within 270 days from
the date on which Landlord determines it will repair, then Tenant may, at
its option, terminate this Lease by notifying Landlord in writing of such
termination within ninety (90) days after the date of such casualty. If
Landlord does not thus elect to terminate this Lease, Landlord shall
commence and proceed with reasonable diligence to restore the Building,
and the improvements located within the Premises, if any, for which
Landlord had financial responsibility pursuant to the Work Letter
Agreement attached hereto as EXHIBIT "D" (except that Landlord shall not
be responsible for delays not within the control of Landlord) to
substantially the same condition in which it was immediately prior to the
happening of the casualty. Notwithstanding the foregoing, Landlord's
obligation to restore the Building, and the improvements located within
the Premises, if any, for which Landlord had financial responsibility
pursuant to the Work Letter Agreement, shall not require Landlord to
expend for such repair and restoration work more than the insurance
proceeds actually received by the Landlord as a result of the casualty
and Landlord's obligation to restore shall be further limited so that
Landlord shall not be required to expend for the repair and restoration
of the improvements located within the Premises, if any, for which
Landlord had financial responsibility pursuant to the Work Letter
Agreement, more than the dollar amount of the Allowance, if any,
described in the Work Letter Agreement. When the repairs described in the
preceding two sentences have been completed by Landlord, Tenant shall
complete the restoration of all improvements, including furniture,
fixtures and equipment, which are necessary to permit Tenant's
reoccupancy of the Premises. Except as set forth above, all cost and
expense of reconstructing the Premises shall be home by Tenant, and
Tenant shall present Landlord with evidence satisfactory to Landlord of
Tenant's ability to pay such costs prior to Landlord's commencement of
repair and restoration of the Premises. Tenant shall not be entitled to
receive any credit or payment with respect to any portion of the
Reconstruction Allowance not actually spent upon restoration of the
Premises. Landlord shall not be liable for any inconvenience or annoyance
to Tenant or injury to the business of Tenant resulting in any way from
such damage or the repair thereof, except that, subject to the provisions
of the next sentence, Landlord shall allow Tenant a fair diminution of
rent during the time and to the extent the Premises are unfit for
occupancy. If the Premises or any other portion of the Building is
damaged by fire or other
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casualty resulting from the fault or negligence of Tenant or any of
Tenant's agents, employees, or invitees, the rent hereunder shall not
be diminished during the repair of such damage and Tenant shall be
liable to Landlord for the cost of the repair and restoration of the
Building caused thereby to the extent such cost and expense is not
covered by insurance proceeds.
21. DAMAGES FROM CERTAIN CAUSES. Landlord shall not be liable to
Tenant for any injury to person or damage to property sustained by Tenant
or any person claiming through Tenant resulting from any accident or
occurrence in the Premises or any other portion of the Building caused by
the Premises or any other portion of the Building becoming out of repair
or by defect in or failure of equipment, pipes, or wiring, or by broken
glass, or by the backing up of drains, or by gas, water, steam,
electricity, or oil leaking, escaping or flowing into the Premises
(except where due to Landlord's willful failure to make repairs required
to be made pursuant to other provisions of this Lease, after the
expiration of a reasonable time after written notice to Landlord of the
need for such repairs), nor shall Landlord be liable to Tenant for any
loss or damage that may be occasioned by or through the acts or omissions
of other tenants of the Building or of any other persons whomsoever,
including, but not limited to riot, strike, insurrection, war, court
order, requisition, order of any governmental body or authority, acts of
God, fire or theft except to the extent caused by Landlord's gross
negligence or willful misconduct and except that Landlord shall
nevertheless be obligated to perform its maintenance, repair and other
obligations under this Lease.
22. CONDEMNATION. If the whole or any substantial part of the Premises
or if the Building or any portion thereof which would leave the remainder
of the Building unsuitable for use as an office building comparable to
its use on the Commencement Date, shall be taken or condemned for any
public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, then Landlord may, at its option, terminate this Lease and the
rent shall be abated during the unexpired portion of this Lease,
effective when the physical taking of said Premises or said portion of
the Building shall occur. In the event this Lease is not terminated, the
rent for any portion of the Premises so taken or condemned shall be
abated during the unexpired term of this Lease effective when the
physical taking of said portion of the Premises shall occur. All
compensation awarded for any such taking or condemnation, or sale
proceeds in lieu thereof, shall be the property of Landlord, and Tenant
shall have no claim thereto, the same being hereby expressly waived by
Tenant, except for any portions of such award or proceeds which are
specifically allocated by the condemning or purchasing party for the
taking of or damage to trade fixtures of Tenant, which Tenant
specifically reserves to itself provided Tenant's award does not diminish
the Landlord's award. If any portion of the Premises, access thereto,
parking, or roof top space shall be taken so as to render a substantial
portion of the Premises unoccupiable for Tenant's business, for five
consecutive business days, Tenant, at Tenant's option, may choose to
abate the Basic Rent on a pro rata basis based on the percent of the
Premises which are unusable after the stated five-day period.
23. EVENTS OF DEFAULT/REMEDIES.
(a) DEFAULT BY TENANT. The occurrence of any one or more of the
following events shall constitute a default by Tenant under this
Lease:
(i) Tenant shall fail to pay to Landlord any Base
Rental, Basic Costs or any other monetary charge due
from Tenant hereunder as and when due and payable;
(ii) Tenant breaches or fails to comply with any term,
provision, condition or covenant of this Lease,
other than as described in Section 23(a)(i), or with
any of the Exhibit H, Building Rules and Regulations
now or hereafter established to govern the operation
of the Building;
(iii) An assignment or subletting by Tenant without the
prior written approval of Landlord except for an
assignment or subletting to an affiliate as set
forth in Section 3(b);
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(iv) The interest of Tenant under this Lease shall be
levied on under execution or other legal process;
(v) Any petition in bankruptcy or other insolvency
proceedings shall be filed by or against Tenant, or
any petition shall be filed or other action taken to
declare Tenant a bankrupt or to delay, reduce or
modify Tenant's debts or obligations or to
reorganize or modify Tenant's capital structure or
indebtedness or to appoint a trustee, receiver or
liquidator of Tenant or of any property of Tenant,
or any proceeding or other action shall be commenced
or taken by any governmental authority for the
dissolution or liquidation of Tenant and, within
thirty (30) days thereafter, Tenant fails to secure
a discharge thereof;
(vi) Tenant shall become insolvent, or Tenant shall make
an assignment for the benefit of creditors, or
Tenant shall make a transfer in fraud of creditors,
or a receiver or trustee shall be appointed for
Tenant or any of its properties;
(vii) Tenant shall desert, abandon or vacate the Premises
or any substantial portion thereof or fails to
operate its business in the Premises for any reason
other than destruction or condemnation of the
Premises without giving Landlord written notice of
Tenant's intention to vacate, desert or abandon at
least ninety (90) days prior to the vacating,
deserting or abandoning, and if Tenant otherwise
fully complies with the terms of the Lease;
(viii) Tenant shall do or permit to be done anything which
creates a lien upon the Premises or the Building; or
the term 'Tenant" as used in this Section 23 shall
be deemed to include any guarantor of or any other
person or entity primarily or secondarily liable
for, any of Tenant's obligations under this Lease.
(b) LANDLORD'S REMEDIES. Upon the occurrence of any default by
Tenant under this Lease and (1) if the event of default described
in Section 23(a)(i) is not cured within five (5) days after
written notice from Landlord of such default, or (2) the events
described in Sections 23(a)(iii), (iv), (v), (vi), (vii), and
(viii) are not cured within thirty (30) days after written notice
from Landlord of such default, or (3) the events described in
Section 23(a)(ii) are not cured within thirty (30) days after
written notice of such failure is given to Tenant, or if such
failure is not reasonably susceptible of being cured within such
thirty (30) day period, Tenant shall fail to commence the curing
thereof within such thirty (30) day period, or having commenced
the curing thereof, Tenant shall fail to diligently pursue the
curing of such default with reasonable diligence to completion,
Landlord shall have the option to do and perform any one or more
of the following in addition to, and not in limitation of, any
other remedy or right permitted it by law or in equity or by this
Lease:
(i) Continue this Lease in full force and effect, and
this Lease shall continue in full force and effect
as long as Landlord does not terminate this Lease,
and Landlord shall have the right to collect Base
Rental, Basic Costs and other charges when due.
(ii) Terminate this Lease, and Landlord may forthwith
repossess the Premises and be entitled to recover as
damages a sum of money equal to the total of (1) the
cost of recovering the Premises, (2) the cost of
removing and storing Tenant's or any other
occupant's property, (3) the unpaid Base Rental,
Basic Costs and any other sums accrued hereunder at
the date of termination, (4) a sum equal to the
amount, if any, by which the present value of the
total Base Rental, Basic Costs and other benefits
which would have accrued to Landlord under this
Lease for the remainder of the Lease Term, if the
terms of this Lease had been fully complied with by
Tenant, discounted at five percent (5%) per annum
exceeds the total fair market value of the
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Premises for the balance of the Lease Term (it
being the agreement of the parties hereto that
Landlord shall receive the benefit of its
bargain), (5) the cost of relating the Premises
including, without limitation, the cost of
restoring the Premises to the condition necessary
to rent the Premises at the prevailing market
rental rate, normal wear and tear expected, (6)
any increase in insurance premiums caused by the
vacancy of the Premises, (7) the amount of any
unamortized improvements to the Premises paid for
by Landlord, (8) the amount of any unamortized
brokerage commission or other costs paid by
Landlord in connection with the leasing of the
Premises and (9) any other sum of money or
damages owed by Tenant to Landlord. In the event
Landlord shall elect to terminate this Lease,
Landlord shall at once have all the rights of
reentry upon the Premises, without becoming
liable for damages, or being guilty of trespass.
(iii) Terminate Tenant's right of occupancy of the
Premises and reenter and repossess the Premises by
entry, forcible entry or detainer suit or otherwise,
without demand or notice of any kind to Tenant and
without terminating this Lease, without acceptance
of surrender of possession of the Premises, and
without becoming liable for damages or guilty of
trespass, in which event Landlord may, but shall be
under no obligation (except as may be required by
applicable law), to relet the Premises or any part
thereof for the account of Tenant (nor shall
Landlord be under any obligation to relet the
Premises before Landlord relets; or leases any other
portion of the Building or any other property under
the ownership or control of Landlord) for a period
equal to or lesser or greater than the remainder of
the Lease Term of the Lease on whatever terms and
conditions Landlord, at Landlord's sole discretion,
deems advisable. Tenant shall be liable for and
shall pay to Landlord all Base Rental and Basic
Costs payable by Tenant under this Lease (plus
interest at the past due rate provided in Section
5(b) of this Lease if in arrears) plus an amount
equal to (1) the cost of recovering possession of
the Premises, (2) the cost of removing and storing
any of Tenant's or any other occupant's property
left on the Premises or in the Building after
reentry, (3) the cost of decorations, repairs,
changes, alterations and additions to the Premises
and the Building, (4) the cost of any attempted
reletting or reletting and the collection of the
rent accruing from such reletting, (5) the cost of
any brokerage fees or commissions payable by
Landlord in connection with any reletting or
attempted reletting, (6) any other costs incurred by
Landlord in connection with any such reletting or
attempted reletting, (7) the cost of any increase in
insurance premiums caused by the termination of
possession of the Premises, (8) the cost of any
increase in insurance premiums caused by the
termination of possession of the Premises, (9) the
amount of any unamortized improvements to the
Premises paid for by Landlord, (10) the amount of
any unamortized brokerage commissions or other costs
paid by Landlord in connection with the leasing of
the Premises and (11) any other sum of money or
damages owed by Tenant to Landlord at law, in equity
or hereunder, all reduced by any sums received by
Landlord through any reletting of the Premises;
PROVIDED, HOWEVER, that in no event shall Tenant be
entitled to any excess of sums obtained by reletting
over and above Base Rental and Basic Costs provided
in this Lease to be paid by Tenant to Landlord. For
the purposes of such reletting Landlord is
authorized to decorate or to make any repairs,
changes, alterations or additions in or to the
Premises that may be necessary. Landlord may file
suit to recover sums falling due under the terms of
this Section 23(b)(iii) from time to time, and no
delivery to or recovery by Landlord of any portion
due Landlord hereunder shall be any defense in any
action to recover any amount not theretofore reduced
to judgment in favor of Landlord. No reletting shall
be construed as an election on the part of Landlord
to terminate this Lease unless in favor of Landlord.
No reletting shall be construed as an election on
the part of Landlord to terminate this Lease unless
a written notice of such intention is given to
Tenant by
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Landlord. Notwithstanding any such reletting
without termination, Landlord may at any time
thereafter elect to terminate this Lease for such
previous default and/or exercise its other rights
under this Lease.
(iii) Enter upon the Premises and do whatever Tenant is
obligated to do under this Lease; and Tenant agrees
to reimburse Landlord on demand for any expenses
which Landlord may incur in effecting compliance
with Tenant's obligations under this Lease plus
fifteen percent ( 15%) of such cost to cover
overhead plus interest at the past due rate provided
in this Lease, and Tenant further agrees that
Landlord shall not be liable for any damages
resulting to Tenant from such action. No action
taken by Landlord under this Section 23(b)(iv) shall
relieve Tenant from any of its obligations under
this Lease or from any consequences or liabilities
arising from the failure to perform such
obligations.
(iv) Without waiving such default, apply all or any part
of the Security Deposit and/or any unapplied Prepaid
Rental to cure the default or to any damages
suffered as a result of the default to the extent of
the amount of damages suffered. Tenant shall
reimburse Landlord for the amount of such depletion
of the Security Deposit and/or any Prepaid Rental on
demand.
(v) Change all door locks and other security devices of
Tenant at the Premises and/or Building, and Landlord
shall not be required to provide the new key to the
Tenant except during Tenant's regular business
hours, and only upon the condition that Tenant has
cured any and all defaults hereunder and in the case
where Tenant owes Base Rental and/or Basic Costs, or
any other sums under this Lease to the Landlord,
reimbursed Landlord for all Base Rental and Basic
Costs and other sums due Landlord hereunder.
Landlord, on terms and conditions satisfactory to
Landlord in its sole discretion, may upon request
from Tenant's employees, enter the Premises for the
purpose of retrieving therefrom personal property of
such employees, provided, Landlord shall have no
obligation to do so.
(vi) Exercise any and all other remedies available to
Landlord in this Lease, at law or in equity.
24. TENANT REMEDIES. Except to the extent specifically provided
herein, Tenant shall not have the right to an abatement of rent or to
terminate this Lease as a result of Landlord's default as to any covenant
or agreement contained in this Lease or as a result of the breach of any
promise or inducement in connection herewith, whether in this Lease or
elsewhere and Tenant hereby waives such remedies of abatement of rent and
termination. Tenant hereby agrees that Tenant's remedies for default
hereunder or in any way arising in connection with this Lease including
any breach of any promise or inducement or warranty, express or implied,
shall be limited to:
(a) A suit for direct and proximate damages provided that
Tenant has given the notices as hereinafter required.
Notwithstanding anything to the contrary contained in this Lease,
the liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease shall be limited to the interest of
Landlord in the Building and the Property and Tenant agrees to
look solely to Landlord's interest in, the Building and the
Property for the recovery of any judgment against the Landlord, it
being intended that Landlord shall not be personally liable for
any judgment or deficiency. Tenant hereby covenants that, prior to
the filing of any suit for direct and proximate damages, it shall
give Landlord and all mortgagees whom Tenant has been notified
hold mortgages or deed of trust liens on the Property, Building or
Premises ("LANDLORD'S MORTGAGEES") notice and reasonable time to
cure any alleged default by Landlord.
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(b) In the event Landlord fails to commence the cure of a
material default of any material covenant or agreement contained
in this Lease within sixty (60) days following receipt of notice
specifying such alleged default from Tenant by both Landlord and
Landlord's mortgagees, equitable abatement of the Base Rental and
other rent due hereunder to the extent reasonably necessary to
adjust for any inconvenience occasioned by Landlord's failure to
theretofore commence the cure of such default.
The rights of Tenant pursuant to this Section shall be subject to (and,
if applicable, Tenant shall have the benefit of) the express provisions
of this Lease, if any, providing for remedies different from, and in
exclusion of, the remedies above-described. For example, the foregoing
notice and grace periods shall not apply to Tenant's right to abate rent
or terminate this Lease for utility interruptions. Landlord's interest in
the Building and the Property shall include all insurance proceeds and
condemnation awards, subject to the claims of other tenants.
25. NO WAIVER. Failure of Landlord to declare any default immediately
upon its occurrence, or delay in taking any action in connection with an
event of default, shall not constitute a waiver of such default, nor
shall it constitute an estoppel against Landlord, but Landlord shall have
the right to declare the default at any time and take such action as is
lawful or authorized under this Lease. Failure by Landlord to enforce its
rights with respect to any one default shall not constitute a waiver of
its rights with respect to any subsequent default. Receipt by Landlord of
Tenant's keys to the Premises shall not constitute an acceptance of
surrender of the Premises.
26. EVENT OF BANKRUPTCY. In addition to, and in no way limiting the
other remedies set forth herein Landlord and Tenant agree that if Tenant
ever becomes the subject of a voluntary or involuntary bankruptcy,
reorganization, composition, or other similar type proceeding under the
federal bankruptcy laws, as now enacted or hereinafter amended, then:
(a) "ADEQUATE PROTECTION" of Landlord's interest in the
Premises pursuant to the provisions of Section 361 and 363 (or
their successor sections) of the Bankruptcy Code, 11 U.S.C.
Paragraph 101, ET SEQ. (such Bankruptcy Code as amended from time
to time being herein referred to as the "Bankruptcy Code"), prior
to assumption and/or assignment of the Lease by Tenant shall
include, but not be limited to all (or any part) of the following:
(i) the continued payment by Tenant of the Base Rental
and all other rent due and owing hereunder and the
performance of all other covenants and obligations
hereunder by Tenant;
(ii) the hiring of security guards to protect the
Premises if Tenant abandons and/or ceases
operations; such obligation of Tenant only to be
effective so long as Tenant remains in possession
and control of the Premises to the exclusion of
Landlord;
(iii) the furnishing of an additional/new security deposit
by Tenant in the amount of three (3) times the
then-current monthly Base Rental and other rent
payable hereunder.
(b) "ADEQUATE ASSURANCE OF FUTURE PERFORMANCE" by Tenant and/or
any assignee of Tenant pursuant to Bankruptcy Code Section 365
will include (but not be limited to) payment of an additional/new
Security Deposit in the amount of three (3) times the then-current
monthly Base Rental and monthly escrow for Basic Costs payable
hereunder.
(c) Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be deemed
without further act or deed to have assumed all of the obligations
of Tenant arising under this Lease on and after the effective date
of such assignment. Any such assignee shall, upon demand by
Landlord, execute and deliver to Landlord an instrument confirming
such assumption of liability.
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(d) Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of the Landlord under
this Lease, whether or not expressly denominated as "rent", shall
constitute "rent" for the purposes of Section 502(b)(6) of the
Bankruptcy Code.
(e) If this Lease is assigned to any person or entity pursuant
to the provisions of the Bankruptcy Code, any and all monies or
other considerations payable or otherwise to be delivered to
Landlord (including Base Rentals and other rent hereunder), shall
be and remain the exclusive property of Landlord and shall not
constitute property of Tenant or of the bankruptcy estate of
Tenant. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or
delivered to Landlord shall be held in trust by Tenant or Tenant's
bankruptcy estate for the benefit of Landlord and shall be
promptly paid to or turned over to Landlord.
(f) If Tenant assumes this Lease and proposes to assign the
same pursuant to the provisions of the Bankruptcy Code to any
person or entity who shall have made a bona fide offer to accept
an assignment of this Lease on terms acceptable to the Tenant,
then notice of such proposed offer/assignment, setting forth (i)
the name and address of such person or entity; (ii) all of the
terms and conditions of such offer, and (iii) the adequate
assurance to be provided Landlord to assure such person's or
entity's future performance under the Lease, shall be given to
Landlord by Tenant no later than twenty (20) days after receipt by
Tenant, but in any event no later than ten (10) days prior to the
date that Tenant shall make application to a court of competent
jurisdiction for authority and approval to enter into such
assumption and assignment, and Landlord shall thereupon have the
prior right and option, to be exercised by notice to Tenant given
at any time prior to the effective date of such proposed
assignment, to accept an assignment of this Lease upon the same
terms and conditions and for the same consideration, if any, as
the bona fide offer made by such persons or entity, less any
brokerage commission which may be payable out of the consideration
to be paid by such person for the assignment of this Lease.
(g) To the extent permitted by law, Landlord and Tenant agree
that this Lease is a contract under which applicable law excuses
Landlord from accepting performance from (or rendering performance
to) any person or entity other than Tenant within the meaning of
Sections 365(c) and 365(e)(2) of the Bankruptcy Code.
27. PEACEFUL ENJOYMENT. Tenant shall, and may peacefully have, hold,
and enjoy the Premises, subject to the other terms hereof, provided that
Tenant pays the rent and other sums herein recited to be paid by Tenant
and performs all of Tenant's covenants and agreements herein contained.
This covenant and any and all other covenants of Landlord shall be
binding upon Landlord and its successors only with respect to breaches
occurring during its or their respective periods of ownership of the
Landlord's interest hereunder.
28. SUBSTITUTION. Landlord shall be entitled to cause Tenant to
relocate from suite number 250 of the Premises to a comparable space with
comparable improvements (the "RELOCATION SPACE") within the Building at
any time upon prior written notice to Tenant. The reasonable costs
actually incurred in connection with the physical relocation of the
Tenant to the Relocation Space shall be at the expense of Landlord or the
third party tenant replacing Tenant in suite 250 of the Premises and all
other costs, if any, involved with such relocation shall be borne by
Tenant. Such a relocation shall not terminate or otherwise affect or
modify this Lease except that from and after the date of such relocation,
"Premises" shall refer to the rest of the Premises not affected by this
Paragraph 28 and the Relocation Space into which Tenant has been moved,
rather than the original Premises as herein defined and the Base Rental
shall be adjusted so that immediately following such relocation the Base
Rental for the Relocation Space on a per square foot of Rentable Area
basis shall be the same as the Base Rental immediately prior to such
relocation for suite 250 of the Premises on a per square foot of Rentable
Area basis.
