<PAGE>
As filed with the Securities and Exchange Commission on April 9, 1999
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CLARENT CORPORATION
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
Delaware 7372 77-0433687
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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700 Chesapeake Drive
Redwood City, California 94063
(650) 306-7511
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Jerry Shaw-Yau Chang
Chief Executive Officer
Clarent Corporation
700 Chesapeake Drive
Redwood City, California 94063
(650) 306-7511
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Patrick A. Pohlen, Esq. Jeffrey D. Saper, Esq.
COOLEY GODWARD LLP Donna M. Petkanics, Esq.
Five Palo Alto Square WILSON SONSINI GOODRICH & ROSATI
3000 El Camino Real Professional Corporation
Palo Alto, CA 94306-2155 650 Page Mill Road
(650) 843-5000 Palo Alto, CA 94304-1050
(650) 493-9300
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the 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, as amended (the "Securities Act"), 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
number 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 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>
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Title of Each Class of Proposed Maximum Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, par value $.001........ $73,600,000 $20,461
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) 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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 9, 1999
Shares
[LOGO OF CLARENT(TM) CORPORATION]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
We expect the initial public offering price to be between $ and $
per share. We have applied to list our common stock on The Nasdaq
National Market under the symbol "CLRN."
The underwriters have an option to purchase up to additional
shares of common stock to cover over-allotments of shares.
Investing in the common stock involves certain risks. See "Risk Factors" on
page 8.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Clarent
-------------- -------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999,
against payment in immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
U.S. Bancorp Piper Jaffray
Prospectus dated , 1999.
<PAGE>
[A bar chart comparing us and other IP telephony technology providers]
More minutes travel over Clarent IP telephony
technology than the IP telephony technology of any other supplier.
Worldwide IP Telephony Traffic Study
(March 1999)
iLocus (Industry Analysts),
London, England
[A graphic featuring a world map]
2
<PAGE>
[Artwork illustrating the connection between our customers and our technology]
Clarent: Cutting-edge Technology
. Clarent offers clear, circuit-switched quality voice and simultaneous
voice, fax and data transmission
. Clarent provides dynamic call routing, real-time billing, network
management and other operational support systems
. Core architecture built for growth and new features
Clarent: Global Customer Presence
. Approximately 100 telecommunications service providers
. International long distance, wholesale and domestic long distance
providers
. Technology installed in approximately 45 countries
Clarent: Connecting Customers And Growing With Them Over Time
. Technology and customer base creating the world's next-generation
telecommunications network
. Clarent System provides a robust, scalable platform for global delivery
of value-added services and advanced features
. Service providers using Clarent technology to form international
partnerships
3
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 5
Risk Factors........................ 8
Use of Proceeds..................... 21
Dividend Policy..................... 21
Capitalization...................... 22
Dilution............................ 23
Selected Consolidated Financial
Data............................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
Business............................ 35
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management....................... 46
Certain Transactions............. 55
Principal Stockholders........... 57
Description of Capital Stock..... 59
Shares Eligible for Future Sale.. 61
Underwriting..................... 63
Notice to Canadian Residents..... 64
Legal Matters.................... 65
Experts.......................... 65
Additional Information........... 66
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
------------
"Clarent" is a registered trademark and the Clarent logo and the Clarent
Command Center are trademarks of Clarent Corporation in the United States and
other jurisdictions. All other trademarks or service marks appearing in this
prospectus are trademarks or service marks of the respective companies that use
them.
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
4
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, including "Risk Factors" and the
Consolidated Financial Statements and Notes thereto, before making an
investment decision.
Except as otherwise indicated, all information in this prospectus assumes:
(1) no exercise of the underwriters' over-allotment option; (2) the issuance of
1,084,806 shares of common stock upon the net exercise of outstanding warrants
upon completion of this offering; (3) the automatic conversion of each
outstanding share of preferred stock into two shares of common stock
immediately prior to the completion of this offering; (4) a two-for-one stock
split of the common stock upon completion of this offering; and (5) the filing
of our amended and restated certificate of incorporation upon completion of
this offering.
Clarent Corporation
We design, develop, market and sell integrated Internet Protocol (IP)
telephony systems. Our Clarent IP Telephony Solution (Clarent System) is an
integrated hardware and software solution that enables telecommunications
service providers to rapidly deploy voice, fax and data services over their IP
networks. Using the Clarent System, service providers can deliver a level of
voice service quality that is indistinguishable from circuit-switched voice
service, while simultaneously delivering a superior level of fax and data
transmission quality compared to existing circuit-switched fax and data
services. As a result, the Clarent System enables service providers to deliver
their end-user customers lower-cost communications services and deploy new
communications features as they become available.
The Clarent System consists of three main components: (1) the Clarent
Gateway, a standards-based network server; (2) the Clarent Command Center, a
proprietary client/server software package; and (3) a relational database,
which is supplied by a third-party. The Clarent Gateway converts voice, fax and
data into IP packets and transmits these packets over an IP network, then
converts them back into circuit-switched voice, fax and data streams. The
Clarent Command Center serves as the intelligent data processing engine for the
Clarent System, supporting all network management and administration functions,
including call routing, call pricing (rating), subscriber authentication and
billing, as well as network diagnostic and maintenance functions. The database
serves as the repository for all stored data for a network, including customer
destination addresses and billing information.
Our strategic objective is to be the leading provider of comprehensive IP
telephony solutions to service providers worldwide.
Key elements of our strategy include:
. increase our penetration of the service provider market;
. provide the core technology enabling the delivery of a broad range of IP
telephony services;
. target key growth markets worldwide;
. extend our technology leadership position;
. promote strategic relationships between our customers; and
. deliver added value through customer support and services.
We began commercial shipment of the Clarent System in March 1997. As of
March 31, 1999, we had shipped the Clarent System to approximately 100
organizations in 45 countries worldwide. The Clarent System
5
<PAGE>
has been installed in some of the world's leading service provider networks,
including AT&T Corporation, Chunghwa Telecom (Taiwan), Ji-Tong Communications
(People's Republic of China), KDD (Japan), Korea Telecom, KPN Telecom
Netherlands, Singapore Telecom, Star Telecom (United States) and Telia Telecom
(Sweden).