29. HOLDING OVER. In the event of holding over by Tenant after
expiration or other termination of this Lease or in the event Tenant
continues to occupy the Premises after the termination of Tenant's right
of
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possession pursuant to Paragraph 22(b) hereof, Tenant shall,
throughout the entire holdover period, pay rent equal to 1.5 times the
sum of the Base Rental plus the additional rent which would have been
applicable had the term of this Lease continued through the period of
such holding over by Tenant. No holding over by Tenant or payments of
money by Tenant to Landlord after the expiration of the term of this
Lease shall be construed to extend the term of this Lease or prevent
Landlord from recovery of immediate possession of the Premises by summary
proceedings or otherwise unless Landlord has sent written notice to
Tenant that Landlord has elected to extend the term of the Lease. Tenant
shall be liable to Landlord for all damage, including any consequential
damage, which Landlord may suffer by reason of any holding over by Tenant
and Tenant shall indemnify Landlord against any and all claims made by
any other tenant or prospective tenant against Landlord for delay by
Landlord in delivering possession of the Premises to such other tenant or
prospective tenant. Nothing in this Paragraph or elsewhere in this Lease
shall be construed as Landlord granting Tenant permission to holdover,
which permission is denied unless Landlord agrees otherwise in writing
prior to the end of the Lease Term.
30. SUBORDINATION TO MORTGAGE. This Lease and all rights and interests
of Tenant hereunder are subject and subordinate to any mortgage, deed of
trust or other lien presently existing or hereafter arising upon the
Premises, or upon the Building and/or the Property, and to any renewals,
modifications, refinancings and extensions thereof, but Tenant agrees
that any such mortgagee shall have the right at any time to subordinate
such mortgage, deed of trust or other lien to this Lease on such terms
and subject to such conditions as such mortgagee may deem appropriate in
its discretion; provided, however, that this Lease shall not be
subordinate to any mortgage, ground lease, or master lease unless Tenant
receives a non-disturbance agreement in a form agreeable to Landlord and
to its tender and Tenant. Landlord will use reasonable efforts to obtain
a non-disturbance agreement from all existing mortgage holders. This
clause shall be self-operative and no further instrument of subordination
shall be required. However, Landlord is hereby irrevocably vested with
full power and authority to subordinate this Lease to any first mortgage,
first deed of trust or other lien now existing or hereafter placed upon
the Premises, or the Building and/or the Property and Tenant agrees upon
demand to execute such further instruments subordinating this Lease or
attorning to the holder of any such liens as Landlord may request. Tenant
further agrees upon request by the holder of any such mortgage, deed of
trust or other lien, before or after the institution of any proceedings
for the foreclosure of any such mortgage, deed of trust or other lien (or
deed in lieu of foreclosure) to attorn to such purchaser upon any such
foreclosure (or deed in lieu thereof) and to recognize such purchaser as
Landlord under this Lease. The agreement of Tenant to attorn upon request
in the immediately preceding sentence shall survive any foreclosure sale
or deed in lieu of foreclosure. Notwithstanding the foregoing, Tenant
shall have no obligation to attorn unless Tenant has previously received
a non-disturbance agreement satisfactory to Landlord and its lender. In
the event that Tenant should fail to execute any subordination or other
agreement required by this Paragraph promptly as requested, Tenant hereby
irrevocably constitutes Landlord as its attorney-in-fact to execute such
instrument in Tenant's name, place and stead, it being agreed that such
power is one coupled with an interest in Landlord and is accordingly
irrevocable. Tenant agrees that it will from time to time upon request by
Landlord execute and deliver to such persons as Landlord shall request a
statement in recordable form certifying that this Lease is unmodified and
in full force and effect (or if there have been modifications, that the
same is in full force and effect as so modified), stating the dates to
which rent and other charges payable under this Lease have been paid,
stating that Landlord is not in default hereunder (or if Tenant alleges a
default stating the nature of such alleged default) and further stating
such other matters as Landlord shall reasonably require.
31. ATTORNEY'S FEES. In the event either party defaults in the
performance of any of the terms of this Lease and the other party employs
an attorney in connection therewith, the defaulting party agrees to pay
the prevailing party's reasonable attorneys' fees.
32. NOTICE. Any notice in this Lease provided for must, unless
otherwise expressly provided herein, be in writing, and may, unless
otherwise in this Lease expressly provided, be given or be served by
sending via a nationally recognized overnight courier service, by
depositing the same in the United States mail, postage paid and certified
with return receipt requested, or by prepaid telegram, when appropriate,
addressed to the
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party to be notified at the address stated in this Lease or such other
address notice of which has been given to the other party or by
delivering the same in person to such party or an officer or partner of
such party. Notice deposited in the mail in the mariner hereinabove
described shall be effective as of the date it is so deposited. Notice
sent via courier shall be effective on the date deposited with the
courier.
33. SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be
valid and enforced to the fullest extent permitted by law.
34. RECORDATION. Tenant agrees not to record this Lease or any
memorandum hereof.
35. GOVERNING LAW. This Lease and the rights and obligations of the
parties hereto shall be interpreted, construed, and enforced in
accordance with the laws of the State of Texas.
36. FORCE MAJEURE. Whenever a period of time is herein prescribed for
the taking of any action by Landlord, Landlord shall not be liable or
responsible for, and there shall be excluded from the computation of such
period of time, any delays due to strikes, riots, acts of God, shortages
of labor or materials, war, governmental laws, regulations or
restrictions, or any other cause whatsoever beyond the control of
Landlord.
37. TIME OF PERFORMANCE. Except as expressly otherwise herein
provided, with respect to all required acts of Tenant, time is of the
essence of this Lease.
38. TRANSFERS BY LANDLORD. Landlord shall have the right to transfer
and assign, in whole or in part, all of its rights and obligations
hereunder and in the Building and Property referred to herein, and in
such event and upon such transfer Landlord shall be released from any
further obligations hereunder, and Tenant agrees to look solely to such
successor in interest of Landlord for the performance of such
obligations.
39. COMMISSIONS. Landlord and Tenant hereby indemnify and hold each
other harmless against an), loss, claim, expense or liability with
respect to any commissions or brokerage fees claimed on account of the
execution and/or renewal of this Lease due to any action of the
indemnifying party. Landlord shall pay the commissions of The Staubach
Company under the terms of a separate agreement.
40. JOINT AND SEVERAL LIABILITY. If there is more than one Tenant, or
if the Tenant as such is comprised of more than one person or entity, the
obligations hereunder imposed upon Tenant shall be joint and several
obligations of all such parties.
41. AUTHORITY. In the event Tenant is a corporation (including any
form of professional association), partnership (general or limited), or
other form of organization other than an individual, then each individual
executing or attesting this Lease on behalf of Tenant hereby covenants,
warrants and represents: (i) that such individual is duly authorized to
execute or attest and deliver this Lease on behalf of Tenant in
accordance with the organizational documents of Tenant; (ii) that this
Lease is binding upon Tenant; (iii) that Tenant is duly organized and
legally existing in the state of its organization, and is qualified to do
business in the State of Texas; (iv) that upon request, Tenant will
provide Landlord with true and correct copies of all organizational
documents of Tenant, and any amendments thereto; and (v) that the
execution and delivery of this Lease by Tenant will not result in any
breach of, or constitute a default under any mortgage, deed of trust,
lease, loan, credit agreement, partnership agreement or other contract or
instrument to which Tenant is a party or by which Tenant may be bound, If
Tenant is a corporation, Tenant will, prior to the Commencement Date,
deliver to Landlord a copy of a resolution of Tenant's board of directors
authorizing or ratifying the execution and delivery of this Lease, which
resolution will be duly certified to Landlord's satisfaction by the
secretary or assistant secretary of Tenant.
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42. FINANCIAL CONDITION OF TENANT. Tenant acknowledges that the
financial capability of Tenant to perform its obligations hereunder is
material to Landlord and that Landlord would not enter into this Lease
but for its belief, based on its review of Tenant's financial statements,
that Tenant is capable of performing such financial obligations. Tenant
hereby represents, warrants and certifies to Landlord that its financial
statements are true and correct in all material respects.
43. EFFECT OF DELIVERY OF THIS LEASE. Landlord has delivered a copy of
this Lease to Tenant for Tenant's review only, and the delivery hereof
does not constitute an offer to Tenant or option. This Lease shall not be
effective until an original of this Lease executed by both Landlord and
Tenant.
44. ENTIRE AGREEMENT. This Lease Agreement, including the following
Exhibits:
EXHIBIT "A" - [Intentionally Omitted]
EXHIBIT "B" - Outline and Location of Premises
EXHIBIT "C" - Payment of Excess Basic Cost
EXHIBIT "D" - Work Letter Agreement
EXHIBIT "D-1" - Building Standard Materials
EXHIBIT "D-2" - Tenant Improvement Allowance
EXHIBIT "E" - Parking
EXHIBIT "F" - Certificate of Insurance for Tenant
EXHIBIT "G" - [Intentionally Omitted]
EXHIBIT "H" - Rules and Regulations
EXHIBIT "I" - Renewal Option
EXHIBIT "J" - Right of First Refusal
EXHIBIT "K" - Roof License Agreement
constitute the entire agreement between the parties hereto with respect
to the subject matter of this Lease. Tenant expressly acknowledges and
agrees that Landlord has not made and is not making, and Tenant, in
executing and delivering this Lease, is not relying upon, any warranties,
representations, promises or statements, except to the extent that the
same are expressly set forth in this Lease. All understandings and
agreements heretofore had between the parties are merged in this Lease
which alone fully and completely expresses the agreement of the parties,
neither party relying upon any statement or representation not embodied
in this Lease.
45. ROOF ACCESS. Tenant shall be provided access to the roof of the
Building to install two communications antennae or dishes as set forth in
EXHIBIT "K" - "ROOF LICENSE AGREEMENT" which is attached as part of this
Lease, provided that such equipment is substantially screened and not
obviously visible to the general public.
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Landlord and Tenant have executed this Lease in multiple original
counterparts as of the day and year first above written.
TENANT: LANDLORD:
OBJECTSPACE, INC., a Texas Corporation BROOKDALE INVESTORS, L.P.
a Delaware limited partnership
By: Brookdale Partners,
L.L.C., a Georgia
limited liability
company, its sole
general partner
By: /s/ JOHN W. PRITCHETT By: /s/ FRED H. HENRITZE
Name: John W. Pritchett Name: Fred H. Henritze
Title: Vice President Title: Manager
Date: 9/5/97
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EXHIBIT "B"
OUTLINE AND LOCATION OF PROPERTY
[FLOOR PLAN]
<PAGE>
EXHIBIT "C"
PAYMENT OF EXCESS BASIC COSTS
The Base Rental payable hereunder shall be adjusted upward from time to
time in accordance with the following provisions:
1. Tenant's Base Rental is based, in part, upon an Expense Base
(herein so called) equal to the actual per square foot operating expenses
for the Building for calendar year 1998. Tenant shall, during the Lease
Term, pay as an adjustment to Base Rental hereunder an amount (per each
square foot of Rentable Area within the Premises) equal to the excess
('Excess"), if any, from time to time of actual Basic Costs per square
foot per year for the Rentable Area in the Building over the Expense
Base. Prior to January I of each calendar year during Tenant's occupancy
or as soon thereafter as practical, Landlord shall make a good faith
estimate of the Excess for each upcoming calendar year and, upon prior
written notice to Tenant, may require the monthly payment of Base Rental
to be adjusted in accordance with such estimate. Landlord shall have the
right from time to time during any such calendar year to revise the
estimate of the Excess for such year and provide Tenant with a revised
statement therefor, and thereafter the amount Tenant shall pay each month
shall be based upon such revised estimate. Any amounts paid based on any
estimate shall be subject to adjustment pursuant to Paragraph 2 below
when actual Basic Costs are available for such calendar year.
2. As soon as is practical following the era of each calendar year
during Tenant's occupancy Landlord shall famish to Tenant a statement of
Landlord's actual Basic Costs for the previous calendar year. If for any
calendar year additional Base Rental collected for the prior year, as a
result of Landlord's estimate of Basic Costs, is in excess of the
additional Base Rental actually due during such prior year, then Landlord
shall refund to Tenant any overpayment (or at Landlord's option, apply
such amount against rentals due or to become due hereunder). Likewise,
Tenant shall pay to Landlord, on demand, any underpayment with respect to
the prior year whether or not the Lease has terminated prior to receipt
by Tenant of a statement for such underpayment.
3. Tenant or Tenant's independent accountant, at its expense, shall
have the right no more frequently than once per calendar year, following
thirty (30) days prior written notice to Landlord, to audit Landlord's
books and records relating to Basic Costs at Landlord's office during
Normal Business Hours. Tenant shall have the right to audit the then
current and the immediately preceding accounting year if not previously
audited. If the audit reveals that Landlord's statement of Basic Costs
was more than five percent (5%) in error, subject to Landlord's right to
contest, Landlord will pay the costs of the audit up to an amount equal
to the amount of Landlord's accounting error to Tenant's detriment.
4. "BASIC COSTS" shall mean all direct and indirect costs and
expenses incurred in each calendar year in connection with
operating, maintaining, repairing, managing and owning the
Building and the Property, including, without limitation, the
following:
(a) All labor costs for Landlord's employees (only at the level
of Building manager and below as reasonably allocated on the time
actually spent on the Building as opposed to other projects)
performing services required or utilized in connection with the
operation, repair and maintenance of and control of access to the
Building and the Property, including but not limited to amounts
incurred for wages, salaries and other compensation for services,
payroll, social security, unemployment and other similar taxes,
workmen's compensation insurance, disability benefits, pensions,
hospitalization, and retirement plans and group insurance.
(b) All management fees (not to exceed market management fees),
the cost of maintaining a management office at the Building, and
all fees for legal and accounting services relating to the
Building and the Property.
(c) All rental and/or purchase costs of materials, supplies, hand
tools and equipment used in the operation, repair, replacement and
maintenance and the control of access to the Building and the
Property.
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(d) All amounts charged to Landlord by contractors and/or
suppliers for services, materials, equipment and supplies
furnished in connection with the operation, repair, maintenance,
replacement of and control of access to any part of the Building,
the plazas, the garage, and the sidewalks adjoining the Building,
if any, or the Property generally, and the heating, air
conditioning, ventilating, plumbing, electrical, elevator and
other systems of the Building and the garage.
(e) All premiums paid by Landlord for fire and extended coverage
insurance, earthquake and extended coverage insurance, liability
and extended coverage insurance and other insurance customarily
carried from time to time by lessors of comparable office
buildings or required to be carried by Landlord.
(f) Charges for all utilities including but not limited to water,
sewer and electricity, but excluding those charges for which
tenants are individually responsible.
(g) Taxes, including (i) all real estate taxes and assessments on
the Property, the Building or the Premises, and taxes and
assessments levied in substitution or supplementation in whole or
in part of such taxes, (ii) all personal property taxes for the
Building's personal property, including license expenses, (iii)
all taxes imposed on services of Landlord's agents and employees,
and (iv) all other taxes, fees or assessments now or hereafter
levied by any governmental authority on the Property, the Building
or its contents or on the operation and use thereof (except as
relate to specific tenants), but excluding income taxes and
franchise taxes.
(h) All landscape expenses and costs of repairing, resurfacing
and striping of the parking areas of the Property.
(i) Cost of all maintenance service agreements for equipment,
alarm service, window cleaning, drapery or venetian blind
cleaning, janitorial services, pest control, uniform supply,
landscaping, and parking equipment.
(j) Cost of all other repairs, replacements and general
maintenance of the Property and Building neither specified above
nor directly billed to tenants.
(k) Amortization of all capital improvements or repairs made to
the Building or parking garage subsequent to the Commencement Date
which are primarily for the purpose of reducing operating expense
costs but only to the extent of the reduction or otherwise
improving the operating efficiency of the Building or which are
required to comply with any change in the laws, rules or
regulations of any governmental authority with respect only to
laws becoming effective after the date hereof or which will extend
the life of the Building, the cost of such items to be amortized
over a period of at least five (5) years.
(1) Operating Costs of the Exterior Common Areas. "EXTERIOR
COMMON AREAS" shall mean those areas of the Property which are
riot located within the Building and its immediate proximity and
which are provided and maintained for the common use and benefit
of Landlord and tenants of the Building generally and the
employees, invitees and licensees of Landlord and such tenants,
including, without limitation, sidewalks and landscapes.
Basic Costs shall not include the cost of capital improvements (except as above
set forth), depreciation, interest, lease commissions, and principal payments on
mortgage and other non-operating debts of Landlord. Basic Costs shall not
include: (i) costs of repairs, restoration, replacement or other work occasioned
by the exercise by a governmental authority of the right of eminent domain; (H)
attorney's fees, costs, disbursements and other expenses incurred in connection
with negotiations or disputes with tenants, prospective tenants, consultants,
management agents, purchasers or mortgagees of the Building; (iii) allowances,
concessions and other costs and expenses incurred in completing, renovating or
otherwise improving, decorating or redecorating space for tenants, or
prospective tenants, or vacant, leasable space in the Building; (iv) any cost
that should be capitalized in accordance with generally accepted accounting
principles except capital improvements made to (a) reduce operating expenses
base in an annual amortization including interest over the estimated useful
life, not to exceed the actual cost savings,
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(b) nonstructural capital improvements made by Landlord to comply with
changes in laws after the date hereof, and (c) improved security for the
Building, all amortized on a straight-line basis, including interest; (v)
rental payments made under any ground or underlying lease or leases; (vi)
costs incurred in connection with the sale, financing, refinancing,
mortgaging, selling or change of ownership of the Building; (vii) costs or
expenses of utilities directly metered to tenants of the Building and payable
separately by such tenants and costs of additional, above-standard electrical
equipment installed in premises of other tenants of the Building and costs of
electricity consumed through such additional electrical equipment, whether or
not such costs are payable by such other tenants; (viii) costs of repairs,
restoration, replacements or other work occasioned by the gross negligence or
intentional tort of Landlord, or any representative, employee, agent or
affiliate of Landlord; (ix) costs of repairing, replacing or otherwise
correcting defects in construction of the Building other than repairs or
maintenance as required in Paragraph 7 hereof, the Tenant Improvements, the
leasehold improvements of other tenants of the Building, or in the Building
equipment; (x) costs incurred to correct violations by Landlord of any law,
rule, order or regulation which was in effect as of the date hereof, (xi)
costs of Landlord's general corporate overhead and general administrative
expense, organizational fees, and partnership expenses; (xii) costs of
restoration or repair paid by insurance, condemnation, third parties or
tenants (including deductible amounts to paid); and (xiii) costs which would
be included in Basic Costs which are paid to any affiliate of Landlord to the
extent such costs exceed market rates for such services. If Landlord should
receive more than one hundred percent 100%) of Basic Costs, Landlord shall
pay Tenant (in the form of a credit against Rent next due or, upon expiration
of this Lease, in the form of Landlord's check) Tenant's shares of such
excess. Basic Costs will be calculated in years subsequent to 1997 in a
manner substantially consistent with the calculations made in 1997, including
the application of the gross-up provision.
5. Notwithstanding any language in the Lease seemingly to the contrary, if
the Building is not fully occupied or is receiving less than fully occupied
Building services during any calendar year of the Lease Term, actual Basic Costs
and the Excess for purposes of this Exhibit "C" shall be determined as if the
Building had been fully occupied and receiving full Building services during
such year. Only Basic Costs that vary with occupancy shall be grossed up as
described above. Basic Costs that do not vary with occupancy, such' as taxes,
insurance, repairs and maintenance shall not be grossed up.
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EXHIBIT "D"
WORK LETTER AGREEMENT
This Work Letter Agreement supplements and is hereby incorporated in that
certain lease (hereinafter referred to as the "Lease") dated and executed
concurrently herewith by and between Brookdale Investors, L.P. (hereinafter
referred to as "Landlord") and ObjectSpace, Inc., a Texas Corporation
(hereinafter referred to as "Tenant") with the terms defined in the Lease to
have the same definition where used herein.
1. The Premises are leased to Tenant in their "AS IS" condition and this
Work Letter Agreement is intended to set forth the obligations of
Landlord and Tenant with respect to the preparation of the Premises for
Tenant's occupancy. All improvements described in this Work Letter
Agreement to be constructed in and upon the Premises are hereinafter
referred to as the "Tenant Improvements." It is agreed that construction
of the Tenant Improvements will be completed in accordance with the
procedures set forth in this Work Letter Agreement.
2. Tenant shall devote such time in consultation with Landlord or
Landlord's agent as may be required to provide all necessary information
to Landlord or Landlord's agent as Landlord deems necessary in order to
enable Landlord to complete, and obtain Tenant's written approval of, the
final layout, drawings, and plans for the Premises. All of Tenant's plans
and specifications shall be subject to Landlord's consent, the granting
or denial of which shall be in Landlord's sole discretion.
3. Space planning and construction drawings, and when deemed necessary
by Landlord, engineering drawings, shall be prepared by Landlord's
architect. Unless otherwise provided in EXHIBIT "D-2", Tenant shall pay
for space planning services, for Landlord's standard construction and
engineering drawings covering Landlord's Building Standard materials as
defined in EXHIBIT "D-1", and for any nonstandard construction and
engineering drawings, or any additional costs for drawings occasioned by
special installation other than Building Standard. Tenant may pay for
such services out of the Allowance, if any, provided in EXHIBIT "D-2".
Tenant shall furthermore be responsible for the design, function and
maintenance of all special improvements, whether installed by Landlord at
Tenant's request or installed by Tenant with Landlord's prior written
approval. Tenant shall use the Building Standard materials unless other
materials are expressly approved in writing by Landlord.
4. Prior to commencing any construction of Tenant Improvements, Landlord
shall submit to Tenant a written estimate setting forth the anticipated
cost of the Tenant Improvements (excluding any costs which may be
specified herein or in EXHIBIT "D-2", as being borne by Landlord),
including but not limited to labor and materials, contractor's fees
(Landlord's construction management fees), permit fees, and space
planning, construction, and engineering drawing costs which are the
responsibility of Tenant. Within five (5) Business Days Tenant shall
either notify Landlord in writing of its approval of the cost estimate,
or specify its objections thereto and desired changes to the proposed
Tenant Improvements. In the event Tenant notifies Landlord of such
objections and desired changes, Tenant shall work with Landlord to reach
acceptable plans and cost estimate; provided, however, if Tenant fails to
give written approval of a cost estimate within ten (10) Business Days
following delivery to Tenant of the original cost estimate.
5. In the event Landlord's estimate and/or the actual cost of
construction shall exceed the Allowance, (as defined in EXHIBIT "D-2"
attached hereto), if any (such amounts exceeding the Allowance being
herein referred to as the "Excess Costs"), Tenant shall pay to Landlord
such Excess Costs as follows:
(a) Tenant shall deliver to Landlord, with its approval of the
Landlord's estimate, and in any event prior to commencement of
construction, an amount equal to fifty percent (50%) of the Excess
Costs as then estimated by Landlord.
(b) After substantial completion of the Tenant Improvements,
Tenant shall pay to Landlord on demand an amount which when added
to the initial payment described in subparagraph (a) above equals
ninety percent (90%) of the Excess Costs as then estimated by
Landlord.
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(c) As soon as the final accounting can be prepared and
submitted to Tenant, Tenant shall pay on demand to Landlord the
entire balance of the Excess Costs based upon the actual cost of
construction.
The statements of costs submitted to Landlord by Landlord's contractors
shall be conclusive for purposes of determining the actual cost of the
items described therein. The amounts payable hereunder constitute other
rent payable pursuant to the Lease, and the failure to timely pay same
constitutes an event of default under the Lease.
6. If Tenant shall request any change, addition or alteration in the
working drawings, after approval by Landlord and Tenant, Landlord shall
have such working drawings prepared, and Tenant shall promptly reimburse
Landlord for the cost thereof. Promptly upon completion of the
revisions, Landlord shall notify Tenant in writing of the cost which will
be chargeable to Tenant by reason of such change, addition or deletion.
Tenant shall, within three (3) Business Days, notify Landlord in writing
whether it desires to proceed with such change, addition or deletion. In
the absence of such written authorization, Landlord shall have the option
to continue work on the Premises disregarding the requested change,
addition or alteration, or Landlord may elect to discontinue work on the
Premises. In the event such revisions result in a higher estimate of the
cost of construction, Tenant shall pay to Landlord an amount sufficient
to provide Landlord with the above described fifty percent (50%) (or if
applicable ninety percent (90%)) payment toward Excess Costs.
7. Following approval of the plans and the payment by Tenant of the
required portion of the Excess Costs, if any, Landlord shall cause the
Tenant Improvements to be constructed in accordance with the approved
plans. Unless otherwise specifically provided in the approved plans, all
material used in the construction of the Tenant's Improvements shall be
of such quality as determined by the Landlord's architect. Landlord shall
notify Tenant of substantial completion of the Tenant Improvements.
8. Any other language in this Exhibit D notwithstanding, the Tenant
Improvements shall be constructed by one of the general contractors
previously approved by Landlord. A minimum of three bids to construct
the Tenant Improvements will be received. Landlord shall select the
general contractor to perform the work and will enter directly into a
contract with that contractor for the Tenant Improvements.
9. Tenant shall have the option to utilize any items currently in
place in the Premises, including but not limited to doors, lights and
glass, at no additional cost to Tenant. The Allowance shall not apply to
these items.
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EXHIBIT "D-1"
The Building Standard (herein so called) materials are the following:
<TABLE>
<S>< <C> <C>
A. FLOORING: Grade and quality of carpeting to be selected by
Landlord, with color to be selected by Tenant from
those offered by Landlord.
B. WINDOW COVERING: Miniblinds in Landlord's uniform color.
C. CEILING: Acoustical tiles - Grid system.
D. PARTITIONS: Sheetrock partitions with tape, bed, texture and
paint finish.
E. DOORS: Full height, solid core door with metal frame and
hardware.
F. ELECTRICAL POWER: Standard 110 volt duplex wall-outlets: mounted
convenience outlets.
G. LIGHT SWITCHES: Single pole light switches.
H. TELEPHONE FACILITIES: Standard unwired telephone outlets (ring and
string) mounted on partitions. Tenant must make
timely arrangements for telephone installation and
is responsible for all charges related to such
installation.
I. LIGHT FIXTURES: Recessed fluorescent lighting fixtures.
</TABLE>
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EXHIBIT "D-2"
Landlord agrees to provide Tenant an allowance (the "Allowance") of'$5.00 per
square foot of Rentable Area in the Premises (which is deemed by Landlord and
Tenant to be 13,053 square feet), being the total sum of $62,265.00 toward the
cost of Tenant Improvements, which Tenant Improvements shall include (i) fees
totaling no more than five percent (5%) of the total cost of Tenant Improvements
for construction management, (ii) design and engineering fees regarding the
Premises; (iii) the cost of monument signage as set forth elsewhere in this
Lease; (iv) HVAC design and balancing and (v) the cost of telephone, data and
computer cabling. Tenant shall not be entitled to any credit for any amount not
applied to the cost of the Tenant Improvements. In the event the Allowance shall
not be sufficient to complete the improvements contemplated by the approved
plans, Tenant shall pay the Excess Costs as prescribed in Exhibit "D".
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EXHIBIT "E"
PARKING AGREEMENT
1. During the herein defined Lease Term, Tenant shall be allotted up to
three (3) standard, covered parking spaces on or about the Garage and Building
site for every 1,000 square feet of Rentable Area of the Premises then under
lease to Tenant, at no charge to Tenant. On the Commencement Date Tenant shall
be entitled to use up to thirty-nine (39) of such parking spaces. No deductions
or allowances will be made for days an individual does not use the parking
facilities.
2. In the event said agreement is canceled, Tenant shall insure that the
automobile owner removes said automobile from the premises promptly upon demand.
Otherwise Landlord shall remove said automobile without assumption of any
liability whatsoever.
3. Landlord shall not be responsible for any loss, theft or damage to any
vehicles or any articles left in any vehicle while in or being driven to or from
the Garage however caused unless due to gross negligence of Landlord, its
agents, servants or employees.
4. Landlord may designate the area in the Garage within which each vehicle
may be parked and may make, modify and enforce reasonable rules and regulations
relating to the parking of vehicles in the Garage, and Tenant agrees to abide by
such rules and regulations.
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EXHIBIT "F"
CERTIFICATE OF INSURANCE FOR TENANT
34
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EXHIBIT "H"
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to all
leased premises, the Building, the parking garage associated therewith, the land
situated beneath the Building and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other
similar areas shall not be obstructed by Tenant or used by any Tenant for any
purpose other than ingress and egress to and from the leased premises and for
going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the
purposes for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by a Tenant or such Tenants agents, employees
or invitees, shall be paid by such Tenant, and Landlord shall not in any case be
responsible therefor.
3. Except as otherwise provided in the Lease, no signs,
advertisements or notices shall be painted or affixed on or to any windows,
doors or other parts of such Building except those of such color, size, style
and in such places as shall be first approved in writing by Landlord. No nails,
hooks or screws shall be driven or inserted in any part of the Building except
by the Building maintenance personnel nor shall any part of the Building be
defaced by Tenants. No curtains or other window treatments shall be placed
between the glass and the Building standard window treatment.
4. Landlord will provide and maintain an alphabetical directory board
for all Tenants in the first floor (main lobby) of the Building and no other
directory shall be permitted unless previously consented to by Landlord in
writing.
5. Landlord shall provide all locks for doors in each Tenant's leased
premises, at the cost of such Tenant, and no Tenant shall place any additional
lock or locks on any door in its leased area without Landlord's prior written
consent. A reasonable number of keys to the locks on the doors in each Tenant's
leased premises shall be furnished by Landlord to each Tenant, at the cost of
such Tenant, and the Tenant shall not have any duplicate keys made.
6. All Tenants will refer all contractors, contractors
representatives and installation technicians to Landlord for Landlord's
supervision, approval and control before the performance of any contractual
services. This provision shall apply to all work performed in the Building
including, but not limited to installations of telephones, telegraph equipment,
electrical devices and attachments, doors, entranceways, and any and all
installations of every nature affecting floors, walls, woodwork, trim windows,
ceilings, equipment and any other physical portion of the Building.
7. Movement in or out of the Building of furniture, office equipment,
safes, heavy equipment, bulky material, merchandise or materials which require
the use of elevators or stairways, or movements through the Building entrances
or lobby shall be restricted to such hours as Landlord shall designate. All
such movement shall be under the supervision of Landlord and shall proceed in a
manner agreed upon between the Tenants and Landlord by prearrangement before
performance so as to arrive at the optimum time, method and routing of such
movement; subject, however, to Landlord's decision and control, to prohibit any
such article from being brought into the Building for safety or other concerns.
The Tenants are to assume all risks as to the damage to articles moved and
injury to persons or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord if damaged or injured as a result
of acts in connection with carrying out this service for a Tenant from the time
of entering the property to completion of work; and Landlord shall not be liable
for acts of any person engaged in, or any damage or loss to any of said property
or persons resulting from, any act in connection with such service performed for
a Tenant.
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8. Landlord shall have the power to prescribe the weight and position
of safes and other heavy equipment or items which shall in all cases, to
distribute weight, stand on supporting devices approved by Landlord. All damages
done to the Building by the installation or removal of any property of a Tenant,
or done by a Tenant's property while in the Building, shall be repaired at the
expense of such Tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Each Tenant shall cooperate with Landlord's employees in keeping
its leased premises neat and clean Tenants shall not employ any person for the
purpose of such cleaning other than the Building's cleaning and maintenance
personnel. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts or stairways.
11. To ensure orderly operation of the Building, no ice, mineral or
other water, towels, newspapers, etc. shall be delivered to any leased area
except by persons appointed or approved by Landlord in writing.
12. Should a Tenant require telegraphic, telephonic, annunciator or
other communication service, Landlord will direct the electrician where and how
wires are to be introduced and placed and none shall be introduced or placed
except as Landlord shall direct. Electric current shall not be used for power or
heating without Landlord's prior written permission.
13. Tenant shall not make or permit any improper, objectionable or
unpleasant noises or odors in the Building or otherwise interfere in any way
with other Tenants or persons having business with them.
14. No birds or animals shall be brought into or kept in, on or about
any Tenant's leased premises.
15. No inflammable or explosive fluid or substance shall be used or
kept in the Building.
16. No portion of any Tenant's leased premises shall at any time be
used or occupied as sleeping or lodging quarters.
17. Landlord reserves the right to rescind any of the rules and
regulations and to make such other and further rules and regulations as in its
judgment shall from time to time be needful for the safety, protection, care and
cleanliness of the Building, the operation thereof, the preservation of good
order therein and the protection and comfort of the Tenants and their agents,
employees, licensees and invitees, which rules and regulations, when made and
written notice thereof is given to a Tenant, shall be binding upon it in like
mariner as if originally herein prescribed. Landlord shall apply these rules
fairly to all tenants in the Building.
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EXHIBIT "I"
RENEWAL OPTION
Provided that no event of default has ever occurred more than one time in
any consecutive twelve-month period under any term or provision contained in
this Lease and no condition exists which with the passage of time or the giving
of notice or both would constitute an event of default pursuant to this Lease
and provided that Tenant has continuously occupied the Premises for the
Permitted Use during the Lease Term, Tenant (but not any assignee or subtenant)
shall have the right and option (the "RENEWAL OPTION") to renew this Lease, by
written notice delivered to Landlord no later than twelve (12) months prior to
the expiration of the initial Lease Term, for an additional term (the "RENEWAL
TERM") of sixty (60) months under the same terms, conditions and covenants
contained in the Lease, except that (a) no abatements or other concessions, if
any, applicable to the initial Lease Term shall apply to the Renewal Term, (b)
the Base Rental shall be equal to the market rate for comparable office space
located in buildings comparable to the Building within a two (2) mile radius of
the Building as of the end of the initial Lease Term as reasonably determined by
Landlord, (c) Tenant shall have no option to renew this Lease beyond the
expiration of the Renewal Term; and (d) all leasehold improvements within the
Premises shall be provided in their then existing condition (on an "as is"
basis) at the time the Renewal Term commences. Failure by Tenant to notify
Landlord in writing of Tenant's election to exercise the Renewal Option herein
granted within the time limits set forth for such exercise shall constitute a
waiver of such Renewal Option. In the event Tenant elects to exercise the
Renewal Option as set forth above, Landlord shall, within thirty (30) days
thereafter, notify Tenant in writing of the proposed rental for the Renewal Term
(the "PROPOSED RENEWAL RENTAL"). Tenant shall within thirty (30) days following
delivery of the Proposed Renewal Rental by Landlord notify Landlord in writing
of the acceptance or rejection of the Proposed Renewal Rental. If Tenant
accepts Landlord's proposal, then the Proposed Renewal Rental shall be the
rental rate in effect during the Renewal Term. Failure of Tenant to respond in
writing during the aforementioned thirty (30) day period shall be deemed an
acceptance by Tenant of the Proposed Renewal Rental. Should Tenant reject
Landlord's Proposed Renewal Rental during such thirty (30) day period, then
Landlord and Tenant shall negotiate during the thirty (30) day period commencing
upon Tenant's rejection of Landlord's Proposed Renewal Rental to determine the
rental for the Renewal Term. In the event Landlord and Tenant are unable to
agree to a rental for the Renewal Term during said thirty (30) day period, then
the Renewal Option shall terminate and be null and void and the Lease shall,
pursuant to its terms and provisions, terminate at the end of the original Lease
Term.
Upon exercise of the Renewal Option by Tenant and subject to the
conditions set forth hereinabove, the Lease shall be extended for the period of
such Renewal Term without the necessity of the execution of any further
instrument or document, although if requested by either party, Landlord and
Tenant shall enter into a written agreement modifying and supplementing the
Lease in accordance with the provisions hereof. Any termination of the Lease
during the initial Lease Term shall terminate all renewal rights hereunder. The
renewal rights of Tenant hereunder shall not be severable from the Lease, nor
may such rights be assigned or otherwise conveyed in connection with any
permitted assignment of the Lease. Landlord's consent to any assignment of the
Lease shall not be construed as allowing an assignment of such rights to any
assignee.
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EXHIBIT "J"
RIGHT OF FIRST REFUSAL
Provided that no event of default has ever occurred more than one time in
any consecutive twelve-month period, under any term or provision contained in
this Lease and no condition exists which with the passage of time or the giving
of notice or both would constitute an event of default pursuant to this Lease
and provided that Tenant has continuously occupied the Premises for the
Permitted Use during the Lease Term, Tenant (but not any assignee or subtenant)
shall have the right, subject to the terms and conditions set forth below, to
lease (i) the remainder of the sixth floor of the Building which Tenant is not
leasing under this Lease, and (ii) Suite 395 in the Building which suite
Landlord and Tenant agree contains 3,638 rentable square feet (the "RIGHT OF
FIRST REFUSAL SPACE") before it is leased to any third party.
In the event any third party expresses interest in leasing all or any
portion of the Right of First Refusal Space during the Lease Term ("THIRD PARTY
INTEREST"), Landlord shall offer the entire Right of First Refusal Space to
Tenant upon the same terms, covenants and conditions as provided in the Lease
for the original Premises, except that (i) the rent for the Right of First
Refusal Space shall be the then prevailing market rate, as determined by
Landlord, for comparable office space located in the Building; (ii) Tenant shall
accept the Right of First Refusal Space "As Is"; and (iii) Tenant shall have no
further rights with respect to the Right of First Refusal Space. If Tenant
notifies Landlord in writing of the acceptance of such offer within five (5)
days after Landlord has delivered such offer to Tenant, Landlord and Tenant
shall enter into a written agreement modifying and supplementing the Lease and
specifying that such Right of First Refusal Space accepted by Tenant is a part
of the Premises demised pursuant to the Lease for the remainder of the Lease
Term and any renewal thereof, if applicable and containing other appropriate
terms and conditions relating to the addition of the Right of First Refusal
Space to this Lease (including specifically any increase or adjustment of the
rent as a result of such addition). In the event that Tenant does not notify
Landlord in writing of its acceptance of such offer in such five (5) day period,
then Tenant's rights under this paragraph with respect to the Right of First
Refusal Space shall terminate and Landlord shall thereafter be able to lease the
Right of First Refusal Space or any portion thereof to any third party. Should
Tenant's rights regarding the Right of First Refusal terminate under this
paragraph and Landlord is thereafter unsuccessful in leasing all the Right of
First Refusal Space to a third party, Landlord shall not be obligated to offer
the Right of First Refusal Space to Tenant for six (6) months after the date
Tenant's rights were so terminated. Any termination of the Lease shall
terminate all rights of Tenant with respect to the Right of First Refusal Space.
The rights of Tenant with respect to the Right of First Refusal Space shall not
be severable from the Lease, nor may such rights be assigned or otherwise
conveyed in connection with any permitted assignment of the Lease. Landlord's
consent to any assignment of the Lease shall not be construed as allowing an
assignment or a conveyance of such rights to any assignee. Nothing herein
contained should be construed so as to limit or abridge Landlord's ability to
deal with the Right of First Refusal Space or to lease the Right of First
Refusal Space to other tenants, Landlord's sole obligation being to offer, and
if such offer is accepted, to deliver the Right of First Refusal Space to Tenant
in accordance with this provision. The right of first refusal granted here is
subject to prior rights, of other tenants existing in the Building, which
include prior rights of first refusal and/or renewal rights. This right of
refusal is a continuing right of refusal and shall apply to any releasing of any
space even if Tenant previously had elected not to lease space pursuant to a
previous right of refusal.
The Lease shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting from any delay in delivering possession
of the Right of First Refusal Space to Tenant, but abatement of the Base Rental
attributable to the Right of First Refusal Space from the date of Tenant's
acceptance of Landlord's offer with respect to the Right of First Refusal Space
to the date of actual delivery of the Right of First Refusal Space shall
constitute full settlement of all claims that Tenant might have against Landlord
by reason of the Right of First Refusal Space not being delivered upon the date
of Tenant's acceptance of Landlord's offer.
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EXHIBIT "K"
ROOF LICENSE AGREEMENT
THIS ROOF LICENSE AGREEMENT made as of this 5TH day of SEPTEMBER, 1997, between
Brookdale Investors, L.P. ('Licensor") and ObjectSpace, Inc., a Texas
Corporation ("Licensee"), having an address at 14881 Quorum Drive, Suite 600,
Dallas, Texas 75240.
WITNESSETH
Licensor or its predecessor in interest, and Licensee or its predecessor in
interest, have heretofore entered into that certain lease dated SEPTEMBER 5,
1997, for premises described as Suite 600, initially containing approximately
13,053 rentable square feet (the "Lease") in the property (the "Property") known
as The Belvedere, located at 14881 Quorum Drive, Dallas, Dallas County, Texas,
75240 which lease has been amended by instruments dated: None
C. BASIC TERMS. The following terms shall have the following meanings
throughout this Agreement.
1. Property Name: The Belvedere
2. Properly Address: 14881 Quorum Drive, Dallas, Texas 75240
3. Roof Premises: The space at (the Properly comprising a
portion of the roof area of the Property shown on the drawing
attached hereto as Exhibit A ("Roof Premises") and which Licensor
reserves the right to reasonably revise or relocate at any time as
long as there is no unreasonable interference with Tenant's use of
the Roof Premises.
4. Term: Commencing FEBRUARY 13, 1998 and ending on MARCH 21,
2003, still subject to amendment, or earlier termination by
agreement of the parties.
5. Type of Activity and Purpose: Location for Licensee's two
communications dishes or ANTENNA WHICH SHALL BE INSTALLED IN A
LOCATION DESIGNATED BY LICENSOR AND THE CABLE FROM SUCH DISH OR
COMMUNICATIONS EQUIPMENT SHALL ENTER THE BUILDING AT THE POINT
DESIGNATED BY LICENSOR.
D. LICENSE. Licensor hereby licenses to Licensee, on a non-exclusive
basis, the use of the Roof Premises for the Term set forth above, unless
terminated sooner in accordance herewith, subject to the terms and
conditions hereof.
E. TERMS AND CONDITIONS. In consideration of the license granted to
Licensee herein, Licensee agrees to the following:
1. PURPOSE. Licensee shall use the Roof Premises only for the Type of
Activity and Purpose set forth above and for no other purpose.
2. INSURANCE. Licensee shall ensure that the insurance provisions of the
above described Lease, by and between Brookdale Investors, L.P. ("Landlord") and
ObjectSpace, Inc., a Texas Corporation ("Tenant"), are extended to the Roof
Premises described in this License Agreement,
3. LANDLORD'S APPROVAL. The license granted hereby is specifically
conditioned on Licensee securing from Licensor Licensor's prior written approval
of Licensee's proposed installation procedures, the location, size and
frequencies of Licensee's communications dishes, antennae and equipment.
Further, Licensee shall have access to the Roof Premises only (i) during normal
business hours (ii) after at least one hour's notice to Licensor and (iii) being
accompanied by Licensor onto the Roof Premises.
4. WAIVER OF CLAIMS AND INDEMNITY. To the extent not prohibited by law,
Licensee shall indemnify, defend and save harmless Licensor and its partners,
beneficiaries, trustees, officers, directors, employees and agents, from and
against any and all liability, claims, damages, costs and expenses, including
without limitation, attorney's fees, resulting from) or in connection with
Licensee's use and occupancy of the Roof Premises unless caused by (the
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gross negligence or willful misconduct of Licensor or Licensor's agents. To
the extent not prohibited by law, Licensee waives all claims against Licensor
and its partners, beneficiaries, trustees, officers, directors, employees and
agents for injury to persons, damage to property or to any other interests of
Licensee sustained by Licensee or any person claiming through Licensee resulting
from any occurrence in or upon the Roof Premises or the Property. Without
limitation, all of Licensee's personal property which may at any time be at the
Roof Premises shall be at Licensee's sole risk unless damage to said personal
property of Licensee is caused by the gross negligence or willful misconduct of
Licensor or its agents.
5. COSTS OF LITIGATION. If Licensor or its agents shall without fault on
their part be made a party to any litigation rising out of any act or omission
of Licensee, Licensee shall pay all cost and expenses, including attorney's
fees, incurred by said parties on account of said obligation. In the event of
any litigation between parties of this Agreement, the prevailing party shall be
entitled to recover from the unsuccessful party its reasonable attorney's fees
and costs as part of the judgment.
6. RELOCATION, POSTPONEMENT AND EARLY TERMINATION. The location of the
communications dishes or communications equipment on the Roof Premises shall be
shown on the plans submitted to Licensor for its approval. In the event that
Licensee desires to move the communications dishes or communications equipment
to a different place on the Roof Premises, then new plans showing such new
locations must be submitted to Licensor for its approval. Licensee must give
Licensor at least ten (10) days notice of relocation. All costs of such
relocation shall be borne by Licensee. Licensor may terminate the License
granted herein upon a violation by Licensee of any provision hereof or of the
Lease.
7. REMOVAL OF PROPERTY; HOLDING OVER. Prior to the end of the Term of this
license, Licensee shall remove all of its communications dishes and
communications equipment from the Roof Premises and shall leave the Roof
Premises in a clean condition and in as good or better condition as when
Licensee took possession of the Roof Premises, making any necessary repairs to
the roof or the building. For each day or part of a day after the end of the
Term that Licensee shall have failed to do the foregoing, Licensee shall pay the
Licensor Two Hundred Dollars ($200.00). If Licensee fails to remove its
communications dishes and communications equipment by the end of the Term,
Licensor may take possession of said communications dishes and communications
equipment and dispose of said communications dishes and communications equipment
in such lawful manner as it shall determine.
8. ASSIGNMENT. This Agreement is personal to Licensee. Licensee shall not
assign, sublicense or in any other manner transfer or encumber this Agreement or
Licensee's rights hereunder, by operation of law or otherwise, except under the
same terms and conditions as Tenant may transfer all the Premises under the
Lease.