We were originally incorporated under the name NetiPhone, Incorporated in
California in July 1996. We changed our name to Clarent Corporation in May
1997, and we reincorporated in Delaware in 1999. Our headquarters are
located at 700 Chesapeake Drive, Redwood City, California 94063, and our
telephone number is (650) 306-7511. The address of our web site is
"www.clarent.com." Information contained on our web site should not be
considered a part of this prospectus.
The Offering
Common stock offered.................. shares
Common stock to be outstanding after
this offering......................... shares(1)
Use of proceeds....................... We intend to use the estimated proceeds
from this offering for working capital
and general corporate purposes,
including research and development,
sales, marketing and customer support.
Proposed Nasdaq National Market
symbol................................ CLRN
- --------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999, and does
not include the following:
. 7,631,842 shares subject to options outstanding as of March 31, 1999, at
a weighted average exercise price of $0.80 per share;
. 3,200,000 shares that we could issue under stock plans, of which
1,755,170 shares were approved by the Board of Directors on April 8,
1999, subject to stockholder approval;
. 202,000 shares reserved for issuance on the exercise of warrants
outstanding as of March 31, 1999, at an exercise price of $3.29 per
share; these warrants are not exercisable at this time and expire, if not
earlier exercised, upon the closing of this offering; and
. shares that may be purchased by the underwriters to cover over-
allotments, if any.
----------------
Please see "Capitalization" for a more complete discussion regarding the
outstanding shares of our common stock, options and warrants to purchase common
stock and other related matters.
6
<PAGE>
Summary Consolidated Financial Data
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Year ended
Period from December 31,
July 2, 1996 (inception) ----------------
to December 31, 1996 1997 1998
------------------------ ------- -------
<S> <C> <C> <C>
Consolidated Statement of Operations
Data:
Net revenue........................ $ -- $ 3,359 $14,647
Cost of revenue.................... -- 1,189 6,653
----- ------- -------
Gross profit....................... -- 2,170 7,994
Operating expenses:
Research and development.......... 136 1,044 3,356
Sales and marketing............... -- 2,046 7,099
General and administrative........ 140 639 2,484
Amortization of deferred
compensation..................... -- -- 522
Settlement expense................ -- 570 --
----- ------- -------
Total operating expenses......... 276 4,299 13,461
----- ------- -------
Loss from operations............... (276) (2,129) (5,467)
Interest income, net............... -- 70 32
----- ------- -------
Loss before income taxes........... (276) (2,059) (5,435)
Provision for income taxes......... -- -- (40)
----- ------- -------
Net loss........................... $(276) $(2,059) $(5,475)
===== ======= =======
Pro forma basic and diluted net
loss per share.................... $ (0.39)
=======
Shares used to compute pro forma
basic and diluted net loss per
share(1).......................... 14,108
=======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
----------------------
Actual As Adjusted(2)
------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................... $11,903
Working capital......................................... 11,531
Total assets............................................ 25,177
Total stockholders' equity.............................. 13,764
</TABLE>
- --------
(1) See Note 11 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
per share data.
(2) Adjusted to reflect the sale of shares of common stock in this
offering (assuming no exercise of the underwriters' over-allotment option)
at an assumed initial public offering price of $ per share and the
application of the estimated net proceeds after deducting the underwriting
discounts and commissions and our estimated offering expenses. See "Use of
Proceeds" and "Capitalization."
7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. The risks and
uncertainties described below are not the only ones that we face. Additional
risks and uncertainties not presently known to us or that we currently believe
are immaterial also may impair our business operations. If any of the following
risks occurs, our business, operating results and financial condition could be
seriously harmed. In addition, the trading price of our common stock could
decline due to any of these risks, and you may lose all or part of your
investment.
We Have A Limited Operating History Which Makes It Difficult To Evaluate Our
Prospects
We are an early-stage company in the emerging Internet Protocol (IP)
telephony market. We were founded in July 1996, have a limited operating
history and have not generated significant revenue to date. The revenue and
income potential of our business and of the IP telephony market are unproven.
As a result of our limited operating history, we have limited financial data
that you can use to evaluate our business. You must consider our prospects in
light of the risks, expenses and challenges we might encounter because we are
at an early stage of development in a new and rapidly evolving market.
We may not successfully meet any of these challenges, and our failure to do
so will seriously harm our business and results of operations. In addition,
because of our limited operating history we have limited insight into trends
that may emerge and affect our business.
We Expect To Increase Our Operating Expenses And Incur Future Losses
We have experienced operating losses in each quarterly and annual period
since inception. The following table shows our operating losses for the periods
indicated:
<TABLE>
<CAPTION>
Period Operating Loss
------ --------------
<S> <C>
July 2, 1996 (inception) to December 31, 1996................. $ (276,000)
Year ended December 31, 1997.................................. (2,129,000)
Year ended December 31, 1998.................................. (5,467,000)
</TABLE>
As of December 31, 1998, we had an accumulated deficit of $7.8 million. We
expect to incur operating losses for the foreseeable future, and these losses
may be substantial. Further, we expect to incur negative operating cash flow in
the future. Because of continuing and substantial capital expenditures and
increasing product development, sales, marketing and general and administrative
expenses, we will need to generate significant revenue growth to achieve
profitability and positive operating cash flow. Even if we do achieve
profitability and positive operating cash flow, we may not be able to sustain
or increase profitability or positive operating cash flow on a quarterly or
annual basis.
Our Operating Results Will Fluctuate Because Of Many Factors
Our quarterly and annual operating results have varied significantly in the
past and will likely vary significantly in the future. A number of factors,
many of which are outside our control, may cause our operating results to vary,
including:
. the size, timing and contractual terms of orders for our products;
. the introduction of products and services by our competitors;
. the size and timing of our expenses, including operating expenses and
expenses of developing new products and product enhancements;
. general domestic and global economic conditions;
. the timing and rate of deployment of IP telephony services by
telecommunications service providers;
8
<PAGE>
. our sales cycle, which may vary substantially from customer to customer;
. changes in pricing by us or our competitors;
. our ability to develop, market and sell new products and enhancements on
a timely basis;
. deferrals of customer orders in anticipation of new products, services or
product enhancements introduced by us or by our competitors;
. unfavorable changes in the prices of the components we purchase;
. our ability to attain and maintain production volumes and quality levels
for our products;
. the loss of any significant customer; and
. costs we may incur if we become involved in future litigation.