9. INSPECTION. Licensor reserves the right to inspect the Roof Premises at
any time, and to enter the same for any other reasonable cause, including
without limitation, the making of repairs to the Building or grounds.
10. OPERATION. Licensee shall operate, maintain and repair the Roof
Premises, and any communications equipment affixed thereto, for the activity and
purpose described above during normal business hours, unless Licensor shall
agree otherwise in writing; provided, however, that Licensee may operate any of
Licensee's equipment on the Roof Premises twenty-four hours a day, seven days a
week. If Licensee shall fail to maintain and repair the Roof Premises as set
forth herein, Landlord may declare Tenant in default under the Lease after
complying with the notice provisions of Section 23 (a)(ii) of the Lease (without
limiting Licensor's remedies for other breaches of this Agreement).
11. RULES. Licensee shall comply with each of the rules set forth on Exhibit
'D" of the Lease which are incorporated herein by reference and made a part
hereof for all purposes. Licensee shall also comply with any additional rules
or modifications of the rules that Licensor reasonably may promulgate and notify
Licensee after the date hereof.
12. COMPLIANCE WITH LAWS. Licensee shall at Licensee's sole cost and expense
install, operate, maintain and remove the communications dishes and
communications equipment in accordance with all governmental laws,
40
<PAGE>
rules, regulations, codes and ordinances and shall obtain all FCC, FAA and other
governmental licenses, permits and approvals required to install, operate,
maintain and remove the communications dishes and communications equipment.
13. COST OF POWER. Any power requirements shall beat the sole cost of
Licensee.
14. CROSS-DEFAULT- Any default by Licensee under this Agreement shall be
deemed a default under the Lease and any default by Licensee under the Lease
shall be a default under this Agreement. On either form of default, the
provisions of Paragraph 23 of the Lease shall apply.
41
<PAGE>
OBJECTSPACE, INC.
AMENDED AND RESTATED
1994 RESTRICTED STOCK AND STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
This Amended and Restated 1994 Restricted Stock and Stock Option Plan
(the "Plan") of ObjectSpace, Inc. is intended to provide greater incentives
for key employees to attain and maintain the highest standards of performance,
to attract and retain key employees of outstanding competence and ability, to
stimulate the active interest of such persons in the development and financial
success of the Company, to further the identity of interest of such employees
with those of the Company's owners generally and to reward such employees for
outstanding performance. As used herein, the term "Company" means ObjectSpace,
Inc. and each of its fifty percent (50%) or more owned affiliates.
ARTICLE II
ADMINISTRATION OF THE PLAN
2.1 APPOINTMENT OF PLAN MANAGEMENT COMMITTEE. The Plan shall be
administered by a plan management committee (the "Committee") of not less than
two persons designated by the Board of Directors of the Company; provided,
however, that the Plan shall be administered by the Board of Directors (and
all references herein to the Committee shall be deemed a reference to the
Board of Directors) until such time as the Committee is established by the
Board of Directors.
2.2 COMMITTEE POWERS. The Committee shall be deemed to have and to be
exercising all of the powers of the Board of Directors of the Company in the
performance of any of the powers and duties delegated to it under the Plan,
including, but without limiting the generality of the foregoing, (a) the
selection of employees who shall be awarded shares of Common Stock of the
Company ("Common Stock") or options ("Options") to acquire shares of Common
Stock and (b) the determination of the number of shares of Common Stock to be
awarded, or for which Options will be granted, to each such employee. The
Committee shall have full power and authority to interpret the provisions of
the Plan and may from time to time establish eligibility requirements for
participation in the Plan and rules for the administration of the Plan that
are not inconsistent with the provisions and purposes of the Plan.
2.3 COMMITTEE ACTION. A majority of the members of the Committee
shall constitute a quorum for the transaction of business. All action taken by
the Committee at a meeting shall be by the vote of a majority of those present
at such meeting, but any action may be taken by the Committee without a
meeting upon written consent signed by all of the members of the Committee.
2.4 COMMITTEE DETERMINATIONS CONCLUSIVE. All determinations of the
Committee as to which employees shall receive Options or shares of Common
Stock under the Plan, the number of shares of Common Stock to be awarded or
for which Options will be granted, and the terms and vesting schedule
applicable to such Options or shares of Common Stock, shall be final, binding,
and conclusive upon all persons. The determination of the Committee as to any
disputed question arising under the Plan, including questions of construction
and interpretation, shall be final, binding and conclusive upon all persons.
Without limiting the generality of the foregoing, the determination of the
Committee as to whether an employee has terminated his
<PAGE>
employment and the date thereof, or the cause to which termination of
employment is attributable, shall be final, binding, and conclusive upon all
persons.
2.5 COMMITTEE LIABILITY. No member of the Committee shall be liable
for any act done or determination made in good faith.
ARTICLE III
GRANT OF OPTIONS AND SHARES OF COMMON STOCK
3.1 MAXIMUM NUMBER OF SHARES OF COMMON STOCK. The maximum number of
shares of Common Stock which may be awarded and outstanding and for which
Options may be awarded and outstanding at any one time, and the maximum number
of shares of Common Stock awarded or for which Options may be granted to any
one employee, shall be determined by the Committee in its sole discretion;
provided, however, that the aggregate number of shares of Common Stock awarded
or for which Options may be granted to all employees pursuant to the Plan
shall not be more than 1,000,000; provided, however, that the maximum number
of shares for which an Option or Options may be granted to any one employee
during any calendar year shall not exceed 200,000 shares. In the event that
any outstanding shares of Common Stock or Options are forfeited pursuant to
Sections 5.2(c), 5.3(c) and 5.3(d) hereof, such forfeited shares or options
shall be canceled and shall no longer be considered outstanding and may again
be subject to award under the Plan.
3.2 DESIGNATION OF EMPLOYEES. The persons eligible for participation
in the Plan as recipients of shares of Common Stock or Options (the
"Participants") shall be determined by the Committee and shall include only
employees. In determining the employees to whom shares of Common Stock or
Options shall be granted and the number of shares of Common Stock to be
covered by each such grant, the Committee may take into account the nature of
the services rendered by the respective employees, their present and potential
contributions to the success of the Company and its subsidiaries, and such
other factors as the Committee in its sole discretion shall deem relevant. Any
employee who has been granted shares of Common Stock or Options hereunder may
be granted additional shares of Common Stock or Options, if the Committee
shall so determine.
ARTICLE IV
CAPITAL CHANGE OF THE COMPANY
4.1 RIGHT TO CHANGE CAPITAL STRUCTURE. The existence of this Plan and
any outstanding shares of Common Stock or Options granted hereunder shall not
affect in any way the right or power of the Company or its owners to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
equity interests, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
act or proceeding whether of a similar character or otherwise.
4.2 REORGANIZATION OF THE COMPANY.
(a) In the event the outstanding shares of Common Stock of the Company
shall at any time be changed or exchanged by declarations of a stock
dividend, split-up, combination of shares, or recapitalization, the
maximum aggregate number and class of shares as to which awards may be
granted under the Plan, the number of shares of Common Stock covered
by each outstanding Option, and/or the exercise price of each
outstanding Option shall be appropriately adjusted by the Committee
2
<PAGE>
whose determination shall be conclusive, final and binding; PROVIDED,
HOWEVER, that no adjustment shall be made with respect to Options,
unless the aggregate effect of all such increases and decreases
occurring in any one fiscal year after the effective date of this Plan
increases or decreases the number of issued and outstanding shares of
Common Stock of the Company by two percent (2%) or more; PROVIDED,
FURTHER, that any Option to purchase fractional shares resulting from
any such adjustment shall be eliminated by rounding down to the
nearest whole share of Common Stock.
(b) If the Company participates in any merger, consolidation
or similar occurrence where the Company is not the surviving entity,
the surviving corporation or its parent or subsidiary (the "Surviving
Corporation") may assume the Company's duties and obligations as to
Options or Unvested Shares (as defined in Section 5.2(a)) granted
under the Plan and substitute new option rights with respect to the
stock of the Surviving Corporation for such Options or common stock
of the Surviving Corporation for such Unvested Shares; PROVIDED,
HOWEVER, that the value, nature and terms (including vesting periods,
forfeiture provisions and restrictions) of the new options and new
shares of stock shall be the same as the Options and Unvested Shares
for which the new options and new shares of stock are substituted. If
the Company (i) participates in any merger, consolidation or similar
occurrence where the Company is not the surviving entity and the
Surviving Corporation does not assume the Company's duties and
obligations as to Options and Unvested Shares awarded under the Plan,
or (ii) undergoes any sale of all or substantially all of its assets
following which all or any portion of the proceeds of such sale are
to be distributed to the stockholders of the Company (each such event
being hereinafter referred to as an "Extraordinary Transaction"), the
Committee, in its sole discretion, may designate a date (the
"Extraordinary Vesting Date"), not less than twenty (20) calendar
days immediately before the effective date of such Extraordinary
Transaction at which time all Unvested Shares and Unvested Options
(as defined in Sections 5.2(a) and 5.3(a), respectively) shall become
Vested Shares and Vested Options (as defined in Sections 5.2(f) and
5.3(e), respectively). In such a case, during the period beginning on
the Extraordinary Vesting Date and ending on the effective date of
the Extraordinary Transaction, each participant may exercise all
Vested Options (including those that become vested pursuant to the
provisions of this Section 4.2(b)) in accordance with the terms of
Section 5.3(i) hereof Any Options outstanding under the Plan after
the effective date of the Extraordinary Transaction which have not
been exercised on or prior to such effective date shall terminate and
thereupon become null and void.
(c) Any shares of Common Stock or other securities or assets
(other than ordinary cash dividends) received by a Participant with
respect to Unvested Shares shall also be unvested, shall be subject to
the restrictions and forfeiture provisions set forth in Article V, and
shall be deposited by the Participant with the Company in the manner
specified in Section 5.2(d).
ARTICLE V
TERMS OF RESTRICTED STOCK AND OPTIONS
5.1 GENERAL. Subject to the provisions of Section 2.2 and 3.2 hereof,
the Committee may, from time to time, determine which employees shall be
granted shares of Common Stock or Options under the Plan, the number of shares
of Common Stock granted or subject to each Option, and the time or times at
which shares of Common Stock or Options shall be granted. All shares of Common
Stock and Options awarded to Participants under this Plan (and shares of
Common Stock issuable upon exercise of such Options) shall be subject to the
terms ind conditions set forth in this Article V and to such other terms and
conditions not inconsistent with the Plan as shall be contained in a
Restricted Stock Agreement or Option Agreement entered into between the
Participant and the Company. In the event of any inconsistency between the
terms and conditions of this Plan and those contained in a Restricted Stock
Agreement or Option Agreement, the
3
<PAGE>
provisions of the Plan shall govern. The Restricted Stock Agreement or Option
Agreement shall be in a form specified by the Committee and shall set forth
the Vesting Period and forfeiture provisions and other terms and conditions
applicable to the shares of Common Stock or Options awarded hereunder (and
shares of Common Stock issuable upon exercise of such Options) and such other
matters, including compliance with applicable federal and state securities
laws and methods of withholding required taxes, as the Committee shall in its
sole discretion determine.
5.2 RESTRICTED STOCK. All shares of Common Stock awarded to
Participants under the Plan shall be subject to the following additional terms
and conditions.
(a) Except as otherwise provided in the Participant's
Restricted Stock Agreement, all shares of Common Stock awarded to
Participants under this Plan shall initially be unvested ("Unvested
Shares") and will be subject to the substantial risk of forfeiture and
restrictions on transfer referred to in Sections 5.2(b)-(d).
(b) Unvested Shares may not be sold, assigned, transferred,
pledged, or otherwise encumbered or disposed of, except as hereinafter
provided. No transfer of a participant's rights with respect to
Unvested Shares, whether voluntary or involuntary, by operation of law
or otherwise, shall vest the transferee with any interest or right in
or with respect to such Unvested Share, but immediately upon any
attempt to transfer such rights, such Unvested Share, and all of the
rights related thereto, shall be forfeited by the Participant and the
transfer shall be of no force or effect.
(c) If a Participant ceases to be an employee of the Company
or one of its fifty percent (50%) or more owned affiliates for any
reason, all Unvested Shares shall be forfeited and returned to the
Company upon such termination of employment, subject to the terms and
conditions set forth in the Participant's Restricted Stock Agreement.
(d) Each certificate issued in respect of shares of Common
Stock awarded under the Plan shall be registered in the name of the
Participant and deposited by him, together with a stock power endorsed
in blank, with the Company and shall bear the following legend:
"THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF
STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS (INCLUDING FORFEITURE) CONTAINED IN THE AMENDED
AND RESTATED 1994 RESTRICTED STOCK AND STOCK OPTION PLAN FOR
OBJECTSPACE, INC. AND AN AGREEMENT ENTERED INTO BETWEEN THE
REGISTERED OWNER AND OBJECTSPACE, INC. COPIES OF SUCH PLAN
AND AGREEMENT ARE ON FILE IN THE PRINCIPAL OFFICE OF
OBJECTSPACE, INC., DALLAS, TEXAS."
(e) Except for the restrictions on transfer and subject to
the risk of forfeiture set forth in Sections 5.2(b)-(d), and subject
to the agreement specified in Section 5.2(g) hereof, any Participant
who receives Unvested Shares, as owner of such Unvested Shares, shall
have all the rights of a holder of Common Stock, including but not
limited to the right to receive all dividends paid on such shares and
the right to vote such shares.
(f) Provided that the Participant remains employed by the
Company (or a 50% or more owned affiliate of the Company) continuously
throughout the Vesting Period applicable to the Unvested Shares which
is specified in the Participant's Restricted Stock Agreement, and
subject to such other terms and conditions as are set forth in the
Participant's Restricted Stock Agreement, such
4
<PAGE>
Unvested Shares shall become vested ("Vested Shares") and shall no
longer be subject to the transfer restrictions and forfeiture
provisions set forth in Sections 5.2(b)-(d) (but shall be subject to
the agreement specified in Section 5.2(g) hereof).
(g) If the Company so requests, the Participant shall execute
a counterpart of a shareholders' agreement among the Company and its
shareholders, as in effect at such time or in a form specified by the
Company, which shareholders' agreement may, among other things, set
forth terms and conditions applicable to the participant's exercise of
voting rights with respect to Unvested Shares and Vested Shares and
restrictions applicable to sales or other dispositions of Vested
Shares.
(h) As soon as practicable after Unvested Shares become
Vested shares, the Company shall redeliver to the Participant, or his
legal representative, the certificates representing the shares of
Common Stock deposited with it pursuant to Section 5.2(d). Such
certificates, upon delivery to the Participant, shall no longer bear
the legend set forth in Section 5.2(d).
5.3 OPTIONS. All Options awarded to Participants under this Plan shall
be subject to the following additional terms and conditions.
(a) Except as otherwise provided in the Participant's Option
Agreement, all Options awarded to Participants under this Plan shall
initially be unvested ("Unvested Options") and will be subject to the
substantial risk of forfeiture and other restrictions hereinafter
referred to.
(b) The purchase price of each share of Common Stock subject
to an option granted pursuant to the Plan shall be determined by the
Committee on the date of the grant.
(c) The Committee shall determine at the date of grant of an
Option what conditions shall apply to the exercise and expiration of
Vested Options (as defined in Section 5.3(e)) in the event the
Participant ceases to be employed by the Company for any reason. No
Option shall be exercisable after the expiration of ten (10) years
from the date the Option is granted, or such shorter period as is
established by the Committee and set forth in the Participant's Option
Agreement. No Option shall be exercisable prior to the time it becomes
a Vested Option.
(d) If a Participant ceases to be an employee of the Company
or one of its 50% or more owned affiliates for any reason, (i) all
Vested Options (as defined in Section 5.3(e)) shall expire and
terminate pursuant to the terms set forth in the Participant's Option
Agreement and (ii) all Unvested Options shall be forfeited and
returned to the Company upon such termination of employment, subject
to the terms and conditions set forth in the Participant's Option
Agreement.
(e) Provided that the Participant remains employed by the
Company (or a 50% or more owned affiliate of the Company) continuously
throughout the Vesting Period applicable to the Unvested Option which
is specified in the Participant's Option Agreement, and subject to
such other terms and conditions as are set forth in the Participant's
Option Agreement, such Unvested Option shall become vested ("Vested
Option") and shall no longer be subject to the forfeiture provisions
set forth in Section 5.3(d)(ii), but shall be subject to the
expiration and termination provisions referred to in Section
5.3(d)(i).
(f) No Vested Option or Unvested Option granted under the
Plan shall be assigned or transferred otherwise than by last will and
testament or by the laws of descent and distribution or otherwise
pledged or hypothecated (whether by operation of law or otherwise).
During the lifetime of a Participant, any Vested Options held by the
Participant shall be exercisable only by the Participant
5
<PAGE>
or the Participant's attorney in fact. Any attempted assignment,
transfer, pledge or hypothecation contrary to the provisions hereof
shall be void and ineffective for all purposes.
(g) A Participant shall have no rights as a stockholder with
respect to any shares of Common Stock of the Company for which the
Participant holds an Option, until after the Option is exercised and
the stock certificates are issued to the Participant for such Shares.
(h) If the Company so requests, the Participant shall execute
a counterpart of a shareholders' agreement among the Company and its
shareholders, as in effect at such time or in a form specified by the
Company, which shareholders' agreement may, among other things, set
forth terms and conditions applicable to the Participant's exercise of
voting rights with respect to, and restrictions applicable to sales or
other dispositions of, shares of Common Stock received upon exercise
of an Option.
(i) The Participant may exercise any Vested Option, in whole
or in part, in the manner specified in this Section 5.3(i) at any time
on or before the earlier of (i) the tenth anniversary of the date of
grant of such Option, (ii) the date specified in the last two
sentences of Section 4.2(b) hereof, or (iii) the date of expiration
of such Option as set forth in Participant's Option Agreement in the
event the Participant ceases to be employed by the Company for any
reason. In order to exercise a Vested Option in whole or in part, the
Participant must (i) notify the Company in writing of the full number
of shares of Common Stock with respect to which the Option is being
exercised, (ii) deliver to the Company the full option exercise
price, (iii) satisfy all applicable provisions of the Participant's
Option Agreement and all applicable tax withholding obligations in
accordance with Section 7.1 hereof, and (iv) if the Company so
requests, enter into the agreement referred to in Section 5.3(h)
hereof. Within ten (10) days of the Company's receipt of the
Participant's written notification and satisfaction of the
requirements specified in the preceding sentence, the Company shall
deliver to the Participant at the principal office of the Company or
such other place as shall be mutually acceptable, a certificate or
certificates for shares of Common Stock issued on exercise of the
Option; PROVIDED, HOWEVER, that the time of such issuance and
delivery may be postponed by the Company for such period as may be
required for it with reasonable diligence to comply with any
requirements of law or any exchange on which the Common Stock may
then be listed.
5.4 RESTRICTIONS ON TRANSFER. In the event shares of Common Stock
awarded to Participants under the Plan, or issued to Participants upon exercise
of Options awarded under the Plan, are not covered by a then current
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), and are not otherwise exempt from such registration, such shares shall
be restricted against transfer to the extent required by the 1933 Act or the
regulations thereunder, and -all certificates representing such shares shall
bear legends describing such restrictions.
ARTICLE VI
RIGHTS OF PARTICIPANTS
6.1 LIMITATION OF RIGHTS. Nothing in this Plan shall be construed to:
(a) Give any employee any right to be awarded any Options or
shares of Common Stock other than as the Committee may, in its sole
discretion, determine;
(b) Limit in any way the right of the Company to terminate a
Participant's employment with the Company at any time;
6
<PAGE>
(c) Give a Participant or any other person any interest in
any fund or in any specific asset or assets of the Company; or
(d) Be evidence of any agreement or understanding, express or
implied, that the Company will (i) continue to employ a Participant or
(ii) employ a Participant in any particular position or at any
particular rate of remuneration.
6.2 NONALIENATION OF BENEFITS. No right or benefit under this Plan
shall be subject to alienation, sale, assignment, pledge, encumbrance or
charge, and any attempt to alienate, sell, assign, pledge, encumber or charge
the same will be void. No right or benefit hereunder shall in any manner be
liable for or subject to any debts, contracts, liabilities or torts of the
person entitled to such benefits. If any Participant hereunder shall become
bankrupt or attempt to alienate, assign, sell, pledge, encumber or charge any
right or benefit hereunder, or if any creditor shall attempt to subject the
same to a writ of garnishment, attachment, execution, sequestration, or any
other form of process or involuntary lien or seizure, then such right or
benefit shall be held by the Company for the sole benefit of the Participant,
his or her spouse, children or other dependents, or any of them in such manner
and in such proportion as the Committee shall deem proper, free and clear of
the claims of any other party whatsoever.
6.3 PREREQUISITES TO BENEFITS. No Participant hereunder, or any
person claiming through a Participant hereunder, shall have any right or
interest in the Plan or any benefits hereunder unless and until all the terms,
conditions and provisions of the Plan that affect such Participant or such
other person shall have been complied with as specified herein. The
Participant shall complete such forms and furnish such information as the
Committee may require in the administration of the Plan.
ARTICLE VII
WITHHOLDING OF TAXES
7.1 WITHHOLDING. A Participant shall be responsible for ensuring that
all applicable income tax withholding obligations and the Participant's share
of FICA withholding obligations with respect to awards of Options or shares of
Common Stock hereunder are satisfied. The method for satisfying such
withholding obligations shall be as set forth in the Participant's Restricted
Stock Agreement or Option Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 AMENDMENT OR TERMINATION OF THE PLAN.
(a) The Board of Directors may amend or terminate this Plan
at any time without the consent of any Participant. Except as
otherwise contemplated in the Plan, any amendment or termination of
this Plan shall not have any material adverse affect on the rights of
a Participant to the benefits provided hereunder as to the shares of
Common Stock or Options outstanding at the time of such amendment or
termination without the consent of such Participant.
(b) The right to grant awards of shares of Common Stock or
Options under this Plan shall terminate automatically at the close of
business on September 6, 2004 (the tenth anniversary of the effective
date of the Plan).
7
<PAGE>
8.2 RELIANCE UPON INFORMATION. The Committee may rely upon any
information supplied to them by any officer of the Company, the Company's
legal counsel or by the Company's independent public accountants in connection
with the administration of the Plan, and shall not be liable for any decision,
action or omission in reliance thereon.
8.3 GOVERNING LAW. The place of administration of the Plan shall be
conclusively deemed to be within the State of Texas. THE VALIDITY,
CONSTRUCTION, INTERPRETATION AND EFFECT OF THE PLAN AND ALL RIGHTS OF ANY AND
ALL PERSONS HAVING OR CLAIMING TO HAVE ANY INTEREST IN THE PLAN SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
8
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Plan this 15th day
of March, 1997.
ObjectSpace, Inc.
By: /s/ DAVID NORRIS
--------------------------
David Norris
President
9
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OBJECTSPACE, INC.
1998 STOCK OPTION PLAN
<PAGE>
OBJECTSPACE, INC.
1998 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 PURPOSE................................................. 1
ARTICLE 2 DEFINITIONS............................................. 1
2.1 Award................................................... 1
2.2 Award Agreement......................................... 1
2.3 Award Period............................................ 1
2.4 Board................................................... 1
2.5 Change of Control....................................... 2
2.6 Code.................................................... 2
2.7 Committee............................................... 2
2.8 Common Stock............................................ 3
2.9 Company................................................. 3
2.10 Date of Grant........................................... 3
2.11 Disability.............................................. 3
2.12 Employee................................................ 3
2.13 Fair Market Value....................................... 3
2.14 Incentive Stock Option.................................. 3
2.15 Non-qualified Stock Option.............................. 3
2.16 Option Price............................................ 4
2.17 Participant............................................. 4
2.18 Plan.................................................... 4
2.19 Stock Option............................................ 4
2.20 Subsidiary.............................................. 4
2.21 Termination of Service.................................. 4
ARTICLE 3 ADMINISTRATION.......................................... 4
ARTICLE 4 ELIGIBILITY............................................. 5
ARTICLE 5 SHARES SUBJECT TO PLAN.................................. 6
ARTICLE 6 GRANT OF AWARDS......................................... 6
6.1 In General.............................................. 6
PAGE I
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6.2 Maximum ISO Grants...................................... 6
ARTICLE 7 OPTION PRICE............................................ 7
ARTICLE 8 AWARD PERIOD; VESTING................................... 7
8.1 Award Period............................................ 7
8.2 Vesting................................................. 7
ARTICLE 9 TERMINATION OF SERVICE.................................. 8
9.1 Death................................................... 8
9.2 Disability.............................................. 8
9.3 Termination for Other Reasons........................... 8
9.4 Leave of Absence........................................ 8
ARTICLE 10 EXERCISE OF INCENTIVE................................... 8
10.1 In General.............................................. 8
10.2 Disqualifying Disposition of ISO........................ 9
ARTICLE 11 AMENDMENT OR DISCONTINUANCE............................. 10
ARTICLE 12 TERM.................................................... 10
ARTICLE 13 CAPITAL ADJUSTMENTS..................................... 10
ARTICLE 14 RECAPITALIZATION, MERGER AND
CONSOLIDATION; CHANGE IN CONTROL........................ 11
ARTICLE 15 LIQUIDATION OR DISSOLUTION.............................. 12
ARTICLE 16 INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER CORPORATIONS................ 13
ARTICLE 17 MISCELLANEOUS PROVISIONS................................ 13
17.1 Investment Intent....................................... 13
17.2 No Right to Continued Employment........................ 13
17.3 Indemnification of Board and Committee.................. 13
17.4 Effect of the Plan...................................... 14
17.5 Compliance With Other Laws and Regulations.............. 14
17.6 Tax Requirements........................................ 14
</TABLE>
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OBJECTSPACE, INC.
1998 STOCK OPTION PLAN
The name of the plan is the OBJECTSPACE, INC. 1998 STOCK OPTION PLAN
(the "PLAN"). The Plan was adopted by the Board of Directors of OBJECTSPACE,
INC., a Delaware corporation (hereinafter called the "COMPANY"), effective as of
April 1, 1998.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain the services of key
employees of the Company and its Subsidiaries and to provide such persons with a
proprietary interest in the Company through the granting of incentive stock
options and non-qualified stock options that will
(a) increase the interest of such persons in the Company's
welfare;
(b) furnish an incentive to such persons to continue their
services for the Company; and
(c) provide a means through which the Company may attract able
persons as employees.
ARTICLE 2
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
2.1 "AWARD" means the grant of any Incentive Stock Option or
Nonqualified Stock Option, whether granted singly, in combination or in tandem
(each individually referred to herein as an "INCENTIVE").
2.2 "AWARD AGREEMENT" means a written agreement between a
Participant and the Company which sets out the terms of an Award.
2.3 "AWARD PERIOD" means the period during which one or more
Incentives granted under an Award may be exercised.
2.4 "BOARD" means the board of directors of the Company.
<PAGE>
2.5 "CHANGE OF CONTROL" means any of the following: (i) any
consolidation, merger or share exchange of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a consolidation, merger or share exchange of the Company in
which the holders of the Company's Common Stock immediately prior to such
transaction have the same proportionate ownership of Common Stock of the
surviving corporation immediately after such transaction; (ii) any sale, lease,
exchange or other transfer (excluding transfer by way of pledge or
hypothecation) in one transaction or a series of related transactions, of all or
substantially all of the assets of the Company; (iii) the stockholders of the
Company approve any plan or proposal for the liquidation or dissolution of the
Company; (iv) the cessation of control (by virtue of their not constituting a
majority of directors) of the Board by the individuals (the "CONTINUING
DIRECTORS") who (x) at the date of this Plan were directors or (y) become
directors after the date of this Plan and whose election or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then in office who were directors at the date of
this Plan or whose election or nomination for election was previously so
approved; (v) the acquisition of beneficial ownership (within the meaning of
Rule 13d-3 under the 1934 Act) of an aggregate of twenty percent (20%) of the
voting power of the Company's outstanding voting securities by any person or
group (as such term is used in Rule 13d-5 under the 1934 Act) who beneficially
owned less than 15% of the voting power of the Company's outstanding voting
securities on the date of this Plan, or the acquisition of beneficial ownership
of an additional 5% of the voting power of the Company's outstanding voting
securities by any person or group who beneficially owned at least 15% of the
voting power of the Company's outstanding voting securities on the date of this
Plan, provided, however, that notwithstanding the foregoing, an acquisition
shall not constitute a Change of Control hereunder if the acquirer is (x) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company and acting in such capacity, (y) a Subsidiary of the Company or a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of voting securities of
the Company or (z) any other person whose acquisition of shares of voting
securities is approved in advance by a majority of the Continuing Directors; or
(vi) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the
conversion of a case involving the Company to a case under Chapter 7.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended.
2.7 "COMMITTEE" means the Compensation and Stock Option Committee or
another committee appointed or designated by the Board to administer the Plan.
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2.8 "COMMON STOCK" means the common stock, par value $.01 per share,
which the Company is currently authorized to issue or may in the future be
authorized to issue.
2.9 "COMPANY" means OBJECTSPACE,INC., a Delaware corporation,
and any successor entity.
2.10 "DATE OF GRANT" means the effective date on which an Award is
made to a Participant as set forth in the applicable Award Agreement.
2.11 "DISABILITY" shall have the meaning given it in the employment
agreement of the Participant; provided, however, that if that Participant has no
employment agreement, "Disability" shall mean a physical or mental impairment of
sufficient severity that, in the opinion of the Company, either the Participant
is unable to continue performing the duties he performed before such impairment
or the Participant's condition entitles him to disability benefits under any
insurance or employee benefit plan of the Company or its Subsidiaries and that
impairment or condition is cited by the Company as the reason for termination of
the Participant's employment; provided, however, with respect to any Incentive
Stock Option, Disability shall have the meaning given it under the rules
governing Incentive Stock Options under the Code.
2.12 "EMPLOYEE" means common law employee (as defined in accordance
with the Regulations and Revenue Rulings then applicable under Section 3401(c)
of the Code) of the Company or any Subsidiary of the Company.
2.13 "FAIR MARKET VALUE" of a share of Common Stock is the fair market
value of the Common Stock determined in good faith by the Committee; provided,
however, that (i) if the Common Stock is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
Fair Market Value on any given date shall not be less than the average of the
highest bid and lowest asked prices of the Common Stock reported for such date
or, if no bid and asked prices were reported for such date, for the last day
preceding such date for which such prices were reported, or (ii) if the Common
Stock is admitted to trading on a national securities exchange or the NASDAQ
National Market System, the Fair Market Value on any date shall not be less than
the closing price reported for the Common Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last date
preceding the date for such a sale was reported.
2.14 "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock
option within the meaning of Section 422 of the Code, granted pursuant to
this Plan.
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2.15 "NON-QUALIFIED STOCK OPTION" or "NQSO" means a non-qualified
stock option granted pursuant to this Plan.
2.16 "OPTION PRICE" means the price which must be paid by a
Participant upon exercise of a Stock Option to purchase a share of Common Stock.
2.17 "PARTICIPANT" shall mean an Employee of the Company or a
Subsidiary to whom an Award is granted under this Plan.
2.18 "PLAN" means this OBJECTSPACE, INC. 1998 Stock Option Plan, as
amended from time to time.
2.19 "STOCK OPTION" means a Non-qualified Stock Option or an
Incentive Stock Option.
2.20 "SUBSIDIARY" means (i) any corporation or limited liability
company in an unbroken chain of corporations or limited liability companies
beginning with the Company, if each of the corporations or limited liability
companies other than the last corporation or limited liability company in the
unbroken chain owns equity securities possessing a majority of the total
combined voting power of all classes of equity securities in one of the other
corporations or limited liability companies in the chain, and (ii) any limited
partnership, if the Company or any corporation or limited liability company
described in item (i) above owns a majority of the general partnership interest
and a majority of the limited partnership interests entitled to vote on the
removal and replacement of the general partner. "SUBSIDIARIES" means more than
one of any such corporations, limited partnerships or limited liability
companies.
2.21 "TERMINATION OF SERVICE" occurs when a Participant who is an
Employee of the Company or any Subsidiary shall cease to serve as an Employee of
the Company and its Subsidiaries, for any reason.
ARTICLE 3
ADMINISTRATION
The Plan shall be administered by the Committee appointed by the Board.
The Committee shall consist of not fewer than two persons. Any member of the
Committee may be removed at any time, with or without cause, by resolution of
the Board. Any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board.
On and after the date the Company becomes subject to Section 162(m) of
the Code, each member on the Committee shall be an "OUTSIDE DIRECTOR" within the
meaning of
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<PAGE>
Section 162(m) of the Code. The Committee shall select one of its members to act
as its Chairman. A majority of the Committee shall constitute a quorum, and the
act of a majority of the members of the Committee present at a meeting at which
a quorum is present shall be the act of the Committee.
The Committee shall determine and designate from time to time the
eligible persons to whom Awards will be granted and shall set forth in each
related Award Agreement the Award Period, the Date of Grant, and such other
terms, provisions, limitations, and performance requirements, as are approved by
the Committee, but not inconsistent with the Plan. The Committee shall determine
whether an Award shall include one type of Incentive, or two or more Incentives
granted in combination.
The Committee, in its discretion, shall (i) interpret the Plan, (ii)
prescribe, amend, and rescind any rules and regulations necessary or appropriate
for the administration of the Plan, and (iii) make such other determinations and
take such other action as it deems necessary or advisable in the administration
of the Plan. Any interpretation, determination, or other action made or taken by
the Committee shall be final, binding, and conclusive on all interested parties.
With respect to restrictions in the Plan that are based on the
requirements of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the
Code, Section 162(m) of the Code, the rules of any exchange or inter-dealer
quotation system upon which the Company's securities are listed or quoted, or
any other applicable law, rule or restriction (collectively, "APPLICABLE LAW"),
to the extent that any such restrictions are not applicable or are no longer
required by applicable law, the Committee shall have the sole discretion and
authority to grant Awards that are not subject to such mandated restrictions
and/or to waive any such mandated restrictions with respect to outstanding
Awards.
ARTICLE 4
ELIGIBILITY
Any Employee (including an Employee who is also a director or an
officer) whose judgment, initiative, and efforts contributed or may be expected
to contribute to the successful performance of the Company is eligible to
participate in the Plan; provided that only Employees shall be eligible to
receive Incentive Stock Options. The Committee, upon its own action, may grant,
but shall not be required to grant, an Award to any Employee of the Company or
any Subsidiary. Awards may be granted by the Committee at any time and from time
to time to new Participants, or to then Participants, or to a greater or lesser
number of Participants, and may include or exclude previous Participants, as the
Committee shall determine. Except as required by this Plan, Awards granted at
different times need not contain similar provisions. The Committee's
determinations under the Plan (including without limitation determinations of
which Employees, if any, are to receive Awards, the
PAGE 5
<PAGE>
form, amount and timing of such Awards, the terms and provisions of such Awards
and the agreements evidencing same) need not be uniform and may be made by it
selectively among Employees who receive, or are eligible to receive, Awards
under the Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
Subject to adjustment as provided in ARTICLES 13 AND 14, the maximum
number of shares of Common Stock that may be delivered pursuant to Awards
granted under the Plan is (a) six hundred fifty thousand (650,000) shares; plus
(b) shares of Common Stock previously subject to Awards which are forfeited,
terminated, or expired unexercised; plus (c) without duplication for shares
counted under the immediately preceding clause, a number of shares of Common
Stock equal to the number of shares repurchased by the Company in the open
market or otherwise and having an aggregate repurchase price no greater than the
amount of cash proceeds received by the Company from the sale of shares of
Common Stock under the Plan; plus (d) any shares of Common Stock surrendered to
the Company in payment of the exercise price of options issued under the Plan.
Shares to be issued may be made available from authorized but unissued
Common Stock, Common Stock held by the Company in its treasury, or Common Stock
purchased by the Company on the open market or otherwise. During the term of
this Plan, the Company will at all times reserve and keep available the number
of shares of Common Stock that shall be sufficient to satisfy the requirements
of this Plan.
ARTICLE 6
GRANT OF AWARDS
6.1 IN GENERAL. The grant of an Award shall be authorized by the
Committee and shall be evidenced by an Award Agreement setting forth the
Incentive or Incentives being granted, the total number of shares of Common
Stock subject to the Incentive(s), the Option Price (if applicable), the Award
Period, the Date of Grant, and such other terms, provisions, limitations, and
performance objectives, as are approved by the Committee, but not inconsistent
with the Plan. The Company shall execute an Award Agreement with a Participant
after the Committee approves the issuance of an Award. Any Award granted
pursuant to this Plan must be granted within ten (10) years of the date of
adoption of this Plan. The Plan shall be submitted to the Company's stockholders
for approval; however, the Committee may grant Awards under the Plan prior to
the time of stockholder approval. Any such Award granted prior to such
stockholder approval shall be made subject to such stockholder approval. The
grant of an Award to a Participant shall not be deemed either to entitle the
Participant to, or to disqualify the Participant from, receipt of any other
Award under the Plan.
PAGE 6
<PAGE>
6.2 MAXIMUM ISO GRANTS. The Committee may not grant Incentive Stock
Options under the Plan to any Employee which would permit the aggregate Fair
Market Value (determined on the Date of Grant) of the Common Stock with respect
to which Incentive Stock Options (under this and any other plan of the Company
and its Subsidiaries) are exercisable for the first time by such Employee during
any calendar year to exceed $100,000. To the extent any Stock Option granted
under this Plan which is designated as an Incentive Stock Option exceeds this
limit or otherwise fails to qualify as an Incentive Stock Option, such Stock
Option shall be a Non-qualified Stock Option.
ARTICLE 7
OPTION PRICE
The Option Price for any share of Common Stock which may be purchased
under a Stock Option shall be at least one hundred percent (100%) of the Fair
Market Value of the share on the Date of Grant. If an Incentive Stock Option is
granted to an Employee who owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) more than ten percent (10%) of
the combined voting power of all classes of stock of the Company (or any parent
or Subsidiary), the Option Price shall be at least one hundred and ten percent
(110%) of the Fair Market Value of the Common Stock on the Date of Grant.
ARTICLE 8
AWARD PERIOD; VESTING
8.1 AWARD PERIOD. Subject to the other provisions of this Plan, the
Committee may, in its discretion, provide that an Incentive may not be exercised
in whole or in part for any period or periods of time or beyond any date
specified in the Award Agreement. Except as provided in the Award Agreement, an
Incentive may be exercised in whole or in part at any time during its term. The
Award Period for an Incentive shall be reduced or terminated upon Termination of
Service in accordance with this ARTICLE 8 AND ARTICLE 9. No Incentive granted
under the Plan may be exercised at any time after the end of its Award Period.
No portion of any Incentive may be exercised after the expiration of ten (10)
years from its Date of Grant. However, if an Employee owns or is deemed to own
(by reason of the attribution rules of Section 424(d) of the Code) more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company (or any parent or Subsidiary) and an Incentive Stock Option is granted
to such Employee, the term of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no more than five (5) years
from the Date of Grant.
8.2 VESTING. The Committee, in its sole discretion, may determine
that an Incentive will be immediately exercisable, in whole or in part, or
that all or any portion may not be exercised until a date, or dates,
subsequent to its Date of Grant, or until the
PAGE 7
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occurrence of one or more specified events, subject in any case to the terms of
the Plan. Subsequent to the Date of Grant, the Committee may, in its sole
discretion, accelerate the date on which all or any portion of an Incentive may
be exercised.
ARTICLE 9
TERMINATION OF SERVICE
9.1 DEATH. Upon the death of a Participant, then any and all Awards
held by the Participant that are not yet exercisable as of the date of the
Participant's death shall be fully vested as of the date of death, and shall be
exercisable by that Participant's legal representatives, legatees or
distributees for a period of the lesser of (a) the remainder of the term of the
Award or (b) 180 days following the date of the Participant's death. Any portion
of an Award not exercised upon the expiration of the periods specified in (a) or
(b) shall be null and void.
9.2 DISABILITY. If a Participant's employment relationship is
terminated by reason of the Participant's Disability, then the portion, if any,
of any and all Awards held by the Participant that are not yet exercisable as of
the date of that termination for Disability shall become null and void as of the
date of termination; provided, however, that the portion, if any, of any and all
Awards held by the Participant that are exercisable as of the date of that
termination shall survive the termination for the lesser of (a) the original
term of the Award and (b) 180 days following the date of termination, and the
Award shall be exercisable by the Participant, his guardian, or his legal
representative.
9.3 TERMINATION FOR OTHER REASONS. If a Participant's employment
terminates or if a Participant's service as a director terminates for reasons
other than Death, Disability or Retirement, then the portion, if any, of any and
all Awards held by the Participant that are not yet exercisable as of the date
of that termination shall become null and void as of the date of termination;
provided, however, that the portion, if any, of any and all Awards held by the
Participant that are exercisable as of the date of that termination shall be
exercisable for the lesser of (a) the remainder of the term of the Award or (b)
90 days following the date of termination.
9.4 LEAVE OF ABSENCE. With respect to an Award, the Committee may, in
its sole discretion, determine that any Participant who is on leave of absence
for any reason will be considered to still be in the employ of the Company for
vesting and other purposes.
ARTICLE 10
EXERCISE OF INCENTIVE
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10.1 IN GENERAL. A vested Incentive may be exercised during its Award
Period, subject to limitations and restrictions set forth therein and in ARTICLE
9. A vested Incentive may be exercised at such times and in such amounts as
provided in this Plan and the applicable Award Agreement, subject to the terms,
conditions, and restrictions of the Plan.
In no event may an Incentive be exercised or shares of Common Stock be
issued pursuant to an Award if a necessary listing or quotation of the shares of
Common Stock on a stock exchange or inter-dealer quotation system or any
registration under state or federal securities laws required under the
circumstances has not been accomplished. No Incentive may be exercised for a
fractional share of Common Stock. The granting of an Incentive shall impose no
obligation upon the Participant to exercise that Incentive.
STOCK OPTIONS. Subject to such administrative regulations as the
Committee may from time to time adopt, a Stock Option may be exercised by the
delivery of written notice to the Company setting forth the number of shares of
Common Stock with respect to which the Stock Option is to be exercised and the
date of exercise thereof (the "EXERCISE DATE"), which shall be at least three
(3) days after giving such notice unless an earlier time shall have been
mutually agreed upon. On the Exercise Date, the Participant shall deliver to the
Company consideration with a value equal to the total Option Price of the shares
to be purchased, payable as follows: (a) cash, check, bank draft, or money order
payable to the order of the Company, (b) Common Stock owned by the Participant
on the Exercise Date, valued at its Fair Market Value on the Exercise Date,
and/or (c) by delivery to the Company or its designated agent of an executed
irrevocable option exercise form together with irrevocable instructions from the
Participant to a broker or dealer, reasonably acceptable to the Company, to sell
certain of the shares of Common Stock purchased upon exercise of the Stock
Option or to pledge such shares as collateral for a loan and promptly deliver to
the Company the amount of sale or loan proceeds necessary to pay such purchase
price.
Upon payment of all amounts due from the Participant, the Company shall
cause certificates for the Common Stock then being purchased to be delivered as
directed by the Participant (or the person exercising the Participant's Stock
Option in the event of his death or Disability) at its principal business office
promptly after the Exercise Date. The obligation of the Company to deliver
shares of Common Stock shall, however, be subject to the condition that if at
any time the Committee shall determine in its discretion that the listing,
registration, or qualification of the Stock Option or the Common Stock upon any
securities exchange or inter-dealer quotation system or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the Stock
Option or the issuance or purchase of shares of Common Stock thereunder, the
Stock Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
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10.2 DISQUALIFYING DISPOSITION OF ISO. If shares of Common Stock
acquired upon exercise of an Incentive Stock Option are disposed of by a
Participant prior to the expiration of either two (2) years from the Date of
Grant of such Stock Option or one (1) year from the transfer of shares of Common
Stock to the Participant pursuant to the exercise of such Stock Option, or in
any other disqualifying disposition within the meaning of Section 422 of the
Code, such Participant shall notify the Company in writing of the date and terms
of such disposition. A disqualifying disposition by a Participant shall not
affect the status of any other Stock Option granted under the Plan as an
Incentive Stock Option within the meaning of Section 422 of the Code.
ARTICLE 11
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this ARTICLE 11, the Board may
at any time and from time to time, without the consent of the Participants,
alter, amend, revise, suspend, or discontinue the Plan in whole or in part.
However, if the Company becomes subject to the provisions of Section 162(m) of
the Code, including any successors to such Section, no amendment which requires
stockholder approval in order for the Plan and Incentives awarded under the Plan
to continue to comply with Section 162(m) of the Code shall be effective unless
such amendment shall be approved by the requisite vote of the stockholders of
the Company entitled to vote thereon. Any such amendment shall, to the extent
deemed necessary or advisable by the committee, be applicable to any outstanding
Incentives theretofore granted under the Plan, notwithstanding any contrary
provisions contained in any stock option agreement. Notwithstanding anything
contained in this Plan to the contrary, unless required by law, no action
contemplated or permitted by this ARTICLE 11 shall adversely affect any rights
of Participants or obligations of the Company to Participants with respect to
any Incentive theretofore granted under the Plan without the consent of the
affected Participant.