As a result of the factors listed above, our future operating results are
difficult to predict. Further, we base our current and future expense plans in
significant part on our expectations of our future revenue. As a result, we
expect our expense levels to be relatively fixed in the short run. An
unanticipated decline in revenue for a particular quarter may
disproportionately affect our net income (loss) in that quarter. Therefore, if
our revenue is below our projections, then our operating results will
deteriorate and our losses will increase in the short run.
Any of the above factors could harm our business, financial condition and
results of operations. We believe that period-to-period comparisons of our
results of operations are not meaningful, and you should not rely upon them as
indicators of our future performance.
We Expect Continued Erosion In The Average Selling Prices Of Our Products
We have experienced significant erosion in the average selling prices of our
products due to a number of factors, including competitive pricing pressures,
rapid technological change and sales discounts. We anticipate that the average
selling prices of our products will decrease and fluctuate in the future in
response to the same factors. Therefore, to maintain or increase our gross
margins, we must develop and introduce new products and product enhancements on
a timely basis. We must also continually reduce our product costs. As our
average selling prices decline, we must increase our unit sales volume to
maintain or increase our revenue. We must continue to innovate and reduce our
costs to remain competitive. If our average selling prices decline more rapidly
than our costs, our gross margins will decline, which could seriously harm our
business, financial condition and results of operations. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Our Markets Are Highly Competitive And We Cannot Assure You That We Will Be
Able To Compete Effectively
We compete in a new, rapidly evolving and highly competitive market. We
expect competition to intensify in the future. We believe that the main
competitive factors in our market are product quality, features, cost and
customer relationships. We believe a critical component to success in this
market is the ability to establish and maintain strong customer relationships
with a wide variety of international service providers and to facilitate
relationships between those service providers to increase the geographic
coverage of their services.
Our principal competitors include large networking equipment manufacturers,
such as Cisco Systems, Inc., large telecommunications equipment manufacturers,
such as Lucent Technologies Inc., emerging IP telephony technology companies,
such as VocalTec Communications Ltd., and IP telephony-based operational
support systems, such as billing and network management, manufacturers. Many of
our competitors are substantially larger than we are and have significantly
greater financial, sales and marketing, technical, manufacturing and other
resources. These competitors may also have more established distribution
channels and stronger relationships with service providers. These competitors
may be able to respond more rapidly to new or emerging technologies and changes
in customer requirements or devote greater resources to the development,
promotion and sale of their products than we can. Furthermore, some of our
competitors offer aggressive sales
9
<PAGE>
terms, including financing alternatives, which we cannot match. These
competitors may enter our existing or future markets with solutions that may be
less expensive, provide higher performance or additional features or be
introduced earlier than our solutions. Given the market opportunity, we also
expect that other companies may enter our market with better products and
technologies. If any technology that is competing with ours is more reliable,
faster, less expensive or has other advantages over our technology, then the
demand for our products and services could decrease.
We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies. Successful new
product introductions or enhancements by our competitors could reduce the sales
or market acceptance of our products and services, perpetuate intense price
competition or make our products obsolete. To be competitive, we must continue
to invest significant resources in research and development, sales and
marketing and customer support. We cannot be sure that we will have sufficient
resources to make such investments or that we will be able to make the
technological advances necessary to be competitive.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share. Our failure to compete successfully against
current or future competitors could seriously harm our business, financial
condition and results of operations.
The Rate Of Our Sales Growth Depends On Our Customers' Partnering With Each
Other And The Interoperability Of Our Customers' Networks
We encourage our customers to make arrangements with each other to increase
the coverage of their networks and reduce the costs associated with terminating
calls on circuit-switched networks. We believe that the establishment of these
arrangements is critical to our revenue growth. Through these relationships,
our customers can significantly reduce their costs and increase their access to
a broader global marketplace by directing traffic to destinations on other
parties' IP-based packet-switched networks. Our customers can also reduce costs
by joining an IP telephony clearinghouse, enabling them to exchange IP
telephony calls with multiple partners. These clearinghouses also provide
accounting and settlement services associated with these cross-provider calls.
AT&T Corporation and Telia Telecom have established global clearinghouses based
on our products, enabling customers to move traffic to multiple destinations
worldwide. We believe the increased access that such partnering arrangements
provide may increase the demand for IP telephony services in general, and our
products in particular. We may not be able to continue to facilitate such
independent relationships or successfully encourage the maintenance of existing
relationships, all of which may seriously harm our business, financial
condition and results of operations.
An increasing number of our customers have requested that our products
interoperate with competing products from other vendors. If we are unable to
provide interoperable solutions to our customers, they may seek alternative
vendors in order to increase their access to additional partnerships, which
would seriously harm our business, financial condition and results of
operations.
We May Not Be Able To Retain Key Personnel Or Hire Additional Qualified
Personnel
Our future success depends, in large part, on our ability to attract and
retain highly skilled engineering, marketing, sales, customer support, finance
and managerial personnel. We will need to expand our marketing and sales
operations in order to increase market awareness of our products and generate
increased revenue. New marketing and sales personnel will require training and
take time to achieve full productivity. In addition, the design and
installation of IP telephony solutions can be complex. Accordingly, we need
highly trained professional services and customer support personnel. We
currently have a small professional services and customer support organization
and will need to increase our staff to support new customers and the expanding
needs of existing customers. Competition for such personnel is intense,
especially in the San Francisco Bay Area where we maintain our headquarters,
and we cannot be certain that we will successfully attract and retain such
personnel.
10
<PAGE>
The loss of the services of any of our key personnel, the inability to
attract or retain qualified personnel in the future or delays in hiring
required personnel, particularly engineers and sales and marketing personnel,
may seriously harm our business, financial results and results of operations.
In addition, our key person life insurance policy, covering certain key
personnel, may be insufficient to cover the costs associated with the loss of
one of these key employees.