ARTICLE 12
TERM
The Plan shall be effective from the date that this Plan is approved by
the Board. Unless sooner terminated by action of the Board, the Plan will
terminate on March 30, 2008, but Incentives granted before that date will
continue to be effective in accordance with their terms and conditions.
ARTICLE 13
CAPITAL ADJUSTMENTS
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If at any time while the Plan is in effect, or Incentives are
outstanding, there shall be any increase or decrease in the number of issued and
outstanding shares of Common Stock resulting from (1) the declaration or payment
of a stock dividend, (2) any recapitalization resulting in a stock split-up,
combination, or exchange of shares of Common Stock, or (3) other increase or
decrease in such shares of Common Stock effected without receipt of
consideration by the Company, then and in such event:
(i) An appropriate adjustment shall be made in the maximum
number of shares of Common Stock then subject to being awarded under
the Plan and in the maximum number of shares of Common Stock that may
be awarded to a Participant to the end that the same proportion of the
Company's issued and outstanding shares of Common Stock shall continue
to be subject to being so awarded.
(ii) Appropriate adjustments shall be made in the number of
shares of Common Stock and the Option Price thereof then subject to
purchase pursuant to each such Stock Option previously granted and
unexercised, to the end that the same proportion of the Company's
issued and outstanding shares of Common Stock in each such instance
shall remain subject to purchase at the same aggregate Option Price.
Except as otherwise expressly provided herein, the issuance by
the Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants
to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect
to the number of or Option Price of shares of Common Stock then subject
to outstanding Stock Options granted under the Plan.
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Upon the occurrence of each event requiring an adjustment with
respect to any Incentive, the Company shall mail to each affected
Participant its computation of such adjustment which shall be
conclusive and shall be binding upon each such Participant.
ARTICLE 14
RECAPITALIZATION, MERGER AND
CONSOLIDATION; CHANGE IN CONTROL
(a) The existence of this Plan and Incentives granted
hereunder shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company's
capital structure and its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or preference
stocks ranking prior to or otherwise affecting the Common Stock or the
rights thereof (or any rights, options, or warrants to purchase same),
or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or
otherwise.
(b) Subject to any required action by the stockholders, if the
Company shall be the surviving or resulting corporation in any merger,
consolidation or share exchange, any Incentive granted hereunder shall
pertain to and apply to the securities or rights (including cash,
property, or assets) to which a holder of the number of shares of
Common Stock subject to the Incentive would have been entitled.
(c) In the event of any merger, consolidation or share
exchange pursuant to which the Company is not the surviving or
resulting corporation, there shall be substituted for each share of
Common Stock subject to the unexercised portions of such outstanding
Incentives, that number of shares of each class of stock or other
securities or that amount of cash, property, or assets of the
surviving, resulting or consolidated company which were distributed or
distributable to the stockholders of the Company in respect to each
share of Common Stock held by them, such outstanding Incentives to be
thereafter exercisable for such stock, securities, cash, or property in
accordance with their terms. Notwithstanding the foregoing, however,
all such Incentives may be canceled by the Company as of the effective
date of any such reorganization, merger, consolidation, share exchange
or any dissolution or liquidation of the Company by giving notice to
each holder thereof or his personal representative of its intention to
do so and by permitting the purchase during the thirty (30) day period
next preceding such effective date of all of the shares of Common Stock
subject to such outstanding Incentives.
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(d) In the event of a Change of Control, then, notwithstanding
any other provision in this Plan to the contrary, all unmatured
installments of Incentives outstanding shall thereupon automatically be
accelerated and exercisable in full. The determination of the Committee
that any of the foregoing conditions has been met shall be binding and
conclusive on all parties.
ARTICLE 15
LIQUIDATION OR DISSOLUTION
In case the Company shall, at any time while any Incentive
under this Plan shall be in force and remain unexpired, (i) sell all or
substantially all of its property, or (ii) dissolve, liquidate, or wind
up its affairs, then each Participant shall be thereafter entitled to
receive, in lieu of each share of Common Stock of the Company which
such Participant would have been entitled to receive under the
Incentive, the same kind and amount of any securities or assets as may
be issuable, distributable, or payable upon any such sale, dissolution,
liquidation, or winding up with respect to each share of Common Stock
of the Company. If the Company shall, at any time prior to the
expiration of any Incentive, make any partial distribution of its
assets, in the nature of a partial liquidation, whether payable in cash
or in kind (but excluding the distribution of a cash dividend payable
out of earned surplus and designated as such) then in such event the
Option Prices then in effect with respect to each Stock Option shall be
reduced, on the payment date of such distribution, in proportion to the
percentage reduction in the tangible book value of the shares of the
Company's Common Stock (determined in accordance with generally
accepted accounting principles) resulting by reason of such
distribution.
ARTICLE 16
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER CORPORATIONS
Incentives may be granted under the Plan from time to time in
substitution for similar instruments held by employees of a corporation
who become or are about to become management Employees of the Company
or any Subsidiary as a result of a merger or consolidation of the
employing corporation with the Company or the acquisition by the
Company of stock of the employing corporation. The terms and conditions
of the substitute Incentives so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Board at the
time of grant may deem appropriate to conform, in whole or in part, to
the provisions of the Incentives in substitution for which they are
granted.
ARTICLE 17
PAGE 13
<PAGE>
MISCELLANEOUS PROVISIONS
17.1 INVESTMENT INTENT. The Company may require that there be
presented to and filed with it by any Participant under the Plan, such
evidence as it may deem necessary to establish that the Incentives
granted or the shares of Common Stock to be purchased or transferred
are being acquired for investment and not with a view to their
distribution.
17.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor
any Incentive granted under the Plan shall confer upon any Participant
any right with respect to continuance of employment by the Company or
any Subsidiary.
17.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the
Board or the Committee, nor any officer or Employee of the Company
acting on behalf of the Board or the Committee, shall be personally
liable for any action, determination, or interpretation taken or made
in good faith with respect to the Plan, and all members of the Board or
the Committee and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination, or interpretation.
17.4 EFFECT OF THE PLAN. Neither the adoption of this Plan
nor any action of the Board or the Committee shall be deemed to give
any person any right to be granted an Award or any other rights except
as may be evidenced by an Award Agreement, or any amendment thereto,
duly authorized by the Committee and executed on behalf of the Company,
and then only to the extent and upon the terms and conditions expressly
set forth therein.
17.5 COMPLIANCE WITH OTHER LAWS AND REGULATIONS.
Notwithstanding anything contained herein to the contrary, the Company
shall not be required to sell or issue shares of Common Stock under any
Incentive if the issuance thereof would constitute a violation by the
Participant or the Company of any provisions of any law or regulation
of any governmental authority or any national securities exchange or
inter-dealer quotation system or other forum in which shares of Common
Stock are quoted or traded (including without limitation Section 16 of
the 1934 Act and Section 162(m) of the Code); and, as a condition of
any sale or issuance of shares of Common Stock under an Incentive, the
Committee may require such agreements or undertakings, if any, as the
Committee may deem necessary or advisable to assure compliance with any
such law or regulation. The Plan, the grant and exercise of Incentives
hereunder, and the obligation of the Company to sell and deliver shares
of Common Stock, shall be subject to all applicable federal and state
PAGE 14
<PAGE>
laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required.
17.6 TAX REQUIREMENTS. The Company shall have the right to
deduct from all amounts hereunder paid in cash or other form, any
federal, state, or local taxes required by law to be withheld with
respect to such payments. The Participant receiving shares of Common
Stock issued under the Plan shall be required to pay the Company the
amount of any taxes which the Company is required to withhold with
respect to such shares of Common Stock. Notwithstanding the foregoing,
in the event of an assignment of a Non-qualified Stock Option pursuant
to Section 17.7, the Participant who assigns the Non-qualified Stock
Option shall remain subject to withholding taxes upon exercise of the
Non-qualified Stock Option by the transferee to the extent required by
the Code or the rules and regulations promulgated thereunder. Such
payments shall be required to be made prior to the delivery of any
certificate representing such shares of Common Stock. Such payment may
be made in cash, by check, or through the delivery of shares of Common
Stock owned by the Participant (which may be effected by the actual
delivery of shares of Common Stock by the Participant or by the
Company's withholding a number of shares to be issued upon the exercise
of a Stock Option, if applicable), which shares have an aggregate Fair
Market Value equal to the required minimum withholding payment, or any
combination thereof.
17.7 ASSIGNABILITY. Incentive Stock Options may not be
transferred or assigned other than by will or the laws of descent and
distribution and may be exercised during the lifetime of the
Participant only by the Participant or the Participant's legally
authorized representative. The designation by a Participant of a
beneficiary will not constitute a transfer of the Stock Option. The
Committee may waive or modify any limitation contained in the preceding
sentences of this Section 17.7 that is not required for compliance with
Section 422 of the Code. Unless the Committee provides otherwise, all
or a portion of a Non-qualified Stock Option to be granted to a
Participant may be transferred by such Participant to (i) the spouse,
children or grandchildren of the Participant ("IMMEDIATE FAMILY
MEMBERS"), (ii) a trust or trusts for the exclusive benefit of one or
more Immediate Family Members, or (iii) a partnership in which one or
more Immediate Family Members are the only partners, (iv) an entity
exempt from federal income tax pursuant to Section 501(c)(3) of the
Code or any successor provision, or (v) a split interest trust or
pooled income fund described in Section 2522(c)(2) of the Code or any
successor provision, PROVIDED THAT (x) there shall be no consideration
for any such transfer, and (y) subsequent transfers of transferred
Non-qualified Stock Options shall be prohibited except those by will or
the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended. Following
PAGE 15
<PAGE>
transfer, any such Non-qualified Stock Option shall continue to be
subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that for purposes of ARTICLES 10, 11, 13,
15 AND 17 hereof the term "PARTICIPANT" shall be deemed to include the
transferee. The events of Termination of Service shall continue to be
applied with respect to the original Participant, following which the
Non-qualified Stock Options shall be exercisable by the transferee only
to the extent and for the periods specified in the Award Agreement. The
Committee and the Company shall have no obligation to inform any
transferee of a Non-qualified Stock Option of any expiration,
termination, lapse or acceleration of such Option. The Company shall
have no obligation to register with any federal or state securities
commission or agency any Common Stock issuable or issued under a
Nonqualified Stock Option that has been transferred by a Participant
under this Section 17.7.
17.8 USE OF PROCEEDS. Proceeds from the sale of shares of
Common Stock pursuant to Incentives granted under this Plan shall
constitute general funds of the Company.
A copy of this Plan shall be kept on file in the principal
office of the Company in Dallas, Texas.
* * * * * * * * * * * * * * *
PAGE 16
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be executed as of April 1, 1998 by its duly authorized representative.
OBJECTSPACE, INC.
By: /s/ DAVID NORRIS
---------------------------------
David Norris, President
PAGE 17
<PAGE>
AMENDMENT NO. 3 TO THE
OBJECTSPACE, INC.
1998 STOCK OPTION PLAN
The name of the plan is the OBJECTSPACE, INC. 1998 STOCK OPTION PLAN
(the "PLAN"). The Plan was adopted by the Board of Directors of OBJECTSPACE,
INC., a Delaware corporation (hereinafter called the "COMPANY"), effective as
of April 1, 1998. This Amendment No. 3 to the Plan (the "AMENDMENT") was
adopted by the Board of Directors of the Company on March 11, 2000.
SECTION 1. The Amendment amends and restates Article 5 of the Plan in
its entirety as follows:
ARTICLE 5
SHARES SUBJECT TO PLAN
Subject to adjustment as provided in ARTICLES 13 AND 14, the maximum
number of shares of Common Stock that may be delivered pursuant to Awards
granted under the Plan is (a) six million (6,000,000) shares; plus (b) shares
of Common Stock previously subject to Awards which are forfeited, terminated,
or expired unexercised; plus (c) without duplication for shares counted under
the immediately preceding clause, a number of shares of Common Stock equal to
the number of shares repurchased by the Company in the open market or
otherwise and having an aggregate repurchase price no greater than the amount
of cash proceeds received by the Company from the sale of shares of Common
Stock under the Plan; plus (d) any shares of Common Stock surrendered to the
Company in payment of the exercise price of options issued under the Plan.
Shares to be issued may be made available from authorized but
unissued Common Stock, Common Stock held by the Company in its treasury, or
Common Stock purchased by the Company on the open market or otherwise.
During the term of this Plan, the Company will at all times reserve and keep
available the number of shares of Common Stock that shall be sufficient to
satisfy the requirements of this Plan.
SECTION 2. The remaining provisions of the Plan are not modified or
changed by this Amendment.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed as of March 30, 2000 by its duly authorized representative.
OBJECTSPACE, INC.
By: /s/ DAVID NORRIS
-----------------------------------
David Norris, President
<PAGE>
OBJECTSPACE, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The ObjectSpace, Inc. Non-Employee Director Stock Option Plan
(hereinafter called the "PLAN") was adopted by the Board of Directors of
ObjectSpace, Inc., a Delaware corporation (hereinafter called the "COMPANY"),
effective as of March 11, 2000.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain Outside Directors of
ObjectSpace, Inc. and to provide such persons with a proprietary interest in
the Company through the issuance of Common Stock that will
(a) increase the interest of such persons in the Company's
welfare;
(b) furnish an incentive to such persons to continue their
services for the Company; and
(c) provide a means through which the Company may attract
able persons as directors.
ARTICLE 2
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise,
the following terms shall have the meanings indicated:
2.1 "Affiliate" of a person "affiliated" with, a specified person or
entity, is a person that directly, or indirectly through one or more
intermediaries, possesses the power to direct or cause the direction of the
management and policies of the specified person or entity, whether through the
ownership of voting securities, by contract or otherwise.
2.2 "BOARD" means the board of directors of the Company.
2.3 "CHANGE OF CONTROL" means any of the following: (i) any
consolidation, merger or share exchange of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a consolidation, merger or share exchange of the Company
in which the holders of the Company's Common Stock immediately prior to such
transaction have the same proportionate
<PAGE>
ownership of Common Stock of the surviving corporation immediately after such
transaction; (ii) any sale, lease, exchange or other transfer (excluding
transfer by way of pledge or hypothecation) in one transaction or a series of
related transactions, of all or substantially all of the assets of the
Company; (iii) the stockholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company; (iv) the cessation of
control (by virtue of their not constituting a majority of directors) of the
Board by the individuals (the "CONTINUING DIRECTORS") who (x) at the date of
this Plan were directors or (y) become directors after the date of this Plan
and whose election or nomination for election by the Company's stockholders,
was approved by a vote of at least two-thirds of the directors then in office
who were directors at the date of this Plan or whose election or nomination
for election was previously so approved; (v) the acquisition of beneficial
ownership (within the meaning of Rule 13d-3 under the 1934 Act) of an
aggregate of twenty percent (20%) of the voting power of the Company's
outstanding voting securities by any person or group (as such term is used in
Rule 13d-5 under the 1934 Act) who beneficially owned less than 15% of the
voting power of the Company's outstanding voting securities on the date of
this Plan, or the acquisition of beneficial ownership of an additional 5% of
the voting power of the Company's outstanding voting securities by any person
or group who beneficially owned at least 15% of the voting power of the
Company's outstanding voting securities on the date of this Plan, PROVIDED,
HOWEVER, that notwithstanding the foregoing, an acquisition shall not
constitute a Change of Control hereunder if the acquirer is (x) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company and acting in such capacity, (y) a Subsidiary of the Company or a
corporation owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of voting securities
of the Company or (z) any other person whose acquisition of shares of voting
securities is approved in advance by a majority of the Continuing Directors;
or (vi) in a Title 11 bankruptcy proceeding, the appointment of a trustee or
the conversion of a case involving the Company to a case under Chapter 7.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMITTEE" means the committee appointed or designated by the
Board to administer the Plan in accordance with ARTICLE 3 of this Plan.
2.6 "COMMON STOCK" means the common stock which the Company is
currently authorized to issue or may in the future be authorized to issue.
2.7 "COMPANY" means ObjectSpace, Inc., a Delaware corporation, and
any successor entity.
2
<PAGE>
2.8 "DATE OF GRANT" means the effective date on which a Stock Option
is awarded to an Outside Director as set forth in the applicable Stock Option
Agreement in accordance with the terms of the Plan.
2.9 "EMPLOYEE" means common law employee (as defined in accordance
with the Regulations and Revenue Rulings then applicable under Section 3401(c)
of the Code) of the Company or any Subsidiary of the Company.
2.10 "FAIR MARKET VALUE" means, as of a particular date, the mean of
the highest and lowest prices per share on the principal national securities
exchange on which the same are listed on the appropriate date, or in the
absence of reported sales on such day, the most recent previous day for which
sales were reported.
2.11 "OPTIONED SHARES" means the full shares of Common Stock which a
Participant may purchase pursuant to the exercise of a Stock Option granted
pursuant to this Plan.
2.12 "OPTION PERIOD" means the period during which a Stock Option may
be exercised.
2.13 "OPTION PRICE" means the price which must be paid by a
Participant upon exercise of a Stock Option to purchase a share of Common
Stock.
2.14 "OUTSIDE DIRECTOR" means a director of the Company who is not,
and has not been for the three years prior to their election or appointment to
the Board been, an Employee or a director, officer or employee of any entity
that owns, when considered together with that entity's Affiliates, more than
five percent (5%) of any class of the Company's outstanding capital stock.
2.15 "PARTICIPANT" shall mean an Outside Director of the Company.
2.16 "PLAN" means this ObjectSpace, Inc. Outside Director Stock
Option Plan, as amended from time to time.
2.17 "PLAN YEAR" means a yearly period during the term of the Plan
beginning on the date of the Company's annual meeting of stockholders and
ending on the day before the Company's next annual meeting of stockholders.
2.18 "RETIREMENT" means Termination of Service as a Director at or
after attaining age 62.
3
<PAGE>
2.19 "STOCK OPTION" means a non-qualified option to purchase Common
Stock granted under the Plan.
2.20 "STOCK OPTION AGREEMENT" means a written agreement between a
Participant and the Company which sets out the terms of the grant of a Stock
Option.
2.21 "SUBSIDIARY" means (i) any corporation in an unbroken chain of
corporations beginning with the Company, if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing a
majority of the total combined voting power of all classes of stock in one of
the other corporations in the chain, (ii) any limited partnership, if the
Company or any corporation described in item (i) above owns a majority of the
general partnership interest and a majority of the limited partnership
interests entitled to vote on the removal and replacement of the general
partner, and (iii) any partnership or limited liability company, if the
partners or members thereof are composed only of the Company, any corporation
listed in item (i) above or any limited partnership listed in item (ii) above.
"Subsidiaries" means more than one of any such corporations, limited
partnerships, partnerships or limited liability companies.
2.22 "TERMINATION OF SERVICE AS A DIRECTOR" occurs when a Participant
who is an Outside Director of the Company shall cease to serve as a director
of the Company for any reason.
2.23 "TOTAL AND PERMANENT DISABILITY" means that the Participant,
because of ill health, physical or mental disability or any other reason
beyond his or her control, is unable to perform his or her duties as a
director for a period of six (6) continuous months, as determined in good
faith by the Committee.
ARTICLE 3
ADMINISTRATION
The Plan shall be administered by a committee appointed by the Board
(the "COMMITTEE"). The Committee shall consist of not fewer than two persons,
each of whom must be a "Non-Employee Director", as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as such rule now exists
or may hereafter be amended. Any member of the Committee may be removed at any
time, with or without cause, by resolution of the Board. Any vacancy occurring
in the membership of the Committee may be filled by appointment by the Board.
The Committee shall select one of its members to act as its Chairman
and shall make such rules and regulations for its operation as it deems
appropriate. A majority of the Committee shall constitute a quorum, and the
act of a majority of the members of
4
<PAGE>
the Committee present at a meeting at which a quorum is present shall be the
act of the Committee. The Committee, in its discretion, shall (i) interpret
the Plan, (ii) prescribe, amend, and rescind any rules and regulations
necessary or appropriate for the administration of the Plan, and (iii) make
such other determinations and take such other action as it deems necessary or
advisable in the administration of the Plan; provided, however, that the
Committee shall have no discretion with respect to the eligibility or
selection of Outside Directors to receive awards under the Plan or the time at
which any such awards are to be granted, and provided further, that the
Committee shall not have the authority to take any action or make any
determination that would materially increase the benefits accruing to
Participants under the Plan. Any interpretation, determination, or other
action made or taken by the Committee shall be final, binding, and conclusive
on all interested parties.
ARTICLE 4
ELIGIBILITY; GRANT OF OPTIONS
4.1 AUTOMATIC GRANT OF OPTIONS. On the first day of every Plan Year,
each Outside Director serving as such on that date shall automatically be
granted a Stock Option to purchase thirty thousand (30,000) shares of Common
Stock on such date, without further action by the Committee.
On the first day following an Outside Director's re-election to the
Board, that outside Director shall be automatically be granted a Stock Option
to purchase twenty thousand (20,000) shares of Common Stock on such date,
without further action by the Committee.
4.2 VESTING; TIME OF EXERCISE. Stock Options granted pursuant to
Section 4.1 will be exercisable in the following cumulative
installments:
FIRST INSTALLMENT: A Stock Option will be exercisable for up to 50% of
the Optioned Shares (rounded down so that no fractional share is
exercisable) at any time following the first anniversary of the Date
of Grant.
SECOND INSTALLMENT: A Stock Option will be exercisable for the
remainder of the Optioned Shares not exercisable in the first
installment at any time following the second anniversary of the Date
of Grant.
5
<PAGE>
Notwithstanding the foregoing, the vesting of installments under
Stock Options granted pursuant to Section 4.1 shall automatically accelerate
and the Stock Options shall be exercisable in full upon (i) the Participant's
death, (ii) the Participant's Termination of Service as a Director as a result
of Total and Permanent Disability, or (iii) the occurrence of a Change of
Control. The determination of the Committee that any of the foregoing
conditions has been met shall be binding and conclusive on all parties.
4.3 STOCK OPTION AGREEMENT. The grant of a Stock Option shall be
evidenced by a Stock Option Agreement setting forth the total number of shares
of Common Stock subject to the Stock Option, the Option Price, the maximum
term of the Stock Option, the Date of Grant, and such other terms and
provisions as are approved by the Committee, but not inconsistent with the
Plan. The Company shall execute a Stock Option Agreement with a Participant
promptly after the Date of Grant of the Stock Option.
ARTICLE 5
SHARES SUBJECT TO PLAN
The maximum number of shares of Common Stock that may be issued under
the Plan is five hundred thousand (500,000) (as may be adjusted in accordance
with ARTICLES 11 and 12 hereof). All Stock Options granted under the Plan
shall be designated as non-qualified stock options. Shares of Common Stock to
be issued under the Plan may be made available from either authorized but
unissued Common Stock or Common Stock held by the Company in its treasury.
Shares of Common Stock previously subject to Stock Options that are forfeited,
terminated, or settled in cash in lieu of Common Stock, or expired unexercised
shall immediately become available for grants of Stock Options under the Plan.
During the term of this Plan, the Company will at all times reserve
and keep available the number of shares of Common Stock that shall be
sufficient to satisfy the requirements of this Plan.
ARTICLE 6
OPTION PRICE
The Option Price for any share of Common Stock which may be purchased
under a Stock Option shall be One Hundred Percent (100%) of the Fair Market
Value of the share on the Date of Grant.
6
<PAGE>
ARTICLE 7
OPTION PERIOD; FORFEITURE
No Stock Option granted under the Plan may be exercised at any time
after the end of its Option Period.
The Option Period for each Stock Option will terminate on the first
of the following to occur:
(a) 5 p.m. on the seventh anniversary of the Date of Grant;
(b) 5 p.m. on the date which is one (1) year following the
Participant's Termination of Service as a Director due to death or
Total and Permanent Disability;
(c) 5 p.m. on the date that is two (2) years following the
Participant's Termination of Service as a Director due to Retirement;
provided that any installment not vested and exercisable on the
Participant's Retirement shall terminate and be forfeited on such
date; or
(d) 5 p.m. on the date that is thirty (30) days after any
other Termination of Service as a Director; provided that any
installment not vested and exercisable on the date of such Termination
of Service as a Director shall terminate and be forfeited on such
date.
ARTICLE 8
EXERCISE OF OPTION
Stock Options may be exercised during the Option Period. Stock
Options may be exercised at such times and in such amounts as provided in this
Plan and the applicable Stock Option Agreements, subject to the terms,
conditions, and restrictions of the Plan.
In no event may a Stock Option be exercised or shares of Common Stock
be issued pursuant to a Stock Option if a necessary listing of the shares on a
stock exchange or any registration under state or federal securities laws
required under the circumstances has not been accomplished. No Stock Option
may be exercised for a fractional share of Stock. The granting of a Stock
Option shall impose no obligation upon the Participant to exercise that Stock
Option.
7
<PAGE>
Subject to such administrative regulations as the Committee may from
time to time adopt, a Stock Option may be exercised by the delivery of written
notice to the Committee setting forth the number of shares of Common Stock
with respect to which the Stock Option is to be exercised and the date of
exercise thereof (the "EXERCISE DATE") which shall be at least three (3) days
after giving such notice unless an earlier time shall have been mutually
agreed upon. On the Exercise Date, the Participant shall deliver to the
Company consideration with a value equal to the total Option Price of the
shares of Common Stock to be purchased, payable (a) in cash, check, bank
draft, or money order payable to the order of the Company, and/or (b) in any
other form of consideration that is acceptable to the Committee in its sole
discretion.
Upon payment of all amounts due from the Participant, the Company
shall cause certificates for the Common Stock then being purchased to be
delivered to the Participant (or the person exercising the Participant's Stock
Option in the event of his death) at its principal business office promptly
after the Exercise Date. The obligation of the Company to deliver shares of
Common Stock shall, however, be subject to the condition that if at any time
the Committee shall determine in its discretion that the listing,
registration, or qualification of the Stock Option or the Common Stock upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the Stock Option or the issuance or
purchase of shares of Common Stock thereunder, the Stock Option may not be
exercised in whole or in part unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained free
of any conditions not acceptable to the Committee.
If the Participant fails to pay for any of the Common Stock specified
in such notice or fails to accept delivery thereof, the Participant's right to
purchase such Common Stock may be terminated by the Company.
ARTICLE 9
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this ARTICLE 9, the Board may
at any time and from time to time, without the consent of the Participants,
suspend or discontinue the Plan in whole or in part. The Board may amend the
Plan at any time and for any reason without stockholder approval; provided,
however, that the Board may condition any amendment on the approval of
stockholders of the Company if such approval is necessary or deemed advisable
with respect to tax, securities or other applicable laws, policies and
regulations.
Subject to the forgoing, any such amendment shall, to the extent
deemed necessary or advisable by the Committee, be applicable to any
outstanding Stock
8
<PAGE>
Options theretofore granted under the Plan, notwithstanding any contrary
provisions contained in any Stock Option Agreement. In the event of any such
amendments to the Plan, the holder of any Stock Option outstanding under the
Plan shall, upon request of the Committee and as a condition to the
exercisability thereof, execute a conforming amendment in the form prescribed
by the Committee to any Stock Option Agreement relating thereto within such
reasonable time as the Committee shall specify in such request.
Notwithstanding anything contained in this Plan to the contrary, unless
required by law, no action contemplated or permitted by this ARTICLE 9 shall
adversely affect any rights of Participants or obligations of the Company to
Participants with respect to any Stock Options theretofore granted under the
Plan without the consent of the affected Participant.
ARTICLE 10
STOCKHOLDER APPROVAL; TERM
Anything in the Plan to the contrary notwithstanding, the
effectiveness of the Plan and of the grant of all Stock Options hereunder is
in all respects subject to the approval of the Plan by the affirmative vote of
the holders of a majority of the shares of the Common Stock present in person
or by proxy and entitled to vote at a meeting of stockholders at which the
Plan is presented for approval. Stock Options may be granted under the Plan
prior to the time of stockholder approval. Any such Stock Options granted
prior to such stockholder approval shall be subject to such stockholder
approval. Unless sooner terminated by action of the Board, the Plan will
terminate on March 10, 2010, but Stock Options granted before such date will
continue to be effective in accordance with their terms and conditions.
ARTICLE 11
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect or unexercised Stock
Options are outstanding there shall be any increase or decrease in the number
of issued and outstanding shares of Common Stock resulting from (1) the
declaration or payment of a stock dividend, (2) any recapitalization resulting
in a stock split-up, combination, or exchange of shares of Common Stock, or
(3) other increase or decrease in such shares of Common Stock effected without
receipt of consideration by the Company, then and in such event:
9
<PAGE>
(i) An appropriate adjustment shall be made in the maximum
number of shares of Common Stock then subject to being issued under
the Plan, to the end that the same proportion of the Company's issued
and outstanding shares of Common Stock shall continue to be subject to
being so issued.
(ii) Appropriate adjustments shall be made in the number of
shares of Common Stock subject to purchase pursuant to Stock Options
to be granted under ARTICLE 4 of the Plan, to the end that Stock
Options to purchase the same proportion of the Company's issued and
outstanding shares of Common Stock shall be granted under ARTICLE 4.
(iii) Appropriate adjustments shall be made in the number of
shares of Common Stock and the Option Price thereof then subject to
purchase pursuant to each such Stock Option previously granted and
unexercised, to the end that the same proportion of the Company's
issued and outstanding shares of Common Stock in each such instance
shall remain subject to purchase at the same aggregate Option Price.
Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of or Option Price of shares
of Common Stock then subject to outstanding Stock Options granted under the
Plan.
10
<PAGE>
Upon the occurrence of each event requiring an adjustment with
respect to any Stock Option, the Company shall mail to each Participant its
computation of such adjustment which shall be conclusive and shall be binding
upon each such Participant.
ARTICLE 12
RECAPITALIZATION, MERGER AND CONSOLIDATION
12.1 GENERAL. The existence of this Plan and Stock Options granted
hereunder shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital structure and its
business, or any merger or consolidation of the Company, or any issue of
bonds, debentures, preferred or preference stocks ranking prior to or
otherwise affecting the Common Stock or the rights thereof (or any rights,
options, or warrants to purchase same), or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
12.2 ADJUSTMENT; COMPANY SURVIVES. Subject to any required action by
the stockholders, if the Company shall be the surviving or resulting
corporation in any merger, consolidation or share exchange, any Stock Option
granted hereunder shall pertain to and apply to the securities or rights
(including cash, property, or assets) to which a holder of the number of
shares of Common Stock subject to the Stock Option would have been entitled.
12.3 ADJUSTMENT; COMPANY DOES NOT SURVIVE. In the event of any
reorganization, merger, consolidation or share exchange pursuant to which the
Company is not the surviving or resulting corporation, there shall be
substituted for each share of Common Stock subject to the unexercised portions
of such outstanding Stock Options that number of shares of each class of stock
or other securities or that amount of cash, property or assets of the
surviving, resulting or consolidated company which were distributed or are to
be distributed to the stockholders of the Company in respect of each share of
Common Stock held by them, such outstanding Stock Options to be thereafter
exercisable for such stock, securities, cash or property in accordance with
their terms. Notwithstanding the foregoing, however, the Committee, in its
sole discretion, may cancel all such Stock Options as of the effective date of
any such reorganization, merger, consolidation, share exchange or of any
dissolution or liquidation of the Company by giving notice to each holder
thereof or his personal representative of its intention to do so and by
permitting the purchase, during the thirty (30) day period next preceding such
effective date, of all of the shares of Common Stock subject to such
outstanding Stock Options.
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12.4 NOTICE OF ADJUSTMENT. Upon the occurrence of each event
requiring an adjustment of the Option Price or the number of shares of Common
Stock purchasable pursuant to Stock Options granted pursuant to the terms of
this Plan, the Company shall mail to each Participant its computation of such
adjustment, which shall be conclusive and shall be binding upon each such
Participant.
ARTICLE 13
LIQUIDATION OR DISSOLUTION
In case the Company shall, at any time while any Stock Option under
this Plan shall be in force and remain unexpired, (i) sell all or
substantially all of its property, or (ii) dissolve, liquidate, or wind up its
affairs, then each Participant may thereafter receive upon exercise hereof (in
lieu of each share of Common Stock of the Company which such Participant would
have been entitled to receive) the same kind and amount of any securities or
assets as may be issuable, distributable, or payable upon any such sale,
dissolution, liquidation, or winding up with respect to each share of Common
Stock of the Company. If the Company shall, at any time prior to the
expiration of any Stock Option, make any partial distribution of its assets,
in the nature of a partial liquidation, whether payable in cash or in kind
(but excluding the distribution of a cash dividend payable out of earned
surplus and designated as such) then in such event the Option Prices then in
effect with respect to each Stock Option shall be reduced, on the payment date
of such distribution, in proportion to the percentage reduction in the
tangible book value of the shares of the Company's Common Stock (determined in
accordance with generally accepted accounting principles) resulting by reason
of such distribution.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 ASSIGNABILITY. No Stock Option granted under this Plan shall be
assignable or otherwise transferable by the Participant (or his or her
authorized legal representative) during the Participant's lifetime and, after
the death of the Participant, other than by will or the laws of descent and
distribution or as provided below in this ARTICLE 14. All or a portion of a
Stock Option granted to a Participant may be assigned by such Participant to
(i) the spouse, children or grandchildren of the Participant ("IMMEDIATE
FAMILY MEMBERS"), (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, (iv) an entity exempt from federal
income tax pursuant to Section 501(c)(3) of the Code or any successor
provision, or (v) a split interest trust or pooled income fund described in
Section 2522(c)(2) of the Code or any successor provision, PROVIDED THAT (x)
there shall be no consideration for any such transfer, and
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(y) subsequent transfers of transferred Stock Options shall be prohibited
except those by will or the laws of descent and distribution. Following
transfer, any such Stock Option shall continue to be subject to the same terms
and conditions as were applicable immediately prior to transfer, provided that
for purposes of Articles 8, 9, 11, 12, 13 and 14 hereof the term "PARTICIPANT"
shall be deemed to include the transferee. The events of Termination of
Service shall continue to be applied with respect to the original Participant,
following which the Stock Options shall be exercisable by the transferee only
to the extent and for the periods specified in the Plan and the Stock Option
Agreement. The Committee and the Company shall have no obligation to inform
any transferee of a Stock Option of any expiration, termination, lapse or
acceleration of such Option. The Company shall have no obligation to register
with any federal or state securities commission or agency any Common Stock
issuable or issued under a Stock Option that has been transferred by a
Participant under this Section 14.1.
14.2 INVESTMENT INTENT. The Company may require that there be
presented to and filed with it by any Participant(s) under the Plan, such
evidence as it may deem necessary to establish that the Stock Options granted
or the shares of Common Stock to be purchased or transferred are being
acquired for investment purposes and not with a view to their distribution.
14.3 NO EMPLOYMENT RELATIONSHIP. Each Participant is not an Employee
of the Company. Nothing herein shall be construed to create an
employer-employee relationship between the Company and the Participant.
14.4 STOCKHOLDERS' RIGHTS. The holder of a Stock Option shall have
none of the rights or privileges of a stockholder except with respect to
shares which have been actually issued.
14.5 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any
action of the Board or the Committee shall be deemed to give any person any
right to be granted a Stock Option to purchase Common Stock of the Company or
any other rights except as may be evidenced by a Stock Option Agreement, or
any amendment thereto, duly authorized by the Committee and executed on behalf
of the Company, and then only to the extent and upon the terms and conditions
expressly set forth therein.
14.6 INDEMNIFICATION OF BOARD AND COMMITTEE. No current or previous
member of the Board or the Committee, nor any officer or employee of the
Company acting on behalf of the Board or the Committee, shall be personally
liable for any action, determination, or interpretation taken or made in good
faith with respect to the Plan, and all such members of the Board and the
Committee and each and any officer or employee of the Company acting on their
behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action,
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determination or interpretation. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such
individuals may be entitled under the Company's Certificate of Incorporation
or Bylaws, by contract, as a matter of law, or otherwise.
14.7 RESTRICTIONS. This Plan, and the granting and exercise of Stock
Options hereunder, and the obligation of the Company to sell and deliver
Common Stock under such Stock Options, shall be subject to all applicable
foreign and United States laws, rules and regulations, and to such approvals
on the part of any governmental agencies or stock exchanges or transaction
reporting systems as may be required. No Common Stock or other form of payment
shall be issued with respect to any Stock Option unless the Company shall be
satisfied based on the advice of its counsel that such issuance will be in
compliance with applicable federal and state securities laws and the
requirements of any regulatory authority having jurisdiction over the
securities of the Company. Unless the Stock Options and Common Stock covered
by this Plan have been registered under the Securities Act of 1933, as
amended, each person exercising a Stock Option under this Plan may be required
by the Company to give a representation in writing in form and substance
satisfactory to the Company to the effect that he is acquiring such shares for
his own account for investment and not with a view to, or for sale in
connection with, the distribution of such shares or any part thereof. If any
provision of this Plan is found not to be in compliance with such rules, such
provision shall be null and void to the extent required to permit this Plan to
comply with such rules. Certificates evidencing shares of Common Stock
delivered under this Plan may be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any securities exchange or transaction reporting system upon which the Common
Stock is then listed or quoted, and any applicable federal, foreign and state
securities law. The Committee may cause a legend or legends to be placed upon
any such certificates to make appropriate reference to such restrictions.
14.8 GENDER AND NUMBER. Where the context permits, words in the
masculine gender shall include the feminine and neuter genders, the plural
form of a word shall include the singular form, and the singular form of a
word shall include the plural form.
14.9 TAX REQUIREMENTS. The Company shall have the right to deduct
from all amounts hereunder paid in cash or other form, any Federal, state, or
local taxes required by law to be withheld with respect to such payments. The
Participant receiving shares of Common Stock issued upon exercise of Stock
Options granted under the Plan shall be required to pay the Company the amount
of any taxes which the Company is required to withhold with respect to such
shares of Common Stock. Such payments shall be required to be made prior to
the delivery of any certificate
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representing such shares of Common Stock. Such payment may be made in cash, by
check or through the delivery of shares of Common Stock owned by the
Participant (which may be effected by the actual delivery of shares of Common
Stock by the Participant or by the Company's withholding a number of shares to
be issued upon the exercise of a Stock Option, if applicable), which shares
have an aggregate Fair Market Value equal to the required minimum withholding
payment, or any combination thereof.
14.10 USE OF PROCEEDS. Proceeds from the sale of shares of Common
Stock pursuant to Stock Options granted under this Plan shall constitute
general funds of the Company.
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IN WITNESS WHEREOF, the Company has caused this instrument to be
executed as of March 30, 2000, by its President and Secretary pursuant to
prior action taken by the Board.
OBJECTSPACE, INC.
By: /s/ DAVID NORRIS
--------------------------
David Norris, President
Attest:
By: /s/ PAUL LIPARI
--------------------------
Paul Lipari, Secretary
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OBJECTSPACE, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement ("AGREEMENT") is entered into as of December
30, 1998 by and between ObjectSpace, Inc., a Delaware corporation
("EMPLOYER"), and David Norris ("EXECUTIVE").
WITNESSETH:
WHEREAS, Employer is in the business of designing, developing,
implementing and selling custom computer programming services, computer
consulting, application development, system documentation, and other products
and services to a varied clientele at diverse locations;
WHEREAS, Employer has expended and is continuing to expend considerable
time, money and effort locating and establishing long-term relationships with
customers and prospective customers and establishing and maintaining contacts
and business relationships with them, and the loss of the benefits and
potential benefits of these efforts would constitute a substantial and
irreparable injury to Employer;
WHEREAS, Employer has expended and is continuing to expend considerable
time and money recruiting, training, making instruction available to and
compensating its employees, representatives and contractors, and the loss of
their services or potential services would constitute a substantial and
irreparable injury to Employer;
WHEREAS, Employer desires to continue employing Executive;
WHEREAS, Employer will provide updated confidential and proprietary
information and trade secrets to Executive after execution of this Agreement;
WHEREAS, Executive acknowledges that the remuneration, receipt of
updated confidential and proprietary information and trade secrets after
execution of this Agreement, are adequate consideration for entry into this
Agreement, and he understands that he need not continue employment with
Employer and that he has freely chosen to enter into this Agreement;
WHEREAS, Executive acknowledges that Employer's business involves
customers throughout North America;
NOW, THEREFORE, in consideration of the mutual covenants and
acknowledgments contained herein, the parties agree as follows:
1. EMPLOYMENT AND TERM THEREOF. Employer agrees to continue
employing Executive, and Executive agrees to continue employment, as Chief
Executive Officer. Executive will have the duties normally associated with
such a position, including, but not limited to, development of the overall
business strategy for Employer and the management of Employer's day-to-day
operations. Executive shall report to the Board of Directors of Employer.
<PAGE>
The term of this Agreement shall commence on the date hereof and shall
terminate upon the fifth anniversary hereof, unless earlier terminated by the
termination of Executive's employment under Section 2 below; PROVIDED, that
the provisions of Sections 5, 6, 7, 8, 10, 11, 13 and 14 of this Agreement,
shall survive the termination of this Agreement for any reason.
2. TERMINATION OF EMPLOYMENT. Either Employer or Executive may
terminate Executive's employment at any time, with or without Cause (defined
below) or Good Reason (defined below), (i) on eight weeks' prior written
notice by Executive to Employer if such termination is without Good Reason,
(ii) on eight weeks' prior written notice by Employer to Executive if such
termination is without Cause, or (iii) immediately upon written notice in the
case of a termination for Cause or Good Reason. In the event that employment
is terminated by Executive for Good Reason or by Employer without Cause,
Employer will pay Executive severance pay of one year's salary at the salary
rate then in effect payable in 24 equal semi-monthly installments (the
"SEVERANCE PAYMENTS"); PROVIDED, that Executive, other than the Severance
Payments, shall not be entitled to any further benefits from the Employer;
PROVIDED, FURTHER that Executive agrees that if he fails to abide by the
provisions of Section 8, that Executive waives his rights to any and all
remaining Severance Payments, that Employer may suspend all remaining
Severance Payments, and that all other covenants, promises, duties,
obligations, releases or privileges owed to or received by Employer within
this Agreement shall remain in full force and effect and continue to inure to
the benefit of Employer. In the event that the employment is terminated by
Executive without Good Reason or by Employer for Cause, Employer shall have no
further obligation to provide any benefits or make any payments (including
Severance Payments) to Executive except to the extent required by law.
For purposes of this Agreement, "CAUSE" shall mean:
(i) any act or acts of dishonesty on the part of Executive
resulting in or intended to result, directly or
indirectly, in substantial gain or substantial personal
enrichment at the expense of Employer;
(ii) fraud, misappropriation, embezzlement, or willful and
material damage by Executive of or to any material
property of Employer or its business;
(iii) a good faith determination by a majority of the Board of
Directors of Employer that Executive has exhibited a
pattern or practice of willful disregard of his duties as
an employee of Employer;
(iv) the conviction of Executive of a felony;
(v) a material violation of this Agreement;
(vi) the death of Executive; or
(vii) the Disability (defined below) of Executive.
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As used in this Agreement, the term "GOOD REASON" shall mean the
occurrence of any of the following: (A) Employer fails to make any payment
required to be made to or for the benefit of the Executive pursuant to Section
3 of this Agreement within 10 days after written notice from Executive that
such payment is due; or (B) Employer materially breaches any of its
obligations or duties under this Agreement (other than the obligation or duty
to make payments specified in the preceding clause (A) above) which breach is
materially adverse to the Executive, including, without limitation, a material
reduction in duties or title, and continues for 10 calendar days after written
notice thereof is given to Employer by the Executive.
As used in this Agreement, the term "DISABILITY" shall mean the
circumstance that shall exist if: (i) Executive is deemed disabled pursuant to
the definition of disability under any Employer-sponsored disability insurance
plan applicable to Executive, or (ii) if no such disability insurance plan
shall exist, then if because of ill health, physical or mental disability, and
notwithstanding reasonable accommodations made by Employer, the Executive
shall have been unable, unwilling or shall have failed to perform Executive's
duties under this Agreement, as determined in good faith by Employer, for a
period of 180 consecutive days, or if, in any 12-month period, the Executive
shall have been unable or unwilling or shall have failed to perform
Executive's duties for a period of 270 days, irrespective of whether or not
such days are consecutive.
3. COMPENSATION AND BENEFITS. For all services by the Executive
under this Agreement, Employer shall pay the Executive a base salary at the
rate of $175,000 per year, payable on the 15th and the last day of each month,
subject to increase by the Board of Directors.
During the Term of this Agreement, Executive shall be entitled to
participate in or receive benefits under any plan or arrangement made
generally available by Employer to its employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Any such plan or arrangement shall be revocable and subject
to termination or amendment at any time.
4. BEST EFFORTS. Executive agrees that he will faithfully and
industriously perform all the duties required of him as Chief Executive
Officer to the reasonable satisfaction of the Board of Directors of Employer
and that he will devote his full business time to the business of Employer and
that the amount of such time will be consistent with Employer's reasonable
practice.