We May Not Be Able To Successfully Manage The Recent And Anticipated Expansion
In Our Operations
Since we began commercial shipment of our products in March 1997, we have
experienced a period of rapid growth and expansion which is significantly
straining all of our resources. From September 30, 1998 to March 31, 1999, the
number of our employees increased from approximately 70 to 155. We expect our
anticipated growth and expansion to continue to place strain on our management,
operational and financial resources. To accommodate this anticipated growth, we
must:
. improve existing and implement new operational and financial systems,
procedures and controls;
. hire, train and manage additional qualified personnel;
. add additional facilities to support our growth; and
. effectively manage relationships with our customers, suppliers and other
third parties.
We may not be able to install adequate control systems in an efficient and
timely manner, and our current or planned operational systems, procedures and
controls may not be adequate to support our future operations. The difficulties
associated with installing and implementing new systems, procedures and
controls may place a significant burden on our management and our internal
resources. Delays in the implementation of new systems or operational
disruptions when we transition to new systems would impair our ability to
accurately forecast sales demand, manage our product inventory and record and
report financial and management information on a timely and accurate basis.
We are in the process of implementing a PeopleSoft, Inc. enterprise resource
planning system that will be managed by an outside vendor. This outside vendor
is a start-up company that is not yet well-established, and we will depend on
this vendor to service and operate the system to meet our business needs. We
will not be able to control the allocation of resources to manage the system in
the same way we would if we were managing it ourselves. In addition, as we
increase our sales to customers based outside the United States, we will have
to expand our worldwide operations and enhance our communications
infrastructure. Our inability to manage growth effectively could seriously harm
our business, financial condition and results of operations.
The IP Telephony Alternative May Not Achieve Widespread Commercial Acceptance
But We Still Must Devote Substantial Resources To Achieve Potential Success
The IP telephony market is relatively new and rapidly evolving. Our ability
to increase revenue in the future depends on the partial migration of both
existing and new worldwide circuit-switched telephone network traffic to this
new, interconnected system of packet-switched networks. Less than 1% of all
voice traffic worldwide is currently transmitted over IP telephony-based
packet-switched networks. Accordingly, we will have to devote substantial
resources to educate prospective customers, including large established
telecommunications companies, about the uses and benefits of IP telephony
solutions in general, and our products in particular. In addition, there may be
a number of other barriers to the development of this market, including:
. lack of unified standards for IP telephony;
. issues relating to the reliability and performance of IP packet-switched
networks; and
. costs of placing new technology in the communications network.
11
<PAGE>
Moreover, businesses that have invested substantial resources in the
existing telephone network infrastructure may be reluctant or slow to adopt new
technology that might replace or compete with their existing systems. Our
efforts to educate potential customers may not result in our products achieving
market acceptance. The failure of the market for our products to grow at the
rate we anticipate would seriously harm our business, financial condition and
results of operations.
Our Market Is Subject To Rapid Technological Change
The market in which we participate is subject to:
. rapid technological change;
.frequent new product introductions;
.changing customer requirements for new products and features; and
.multiple, competing and evolving industry standards.
In particular, we expect that changes in the IP telephony market and the
increased use of IP packet-switched applications will require us to rapidly
evolve and adapt our products to remain competitive. As a result, the life
cycle of our products is difficult to estimate. To be competitive, we will need
to develop and introduce new products and product enhancements that respond to
technological changes or evolving industry standards on a timely and cost-
effective basis. We cannot be certain that we will successfully develop and
market these types of products and product enhancements. Our failure to produce
technologically competitive products in a cost-effective manner and on a timely
basis will seriously harm our business, financial condition and results of
operations.
Our Market Is Subject To Regulatory Uncertainty
At present there are few laws or regulations that specifically address
access to or commerce on the Internet, including the transmission of voice over
IP packet-switched networks. The European Community, for example, has announced
that it will not consider regulation of this industry this year. In April 1998,
the Federal Communications Commission submitted a report to Congress stating
that it may regulate certain Internet services if it determines that such
Internet services are functionally equivalent to conventional
telecommunications services. The increasing growth of the IP telephony market
and popularity of IP telephony products and services, however, heighten the
risk that governments of many nations will seek to regulate the transmission of
IP telephony networks and the Internet. In addition, large and sophisticated
telecommunications companies may devote substantial lobbying efforts to
influence the regulation of the IP telephony market in their best interests,
which may be contrary to our interests. Such regulation may be targeted
towards, among other things, assessing access or settlement charges, imposing
tariffs or imposing regulations based on encryption concerns or the
characteristics and quality of products and services. We are unable to predict
the impact, if any, that future legislation, legal decisions or regulations
concerning the Internet may have on our business, financial condition and
results of operations.
In addition, many countries have standards for safety, emissions and other
certifications that must be met for our products to be legally sold in those
countries. The parts of our products that require such approvals are supplied
by third parties. We cannot guarantee for all countries or for any individual
country that our products currently meet such standards or that our products
will meet any future standards. If our products cannot meet such standards, our
business, financial condition and results of operations could be seriously
harmed.
We Depend On New Entrants In The Service Provider Market
We expect to generate a portion of our revenue from new entrants in the
telecommunications service provider market. Examples of these service providers
include long-distance and local telecommunications companies, wholesale long-
distance providers, competitive local exchange carriers and Internet telephony
service providers. Many of these new entrants are still building their
infrastructures and rolling out their services. We cannot guarantee that any of
these companies will achieve commercial viability.
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<PAGE>
There are a number of factors that affect the ability of these new service
providers to compete, including having access to significant amounts of capital
and technical talent. Their access to these resources often depends on the
availability of sufficient financing. We cannot be certain that the necessary
financing will be available to these new service providers on favorable terms,
if at all. The lack of availability of such financing or any other factors that
could harm these new service providers' operating results or profitability,
could have a negative impact on their capital spending programs, which would,
in turn, seriously harm our business, financial condition and results of
operations.
A Loss Of One Or More Of Our Key Customers Could Seriously Harm Our Business
We have historically derived the majority of our revenue from a small number
of customers, particularly various entities within AT&T. In 1998 entities
affiliated with AT&T Corporation accounted for 36% and Technet International
accounted for 12% of net revenue. None of our customers is obligated to
purchase additional products or services. Accordingly, we cannot be certain
that present or future customers will not terminate their purchasing
arrangements with us or significantly reduce or delay their orders. Any
termination, change, reduction or delay in orders could seriously harm our
business, financial condition and results of operations.
We May Not Be Able To Expand Our Direct Sales And Distribution Channels
We believe that our future success is dependent upon our ability to expand
our direct sales force and establish successful relationships with a variety of
international distribution partners. To date, we have entered into agreements
with only a small number of distribution partners that currently account for
approximately 18% of net revenue. These distribution agreements typically may
be terminated without cause upon 90 days notice. We cannot be certain that we
will be able to reach agreement with additional distribution partners on a
timely basis or at all, or that these distribution partners will devote
adequate resources to marketing, selling and supporting our products. We must
successfully manage our distributor relationships. In 1997 we settled a dispute
with one of our distributors at a cost to us of $570,000, plus future specified
discounts. We cannot guarantee that we will successfully manage our distributor
relationships in the future. Our inability to generate revenue from
distribution partners may harm our business, financial condition and results of
operations.
Sales To Customers Based Outside The United States Have Historically Accounted
For A Significant Portion Of Our Revenue Which Exposes Us To Risks Inherent In
International Operations
International sales represented approximately 94% of our net revenue in 1997
and 48% in 1998. We currently have offices in Belgium, Germany, Japan, Korea,
Spain, Taiwan and the United Kingdom and intend to expand the scope of our
international operations. If we are unable to expand our international
operations successfully and quickly, our business, financial conditions and
results of operations may be seriously harmed. In addition, we may determine
that we need to establish assembly operations overseas to better serve our
international customers. Establishing overseas assembly operations may be more
difficult or take longer than we anticipate. As a result, we may be unable to
successfully market, sell, deliver and support our products internationally.
Our international operations are subject to a variety of risks associated
with conducting business internationally any of which could seriously harm our
business, financial condition and results of operations. These risks include:
. greater difficulty in accounts receivable collections;
. import or export licensing and product certification requirements;
. tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers imposed by foreign countries;
. potential adverse tax consequences, including restrictions on
repatriation of earnings;
. fluctuations in currency exchange rates;
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. seasonal reductions in business activity in certain parts of the world;
. unexpected changes in regulatory requirements;
. burdens of complying with a wide variety of foreign laws, particularly
with respect to intellectual property and license requirements;
. difficulties and costs of staffing and managing foreign operations;
. political instability;
. the impact of recessions in economies outside of the United States; and
. limited ability to enforce agreements, intellectual property and other
rights in certain foreign countries.
Our Sales Cycle Is Typically Long And Unpredictable
We incur substantial sales and marketing, product development and support
expenditures prior to receiving orders for our products from any given
customer. Before we receive orders, our customers typically test and evaluate
our products for a period of months or, in some cases, over a year. The typical
sales cycle of our products also involves significant capital investment
decisions by prospective customers.
Before a customer selects our products, we are generally required to incur
significant expenditures without a binding commitment of any kind. Because
service providers must incur substantial upfront capital expenditures when they
deploy new technologies, and because of the current lack of interoperability
among competing vendors' products, they may be reluctant to change their supply
source once an equipment supplier has been chosen. Accordingly, our failure to
be initially selected by key customers could bar us from future sales
opportunities with those customers.
We cannot be certain that the sales cycle for our products will not lengthen
in the future. In addition, the emerging and evolving nature of the IP
telephony market may cause prospective customers to delay their purchase
decisions as they evaluate new technologies and develop and implement new
systems. As the average order size for our products grows, the process for
approving purchases is likely to become more complex, leading to potential
delays in receipt of these orders. In addition, sales of our products are
subject to delays or cancellations due to our inability to reach agreement on
pricing or other terms of sale with our customers or our customers'
technological restrictions.
We have historically realized a significant portion of our product orders
near the end of a quarter. Accordingly, a delay in an anticipated receipt or
delivery of a given order past the end of a particular quarter may negatively
impact our results of operations for that quarter. These delays may become more
likely given that we expect that the average size of our customer orders may
increase. As a result, a delay in the recognition of revenue, even from just
one customer, may have a significant negative impact on our results of
operations for a given period. Any delay in sales of our products could result
in a significant decrease in cash flow, which, in turn, could severely affect
our ability to make payments as they come due and could cause our operating
results to vary significantly from quarter to quarter.
Furthermore, deployment of our products is generally a process that extends
for several months or years and may involve a pilot implementation, successful
completion of which is typically a prerequisite for full-scale deployment. We
have experienced difficulty implementing customer orders on a timely basis in
the past due to the limited resources available to us. Our customers may
experience delays in the implementation of our products in the future, and
third-party consultants may not be available as needed to assist our customers.
As a result, our customers may not be able to successfully deploy our products.
Any delays in our customers' deployment of our products could have a negative
impact on our business, financial condition and results of operations.
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We May Need To Raise Additional Capital
We expect the net proceeds from this offering, cash from operations and
borrowings under our credit facility to be sufficient to meet our working
capital and capital expenditure needs for at least the next 12 months. After
that, we may need to raise additional funds, and additional financing may not
be available on favorable terms, if at all. We may also require additional
capital to acquire or invest in complementary businesses or products or obtain
the right to use complementary technologies. Further, if we issue additional
equity securities, the ownership percentage of our existing stockholders would
be reduced, and the new equity securities may have rights, preferences or
privileges senior to those of existing holders of our common stock. If we
cannot raise funds, if needed, on acceptable terms, we may not be able to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements, which could
seriously harm our business, financial condition and results of operations. See
"Use of Proceeds," "Dilution" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
We Rely On Third-Party Technology And Products
We license technology that is incorporated into our products from certain
third parties, including AudioCodes, Ltd. and Natural Microsystems. These
licenses are either in the form of "shrink-wrap" licenses subject to purchase
orders or licensing agreements with initial terms of three to five years that
typically renew automatically for successive one-year terms. If these vendors
failed to supply us with their components on a timely basis, we could
experience significant delays in shipping our products. Although we believe
there are other sources for this licensed technology, any significant
interruption in the supply or support of any licensed technology could
seriously harm our sales, unless and until we can replace the functionality
provided by this licensed technology.