5. INVENTIONS. Executive agrees to disclose promptly, completely
and in writing to Employer any invention, discovery, process, design, diagram,
method, apparatus or improvement, whether patentable or not, whether
implemented or not, which Executive develops or discovers individually or with
others during the performance of Executive's duties for Employer or using or
influenced by Employer's time, data, facilities or materials (all hereinafter
called "INVENTIONS"). Executive's obligations under this Section apply
regardless of whether an idea for an Invention occurs to Executive on the job,
at home, or elsewhere. Executive further agrees that all Inventions are
Employer's exclusive property, whether or not patent applications are filed on
them.
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<PAGE>
Executive will assist Employer at any time during or after Executive's
employment, at Employer's expense, in the preparation, execution, and delivery
of any disclosures, patent applications or papers required to obtain patents
for Inventions, and in connection with any other proceedings that may be
necessary to enforce Employer's rights in Inventions against others or to vest
title to them in Employer. If such assistance takes place after Executive's
employment is terminated, Employer will pay Executive at a reasonable rate.
6. REPRESENTATIONS: Executive agrees not to use ObjectSpace's name
in sponsorship or for gain, except pursuant to the performance of Executive's
duties for Employer, without prior written approval of the Board of Directors
of Employer.
7. COPYRIGHTS. Executive agrees that Employer will be the
copyright proprietor in all copyrightable works created or developed by
Executive individually or with others pursuant to Executive's employment with
Employer.
Executive further agrees, if so requested and at no further expense to
Employer, to execute in writing any acknowledgments or assignments of
copyright ownership of works within this Agreement as may be necessary for the
preservation of the worldwide proprietorship in Employer of such copyrights.
8. PROTECTIONS OF EMPLOYER'S INTERESTS.
(a) NON-COMPETE. During the period that the Executive is
employed by the Employer and for a period of one year following the
termination of employment for any reason, the Executive agrees that the
Executive will not (i) own or have any interest in, or act as a manager,
officer, director, executive, consultant, agent or representative of, or
assist in any way or in any capacity, any person, firm, association,
partnership, corporation, limited liability company or other entity that
(a) manufactures, distributes or sells products in competition with the
Employer's Products, as hereinafter defined, anywhere within North
America or (b) solicit business in competition with the Employer from
(y) any customers of the Employer who transacted business with the
Employer during the one year period prior to such termination with whom
the Executive or his direct reports had contact or (z) any potential
customers of the Employer with whom the Executive or his direct reports
had contact during the one year period prior to such termination. As
used herein, the term "PRODUCTS" means the same or similar products or
services as the Employer currently provides, including, but not limited
to a line of "middleware" products known as "Voyager" and
object-oriented consulting and training services. The Executive
acknowledges and agrees that the Employer sells its Products throughout
North America and, therefore, the geographic scope of the restriction
contained herein is both reasonable and necessary under the
circumstances. Notwithstanding anything in this Section 8(a) to the
contrary, in the event employment is terminated by Employer without
Cause or by Executive for Good Reason, Executive shall be entitled to
provide training and consulting services to any Persons other than the
customers and potential customers identified in clauses (b)(y) and
(b)(z) of this Section 8(a).
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<PAGE>
(b) NON-SOLICITATION. During Executive's employment with
Employer and for two years thereafter, Executive will not directly or
indirectly, whether for himself or any other person or entity, employ,
hire, solicit or try to entice away any person who (1) was an employee
or independent contractor of Employer during Executive's employment by
Employer, or (2) was employed by any customer of Employer and with whom
Executive had direct contact during Executive's employment with
Employer.
(c) BUSINESS OPPORTUNITY. Executive agrees that given the
relationship between the parties, the restrictions in Sections 8(a) and
8(b) contain reasonable restrictions of time, geographical area, and
scope of activity and that these restrictions do not impose any greater
restraint than is necessary to protect the goodwill and other legitimate
business interests of Employer, including but not limited to the
personal goodwill developed by Executive with Employer's clients or
customers and the protection of Employer's trade secrets, proprietary
information and know-how. Executive further agrees that the
restrictions in Sections 8(a) and 8(b) will not prevent him from
obtaining gainful employment or cause him undue hardship.
(d) CONFIDENTIALITY. Executive acknowledges that Employer's
trade secrets, proprietary information and know-how are valuable,
special and unique assets of Employer's business, access to and
knowledge of which are essential to the performance of Executive's
duties hereunder. Executive agrees to keep confidential, except as the
Board of Directors of Employer may otherwise consent in writing, and
not to disclose, or make any use of except for the benefit of the
Employer, at any time either during or after his employment, any trade
secrets, proprietary information or know-how of the Employer, including
but not limited to that which relates to the Employer or the Employer's
research, services, development, processes, designs, formulas, test
data, purchasing, accounting, customer lists, business plans, marketing
plans and strategies, pricing strategies, internal operating
procedures, written materials provided to third parties by agreement,
implementation techniques of Employer programs, or other subject matter
pertaining to any business of the Employer or any of its clients,
customers, consultants, licensees, or affiliates that Executive may
produce, obtain or otherwise acquire during his employment, except as
provided herein. Executive further agrees not to deliver or allow to be
delivered trade secrets, proprietary information or know-how to third
parties without the consent of an authorized representative of the
Board of Directors of Employer. Executive further agrees that he will
not use or disclose to Employer confidential information belonging to
his former employers.
(e) DISCLOSURE. Executive will make the terms and conditions
of this Agreement known to any business, entity or person engaged in
activities competitive with Employer's business with which he becomes
associated. Employer will have the right to make the terms of this
confidentiality agreement known to third persons.
(f) EMPLOYER DOCUMENTS. At the time of Executive's
termination or upon demand by the Board of Directors of Employer
(whichever is sooner), Executive will promptly turn over to Employer
all files, documents, business records, lists of customers and
potential customers, promotional materials, internal operating reports,
names and addresses of executives and potential executives, customer
strategy information,
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<PAGE>
employment and payroll records, marketing information, manuals, billing
reports, pricing information and strategies, management methods and
systems, contracts with customers, subcontractors and others,
correspondence, resumes of existing and potential executives, customer
bids and proposals, books and records, and any other records,
documents, writings of any kind whatsoever, and all assets of any kind
whatsoever that belong to Employer. Further, Executive will not copy
or record in any manner whatsoever the information contained in the
foregoing materials, and Executive will turn over to Employer any
copies or recordings of any kind whatsoever containing information
derived directly or indirectly from such materials.
(g) ENFORCEMENT. The parties agree that if there is a breach
or threatened breach by Executive of any of the provisions of this
Section 8, Employer will be entitled to injunctive relief restraining
Executive, as any breach or threatened breach would cause irreparable
injury to Employer for which there would be no adequate remedy at law.
Nothing herein prohibits Employer from pursuing other remedies
available for any breach or threatened breach, including the recovery
of damages from Executive. Should any provision of this Section 8 be
held unreasonably broad in its restrictions as to time, geographical
area, or scope of activity, the provision will be limited as necessary
to render it reasonable.
(h) CONSTRUCTION. The covenants of Executive contained in
this Section 8 will be construed as an agreement independent of any
other provision of this Agreement, and the existence of any claim or
cause of action of Executive against Employer, whether predicated on
this Agreement or otherwise, will not constitute a defense to the
enforcement by Employer of said covenants.
9. COMMUNICATIONS: All communications to Employer pursuant to this
Agreement must be in writing and addressed to:
ObjectSpace, Inc.
14850 Quorum Drive, Suite 500
Dallas, Texas 75240
ATTN.: Vice President of Human Resources
or any other address that Employer may hereafter designate by written
communications to Executive given in accordance with this Section 9, and all
communications to Executive will be addressed to Executive at Employer's
office in which he is usually employed or to his home address as last
indicated in the books and records of Employer or at any other address as
Executive may hereafter designate by written communications to Employer given
in accordance with this Section 9.
10. MARKET STAND-OFF. Executive, in connection with the first
Underwritten Offering (defined below), upon request of Employer or the
underwriters managing such Underwritten Offering, agrees not to sell, make any
short sale of, loan, pledge, exercise any option for the purchase of or
otherwise dispose of any securities of Employer (other than those included in
the Underwritten Offering) without the prior written consent of any authorized
representative of such underwriters for 90 days (or such longer period as the
managing
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<PAGE>
underwriter reasonably requests not to exceed 180 days) from the effective
date of such registration.
As used in this Agreement, "UNDERWRITTEN OFFERING" means a registration
in which securities of Employer are sold to an investment banking firm or
firms for re-offering to the public pursuant to a registration statement
declared effective under the Securities Act of 1933, as amended.
11. INVESTOR RIGHTS AGREEMENT. If Employer delays a demand
registration pursuant to Section 2(d) of the Investor Rights Agreement to be
entered into among Employer, Magellen Technologies, Inc., Cornerstone Fund I,
L.L.C., Venture Fund I, L.L.C., Cornerstone Equity Partners, L.L.C., Bentley
Family Holdings, L.L.C., Berthel SBIC, LLC, and Diamond Venture Capital,
L.L.C. (the "INVESTOR RIGHTS AGREEMENT"), then the Executive hereby agrees not
to cause Employer to register any securities for the Executive's own account
for such period as Employer continues to delay such demand registration
pursuant to Section 2(d) of the Investor Rights Agreement.
12. LOAN. Employer shall loan to Executive $150,000 upon the
closing of the transactions set forth in that certain Purchase Agreement to be
entered into among Employer, Magellen Technologies, Inc., Cornerstone Fund I,
L.L.C., Venture Fund I, L.L.C., Cornerstone Equity Partners, L.L.C., Bentley
Family Holdings, L.L.C., Berthel SBIC, LLC, and Diamond Venture Capital,
L.L.C. (the "CLOSING"), at an interest rate, computed on a simple interest
basis, equal to the applicable federal rate as determined by the Internal
Revenue Service for a loan on the terms described in this Section 12 and
commencing on the date of the Closing. The principal of and accrued interest
upon such loan, computed as aforesaid, shall be due and payable in three equal
annual installments, commencing on the Commencement Date (defined below), and
thereafter on the first and second anniversary date of the Commencement Date.
Upon the Closing, a note evidencing the loan under this Section 12
shall be executed containing the terms described herein, with such other
customary terms as are reasonable, necessary and appropriate.
As used in this Agreement, "COMMENCEMENT DATE" means the earlier of (i)
the 270th day following the consummation of the initial Underwritten Offering
or (ii) June 30, 2003.
13. ARBITRATION.
(a) INTRODUCTION. Executive recognizes that differences may
arise between the Employer and Executive during or following Executive's
employment with the Employer, and that those differences may or may not
be related to Executive's employment with the Employer. Executive
understands and agrees that the Employer is engaged in transactions
involving interstate commerce and that Executive's employment with
Employer involves such commerce. Executive understands and agrees that
by agreeing to arbitration hereunder, the Executive anticipates gaining
the benefits of speedy, impartial dispute resolution of any Claim (as
defined below).
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(b) AGREEMENT TO ARBITRATE. In the event there is any dispute,
claim, or controversy, whether or not arising out of Executive's
employment, its termination, or this Agreement and regardless of the kind
or type of dispute, claim or controversy (excluding claims for workers'
compensation, unemployment compensation benefits and claims by the
Employer for injunctive and/or other equitable relief) that the Employer
may have against Executive or that Executive may have against the
Employer or against its directors, officers, stockholders, employees,
affiliates, representatives, or agents in their capacity as such or
otherwise (all such disputes, claims or controversies being collectively
referred to as "CLAIMS"), the Executive and the Employer agree to submit
all such Claims to final and binding arbitration pursuant to the
provisions of the Federal Arbitration Act, upon a request submitted in
writing to the Board of Directors of Employer within two years of the
date when the aggrieved party has knowledge of the event giving rise to
the claim, or within two years of the termination of employment,
whichever occurs first. Except as provided in Sections 13(c) and 13(d)
hereof, arbitration shall be the sole and exclusive remedy for all Claims
covered by this Agreement, and any failure to request arbitration timely
shall constitute a waiver of all rights to raise any Claims in any forum,
even if there is a federal or state statute of limitations that would
have given more time to pursue the Claim. The limitations period set
forth in this paragraph shall not be subject to tolling, equitable or
otherwise.
(c) CLAIMS COVERED. The Claims covered by this Agreement
include, but are not limited to, claims for wages or other compensation
due; claims for breach of any contract or covenant (express or implied);
tort claims (including, but not limited to, assault, battery, defamation,
slander, retaliation for filing a workers' compensation claim,
retaliation for reporting a criminal act, negligent
hiring/training/supervision/retention, emotional distress (whether
negligently, gross negligently, or intentionally inflicted), invasion of
privacy); claims for discrimination or retaliation (including, but not
limited to, race, sex, sexual harassment, sexual orientation, religion,
national origin, age, pregnancy, leave of absence, marital status, or
medical condition, handicap or disability); claims for benefits (except
where an employee benefit or retirement plan specifies that its claims
procedure shall culminate in an arbitration procedure different from this
one); and claims for violation of any federal, state, or other
governmental law, statute, regulation, or ordinance, except claims
excluded in Section 13(d). Executive understands that this Section 13
covers Claims not only against the Employer, but all other potential
defendants, including but not limited to co-employees, managers,
supervisors, directors, officers, stockholders, joint employers,
representatives, agents, and parent, subsidiary, affiliated and successor
companies. Further, Executive understands that Executive is not waiving
Executive's right to pursue a charge at any time with the National Labor
Relations Board or any other federal, state or city agency.
(d) CLAIMS NOT COVERED. Claims Executive may have for workers'
compensation benefits or unemployment compensation benefits are not
covered by this Section 13. Further, Claims by the Employer for
injunctive and/or other equitable relief are also not covered, including
but not limited to claims for unfair competition (including, but not
limited to, violations of Sections 8) and/or the use and/or unauthorized
disclosure of trade secrets or confidential information, as to which
-8-
<PAGE>
Executive understands and agrees that the Employer may seek and obtain
relief from a court of competent jurisdiction.
(e) PROCEDURE. All Claims will be resolved by a single
arbitrator in Dallas, Texas in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
(the "AAA"), as amended, modified or revised. The arbitrator shall apply
federal and/or Texas substantive law, as appropriate to the particular
claims presented. Judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction. To the extent this
Section 13 and the rules of the AAA conflict, this Section shall prevail.
(f) THE ARBITRATOR'S AUTHORITY. The arbitrator shall only have
those powers authorized by statute or enumerated below:
(i) Rule on motions regarding the pleadings and discovery;
(ii) Issue protective orders on the motion of any party or third
party witness. Such protective orders may include, but are
not limited to, sealing the record of the arbitration, in
whole or in part (including discovery proceedings and
motions, transcripts and the decision and award), to
protect the privacy or other constitutional or statutory
rights of parties and/or witnesses;
(iii) Determine only the Claim submitted to the arbitrator. The
Claim shall be identified in any request for arbitration,
any counterclaim(s), and the answer(s) thereto. Any Claim
not identified in those pleadings is outside the scope of
the arbitrator's jurisdiction and any award invoking such
Claims is subject to a motion to vacate; PROVIDED, HOWEVER,
that the arbitrator shall have exclusive authority to
resolve any Claim relating to the validity, interpretation,
application, and enforcement of this Section 13; and
(iv) The arbitrator shall only be authorized to exercise powers
specifically enumerated by this Agreement and to decide the
Claim in accordance with governing principles of law and
equity. The arbitrator shall not have any authority to
modify the powers granted to the arbitrator by the terms of
this Agreement. The arbitrator also shall not have the
authority to modify a party's responsibility for fees and
costs as set forth below, except as required by law.
(g) COSTS OF ARBITRATION. If a party chooses to be represented
by an attorney (or other representative) during the arbitration, that
party shall be responsible for its own attorneys' fees, except as
provided by law. Each party shall be responsible for one-half the cost
of the court reporters' fees, the AAA's filing fee, the arbitrator's fee,
the cost of the arbitrator's transcript of the hearing and any costs
associated with the facilities for the arbitration (E.G., the hearing
room). Each party shall be responsible for all costs associated with
discovery which that party initiates (E.G., depositions), except
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<PAGE>
that a party or third party witness being deposed shall be responsible
for the cost of a copy of the transcript if he chooses to order a copy.
14. GENERAL PROVISIONS
(a) ENTIRE AGREEMENT. This Agreement supersedes, replaces and
merges any and all prior and contemporaneous understandings,
representations, agreements and discussions relating to the same or
similar subject matter as that of this Agreement and constitutes the
entire agreement between Executive and Employer about the subject matter
of this Agreement.
(b) NO CONFLICT. Executive represents and warrants that he is
not under any legal or contractual obligation that would conflict with
the obligations and duties he is undertaking herein, and that his
execution of this Agreement will not breach any agreement to which he is
a party.
(c) SEVERABILITY. If any provision of this Agreement is held
unenforceable under present or future laws, the provision will be
severable, and this Agreement will be construed and enforced as if the
unenforceable provision never comprised a part of it. Furthermore, in
lieu of the unenforceable provision, there will be added automatically a
provision as similar in its terms to the unenforceable provision as may
be enforceable.
(d) REMEDIES. If any violation of the covenants contained
herein occurs, as determined by any court of competent jurisdiction,
Employer will be authorized and entitled to obtain preliminary and
permanent injunctive relief as well as an equitable accounting of any and
all profits or benefits arising out of such violation, which rights and
remedies will be cumulative and in addition to any other rights or
remedies to which Employer may be entitled, including the right to
damages directly or indirectly sustained by Employer. Except as provided
in Section 13, Executive further agrees to pay the reasonable attorneys'
fees, court costs and litigation expenses incurred by Employer in
successfully enforcing any of the provisions of this Agreement.
In the event of the violation of any of the covenants contained
herein, the period, if any, therein will abate during the time of
violation thereof and that portion remaining at the time of commencement
of any violation will not begin to run until such violation has been
fully and finally cured.
(e) CAPTIONS. The captions contained herein are solely for the
convenience of the parties and will not be deemed to govern the meaning
or intent of any of the provisions of this Agreement.
(f) GENDER. Whenever the male gender is used in this
Agreement, it is applicable to both male, female and neuter, singular and
plural.
(g) ASSIGNMENT. The rights and obligations of Employer
hereunder will inure to the benefit of and be binding upon any successor
or assign of Employer. This
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<PAGE>
Agreement is personal to Executive and shall not be assigned by him.
Any attempted assignment by Executive in violation of this Agreement
shall be void.
(h) WAIVER. The waiver or non-enforcement by Employer or any
breach of any provision of this Agreement by Executive will not be a
waiver of any subsequent breach by Executive. No waiver will be legally
operative unless in writing and signed by an authorized agent of
Employer.
(i) GOVERNING LAW. This Agreement will be construed according
to the laws of Texas, without regard to its conflict of law principles,
and venue in any legal proceeding will be in Dallas County, Texas.
(j) AMENDMENT. The parties may amend this Agreement only by a
signed, written agreement.
* * * * * * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
Employer: Executive:
OBJECTSPACE, INC. DAVID NORRIS
Signed: /s/ DEBORAH A. THOMAS /s/ DAVID NORRIS
------------------------- -------------------------
Name: DEBORAH A. THOMAS Executive Signature
---------------------------
Title: VICE PRESIDENT
--------------------------
EMPLOYMENT AGREEMENT - DAVID NORRIS
<PAGE>
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is entered into as of March
28, 2000 (this "Amendment"), between ObjectSpace, Inc., a Delaware
corporation (the "Company"), and Mr. David Norris, an individual residing in
the State of Texas ("Mr. Norris") and amends that certain Employment
Agreement between the parties dated as of December 30, 1998 (the "Agreement")
In consideration of the mutual promises contained in this Amendment,
the parties agree as follows:
1. As consideration for this Amendment, the Company agrees to, and
will provide updated confidential and proprietary information and
trade secrets to Mr. Norris during his term of employment and after
the execution of this Amendment
2. Section 8(a) of the Agreement is hereby amended in its entirety to
read as follows:
(a) Non-Compete. During the period that the Executive is employed
by the Employer and for a period of one year following the
termination of employment for any reason, the Executive agrees
that the Executive will not (i) own or have any interest in,
or act as a manager, officer, director, executive, consultant,
agent or representative of, or assist in any way or in any
capacity, any person, firm, association, partnership,
corporation, limited liability company, or other entity that
(a) manufactures, distributes or sells products in competition
with the Employer's Products (as hereinafter defined),
anywhere within North America, or (b) solicit business in
competition with the Employer from (y) any of the Employer's
customers who transacted business with the Employer during the
one year period prior to such termination with whom the
Executive or his direct reports had contact, or (z) any of the
Employer's potential customers with whom the Employer or his
direct reports had contact during the one year period prior to
such termination. As used herein, "Products" means the same
or similar products or services as the Employer provides
during Executive's term of employment, including, but not
limited to a line of "middleware" products known as "Voyager,"
business to business integration products known as
"OpenBusiness," and object-oriented consulting and training
services. The Executive acknowledges and agrees that the
Employer sells the Products throughout North America and,
<PAGE>
therefore, the geographic scope of the restriction contained
herein is both reasonable and necessary under the
circumstances. Notwithstanding anything in this Section 8(a)
to the contrary, in the event employment is terminated by
Employer without Cause or by Executive for Good Reason,
Executive shall be entitled to provide training and consulting
services to any Persons other than customers and potential
customers identified in clause (b)(y) and (b)(z) of this
Section 8(a).
3. Except as set forth herein, all other terms and conditions of the
Agreement remain in full force and effect, and are hereby ratified.
The parties have signed this Amendment as of the date first above set forth.
OBJECTSPACE, INC.
By: /s/ Paul A. Lipari /s/ David Norris
--------------------------- ---------------------------
Paul A. Lipari David Norris
Chief Financial Officer
2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated March 30, 2000, in
the Registration Statement (Form S-1) and related Prospectus of ObjectSpace,
Inc. for the registration of shares of its common stock, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Dallas, Texas
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,669,745
<SECURITIES> 3,001,082
<RECEIVABLES> 9,284,068
<ALLOWANCES> (237,581)
<INVENTORY> 0
<CURRENT-ASSETS> 15,129,979
<PP&E> 3,912,195
<DEPRECIATION> (2,110,996)
<TOTAL-ASSETS> 17,542,956
<CURRENT-LIABILITIES> 10,259,108
<BONDS> 0
17,969,100
0
<COMMON> 196,850
<OTHER-SE> (11,974,840)
<TOTAL-LIABILITY-AND-EQUITY> 17,542,956
<SALES> 0
<TOTAL-REVENUES> 20,145,961
<CGS> 0
<TOTAL-COSTS> 11,371,693
<OTHER-EXPENSES> 15,036,065
<LOSS-PROVISION> 166,851
<INTEREST-EXPENSE> 641,609
<INCOME-PRETAX> (4,153,030)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,647,304)
<DISCONTINUED> 2,494,274
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,153,030)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