Lead times for materials and components used in the assembly of our products
vary significantly, and depend on factors such as the specific supplier,
contract terms and demand for a component at a given time. If orders do not
match forecasts, we may have excess or inadequate inventory of certain
materials and components, which may seriously harm our business, financial
condition and results of operations. From time to time we have experienced
shortages in the allocation of certain components, resulting in delays in
filling orders. We are likely to encounter shortages and delays in obtaining
components in the future, which may seriously harm our business, financial
condition and results of operations. Also, because our products incorporate
software developed and maintained by third parties, we depend on these third
parties to deliver and support reliable products, enhance their current
products, develop new products on a timely and cost-effective effective basis,
and respond to emerging industry standards and other technological changes. The
failure of these third parties to meet these criteria could seriously harm our
business, financial condition and results of operations.
We Face Risks Associated With The Assembly Of Our Products
We assemble and test our products at our facility in Redwood City,
California. Based on volume or customer requirements, we may to begin
outsourcing certain assembly and test functions. In addition, we may determine
that we need to establish assembly and test operations overseas to better serve
our international customers. Establishing overseas assembly and test
operations, may be more difficult or take longer than we anticipate. This
outsourcing strategy involves certain risks, including the potential absence of
adequate capacity and reduced control over delivery schedules, manufacturing
yields, quality and costs. In the event that any significant subcontractor were
to become unable or unwilling to continue to manufacture and/or test our
products in the required volumes, we would have to identify and qualify
acceptable replacements. This process could be lengthy, and we cannot be sure
that additional sources would be available to us on a timely basis. Any delay
or increase in costs in the assembly and testing of products by third-party
subcontractors, could seriously harm our business, financial condition and
results of operations.
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In addition, our facilities are located on or near known earthquake fault
zones and are vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures and similar events. If such a disaster occurs while
we still assemble our products in-house, our ability to assemble, test and ship
our products would be seriously, if not completely, impaired, which would
seriously harm our business, financial condition and results of operations. We
cannot be sure that the insurance we maintain against fires, floods,
earthquakes and general business interruptions will be adequate to cover our
losses in any particular case.
We Face Risks Associated With Foreign Currencies And The Transition To The Euro
Due to our international operations, we incur expenses in a number of
currencies. All of our sales, including international sales, however, are
currently denominated in U.S. dollars. We do not expect that future
international sales will continue to be denominated in U.S. dollars.
Fluctuations in the value of the U.S. dollar and foreign currencies may make
our products more expensive than local product offerings. We do not currently
engage in currency hedging activities to limit the risks of exchange rate
fluctuations. Therefore, fluctuations in the value of foreign currencies could
have a negative impact on the profitability of our global operations, which
would seriously harm our business, financial condition and results of
operations.
As of January 1, 1999, several member countries of the European Union
established fixed conversion rates among their existing local currencies and
adopted the euro as their new common legal currency. The euro trades on
currency exchanges, and the legacy currencies will remain legal tender in the
participating countries for a transition period that expires January 1, 2002.
During the transition period, parties can make cashless payments in the euro
and elect to pay for goods and services and transact business using either the
euro or a legacy currency. Between January 1, 2002 and July 1, 2002, the
participating countries will introduce euro notes and coins and withdraw all
legacy currencies so that they will no longer be available.
We are assessing our information technology systems to determine whether
they allow for transactions to take place in both the legacy currencies and the
euro and accommodate the eventual elimination of the legacy currencies. Our
information technology systems' inability to allow for these transactions or
accommodate the elimination of the legacy currencies may harm our business,
financial condition and results of operations.
Undetected Software Or Hardware Errors May Seriously Harm Our Business And May
Harm Our Credibility
Service providers require a strict level of quality and reliability from
telecommunications equipment suppliers. Circuit-switched network equipment is
expected to provide a 99.999% level of reliability. IP telephony products are
inherently complex and frequently contain undetected software or hardware
errors when first introduced or as new versions are released. We have detected
and may continue to detect errors and product defects in connection with new
product releases and product upgrades. These problems may affect network uptime
and cause us to incur significant warranty and repair costs and cause
significant customer relations problems. In some of our contracts, we have
agreed to indemnify our customers against certain liabilities from defects in
our products. While we carry insurance policies covering this type of
liability, these policies may not provide sufficient protection should a claim
be asserted. A material product liability claim may seriously harm our
business, financial condition and results of operations. In addition, if we
deliver products or upgrades with undetected software errors or product
defects, our credibility and market acceptance and sales of our products could
be harmed.
Our products must successfully integrate with products from other vendors,
such as circuit-switched systems. As a result, when problems occur in a
network, it may be difficult to identify the source of the problem. The
occurrence of hardware and software errors, whether caused by our products or
another vendor's products, may result in the delay or loss of market acceptance
of our products and any necessary revisions may force us to incur significant
expenses. The occurrence of any such problems will likely seriously harm our
business, financial condition and results of operations.
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We May Not Adequately Protect Our Intellectual Property And Our Products May
Infringe On The Intellectual Property Rights Of Third Parties
We rely on a combination of copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. We
currently do not have any United States patents issued for any of our
technology, although we do have four United States applications, one German
application and one Japanese application on file.
We also enter into confidentiality and proprietary information and
inventions agreements with our employees and consultants and control access to
and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Monitoring unauthorized use of our products is
difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology. The laws of some foreign countries do not
protect our proprietary rights to as great an extent as the laws of the United
States, and many United States companies have encountered substantial
infringement problems in these countries, some of which are countries in which
we have sold and continue to sell products. There is a risk that our means of
protecting our proprietary rights may be inadequate. For example, our
competitors may independently develop similar technology, duplicate our
products or design around our patents, when or if issued, or our other
intellectual property rights. If we fail to adequately protect our intellectual
property rights, it would be easier for our competitors to sell competing
products.
From time to time, third parties may assert exclusive patent, copyright,
trademark and other intellectual property rights to technologies that are
important to us. In addition, third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers with respect
to existing or future products, trademarks or other proprietary rights. We have
not conducted an exhaustive search of patents issued to other companies or
organizations. Because of the number of patents issued and patent applications
filed relating to the transmission of voice over packet-switched networks, we
believe there is a risk that current and potential customers and other third
parties have filed, or in the future will file applications for, or have
received or in the future will receive, patents or obtain additional
intellectual property rights relating to materials or processes that we use or
propose to use. If third-party patents or other proprietary rights have been or
are issued, or are otherwise asserted by third parties, the holders of these
patents or other proprietary rights may bring infringement claims against us.
Furthermore, former employers of our current and future employees may assert
that our employees have improperly disclosed confidential or proprietary
information to us. We may in the future initiate claims or litigation against
third parties for infringement of our proprietary rights or to determine the
scope and validity of our proprietary rights and the rights of competitors. Any
claims, with or without merit, may be time-consuming, result in costly
litigation and diversion of technical and management personnel or require us to
develop non-infringing technology. Alternatively, others may claim that we
infringe their intellectual property rights, and we may be required to obtain a
license or royalty agreement under the intellectual property rights of those
parties claiming the infringement. In addition, an adverse ruling could result
in substantial liability, including treble damages or the issuance of an
injunction against us requiring that we cease development and withdraw certain
products from the marketplace. Limitations on our ability to market our
products and delays and costs associated with monetary damages and redesigns in
compliance with an adverse judgment or settlement could harm our business,
financial condition and results of operations.
We have certain obligations to indemnify our customers when their use of our
products results in an intellectual property infringement claim by a third
party. In the future, third parties could assert infringement claims, or
customers and end users of our products could try to obtain indemnification
from us. These assertions, if proven to be true, could seriously harm our
business, financial condition and results of operations.
We Face Year 2000 Risks
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, effective January 1,
2000, computer systems and software used by many companies and organizations in
a wide variety of industries, including technology, transportation, utilities,
finance and
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telecommunications, will produce erroneous results or fail unless they have
been modified or upgraded to process date information correctly. Year 2000
compliance efforts may involve significant time and expense, and uncorrected
problems could seriously harm our business, financial condition and results of
operations.
In addition, despite testing by us and by current and potential clients, and
assurances from developers of products incorporated into our products, our
products may contain undetected errors or defects associated with Year 2000
date functions. Known or unknown errors or defects in our products could result
in delay or loss of revenue, diversion of development resources, damage to our
reputation or increased service and warranty costs.
Our internal systems include both our information technology, or IT, and
non-IT systems. We have initiated an assessment of our material internal IT
systems, including both our own software products and third-party software and
hardware technology, but we have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1999. To the extent
that we are not able to test the technology provided by third-party vendors, we
are seeking assurances from vendors that their systems are Year 2000 compliant.
We are not currently aware of any material operational issues or costs
associated with preparing our internal IT and non-IT systems for the Year 2000.
However, we may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal IT and non-
IT systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. If our current or future customers fail to achieve
Year 2000 compliance our business could suffer.
We may also experience reduced sales of our products as potential customers
reduce their budgets for IP telephony products due to increased expenditures on
their own Year 2000 compliance efforts.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing a plan may itself be
material. Finally, we are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failures and related service interruptions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
We Are Significantly Controlled By Existing Stockholders
On completion of this offering, executive officers and directors and their
affiliates will beneficially own, in the aggregate, approximately 68% of our
outstanding common stock. As a result, these stockholders will be able to
exercise significant control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, which may have the effect of delaying or preventing a third party
from acquiring control over us. See "Principal Stockholders."
New Investors In Our Common Stock Will Experience Immediate And Substantial
Dilution
The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $ in net tangible
book value per share of common stock. Investors will incur additional dilution
upon the exercise of outstanding stock options and warrants.
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There Is Currently No Public Market For Our Common Stock And Our Stock Price
May Be Volatile
Prior to this offering, you could not buy or sell our common stock in a
public market. An active public market for our common stock may not develop or
be sustained after this offering. Although the initial public offering price
will be determined based on several factors, the market price for our common
stock will vary from the initial offering price after this offering. See
"Underwriting." The market price of our common stock may fluctuate
significantly, which is particularly common among high technology companies.
Factors which may contribute to such fluctuations, some of which are beyond our
control, include:
. variations in quarterly operating results;
. failure to meet the published expectations of securities analysts for a
given quarterly period;
. changes in financial estimates of our revenue and operating results by
securities analysts;
. changes in market values of comparable companies;
. any future sales by us, or any of our officers, directors or affiliates,
of common stock or other securities;
. announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. loss of or decrease in sales to a major customer or failure to complete
significant transactions;
. additions or departures of key personnel;
. introductions of new products or new pricing policies by us or our
competitors; and
. commencement of our involvement in litigation.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation may result in substantial costs and divert management's
attention and resources, which may seriously harm our business, financial
condition and results of operations.
Our Certificate Of Incorporation And Bylaws And Delaware Law Contain Provisions
That Could Discourage A Takeover
Certain provisions of our Certificate of Incorporation and Bylaws and
Delaware law may discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include:
. authorizing the Board of Directors to issue additional preferred stock;
. prohibiting cumulative voting in the election of directors;
. limiting the persons who may call special meetings of stockholders;
. prohibiting stockholder action by written consent; and
. establishing advance notice requirements for nominations for election of
the Board of Directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
We are also subject certain provisions of Delaware law which could delay,
deter or prevent us from entering into an acquisition, including Section 203 of
the Delaware General Corporation Law, which prohibits a Delaware corporation
from engaging in a business combination with an interested stockholder unless
certain conditions are met.
Substantial Sales Of Shares May Impact Market Price Of Our Common Stock
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate. After completion of this offering, we
will have outstanding shares of common stock, assuming no exercise of
outstanding options or warrants after March 31, 1999 and no exercise
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of the underwriters' over-allotment option. All of the shares sold in this
offering will be freely tradeable. All of the remaining shares are subject to
lock-up arrangements between the stockholders and us or the underwriters. Of
the remaining shares of common stock outstanding after this offering all will
be eligible for sale in the public market 180 days following the date of this
prospectus. Of these shares, 18,301,030 shares will be subject to volume
limitations, under federal securities laws.
If our stockholders sell substantial amounts of common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market, the market price of our common stock could fall. See "Shares
Eligible for Future Sale" and "Underwriting."
We Will Have Broad Discretion As To The Use Of The Offering Proceeds
We have not allocated the majority of the net proceeds of this offering for
specific uses and our stockholders may disagree with the way in which
management spends most of the proceeds from this offering. We may use a portion
of the net proceeds to acquire additional businesses, products and technologies
or to establish joint ventures that we believe will complement our current or
future business. We cannot predict that the proceeds will be invested to yield
a favorable return. See "Use of Proceeds."
We Do Not Intend To Pay Dividends
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth. In addition,
pursuant to our bank credit facility, we cannot pay dividends without our
bank's consent, with limited exceptions. Therefore, we do not expect to pay any
dividends in the foreseeable future. See "Dividend Policy."
Special Note Regarding Forward-Looking Statements
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are "forward-looking statements." These statements involve known and
unknown risks, uncertainties, and other factors that may cause our, or our
industry's actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity,
performance or achievements expressed or implied by the forward-looking
statements. These factors are listed under "Risk Factors" and elsewhere in this
prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "expects," "anticipates," "intends," "may," "should," "plans,"
"believes," "seeks," "estimates" or the negative of such terms or other
comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
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USE OF PROCEEDS
We expect to receive net proceeds of approximately $ from the sale of
shares of common stock, and an additional $ from the sale of shares if
the underwriters' over-allotment option is exercised in full, at an assumed
initial public offering price of $ per share.
We intend to use the proceeds of the offering for working capital and
general corporate purposes, including research and development, sales,
marketing and customer support. The amounts that we actually expend for working
capital purposes will vary significantly depending on a number of factors,
including future revenue growth, if any, and the amount of cash we generate
from operations. As a result, we will retain broad discretion in the allocation
of the net proceeds of this offering. Pending these uses, we intend to invest
the net proceeds of the initial public offering in investment grade interest-
bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of the our business. In addition, under our bank credit facility, we
cannot pay dividends without our bank's consent, with limited exceptions.
Therefore, we currently do not anticipate paying any cash dividends in the
foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998:
(1) on an actual basis, (2) on a pro forma basis to reflect the automatic
conversion of all outstanding shares of preferred stock into common stock and
(3) the pro forma capitalization as adjusted to give effect to (a) the sale of
shares of common stock offered in this offering and to give effect to the
receipt of the estimated net proceeds from the sale of such shares at an
assumed initial public offering price of $ per share and the application of
the net proceeds from such sale and (b) the issuance of 1,084,806 shares of
common stock upon the net exercise of outstanding warrants upon the closing of
this offering.
The capitalization information set forth in the table below is qualified by,
and you should read it in conjunction with, the more detailed Consolidated
Financial Statements and Notes of Clarent and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
December 31, 1998
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock: $0.001 par value, 8,000,000
shares authorized, 6,864,241 shares issued
and outstanding, actual; no shares issued and
outstanding, pro forma and as adjusted....... $21,024 -- $--
Common stock: $0.001 par value, 50,000,000
shares authorized; 7,129,076 issued and
outstanding, actual; 20,857,558 shares issued
and outstanding pro forma; 21,967,762 shares
issued and outstanding pro forma and as
adjusted..................................... 2,389 23,413
Deferred compensation......................... (1,771) (1,771)
Accumulated other comprehensive loss(1)....... (68) (68)
Accumulated deficit........................... (7,810) (7,810)
------- ------- ---
Total stockholders' equity.................. 13,764 13,764
------- ------- ---
Total capitalization........................ $13,764 $13,764 $
======= ======= ===
</TABLE>
- ---------------------
(1)See Note 1 to the Consolidated Financial Statements for an explanation of
accumulated other comprehensive loss.
This table excludes the following shares as of December 31, 1998:
. 6,473,648 shares subject to options outstanding as of December 31, 1998,
at a weighted average exercise price of $0.31 per share;
. 4,718,774 additional shares that could be issued under our stock plans,
of which 1,755,170 shares were approved by the Board of Directors on
April 8, 1999, subject to stockholder approval; and
. 202,000 shares reserved for issuance on the exercise of warrants
outstanding as of March 31, 1999, at an exercise price of $3.29 per share
(such warrants are not exercisable at this time and expire, if not
earlier exercised, upon the closing of this offering).
Subsequent to December 31, 1998 through March 31, 1999:
. we granted options to purchase 1,522,900 shares at a weighted average
exercise price of $2.75 per share;
. 360,580 shares subject to options have been exercised; and
. options covering 4,126 shares have been cancelled.
See "Management--Stock Plans," "Description of Capital Stock--Options" and
Note 9 of Notes to Consolidated Financial Statements.
22
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1998, was
$13,764,000 million, or approximately $0.66 per share after giving effect to
the conversion of all outstanding preferred stock into common stock on a pro
forma basis for the period immediately prior to this offering. Pro forma net
tangible book value per share represents the amount of our total assets less
total liabilities, divided by the number of shares of common stock outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of common stock in this
offering and the net tangible book value per share of common stock immediately
after the completion of this offering. After giving effect to the sale of the
shares of common stock in this offering at an assumed initial public
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 at December 31, 1998, would have been $
million, or approximately $ per share. This represents an immediate increase
in pro forma net tangible book value of $ per share to existing stockholders
and an immediate dilution in net tangible book value of $ per share to new
investors of common stock in this offering. The following table illustrates
this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share as of December 31,
1998......................................................... $0.66
Increase in net tangible book value per share attributable to
new investors................................................
-----
Pro forma net tangible book value per share after offering......
----
Dilution in net tangible book value per share to new investors.. $
====
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1998, after giving effect to the conversion of all outstanding preferred stock
into common stock, the difference between the number of shares of common stock
purchased from us, the total consideration paid and the average price per share
paid by existing holders of common stock and by the new investors, 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
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 20,857,558 % $21,215,000 % $1.02
New investors...............
---------- ----- ----------- ----- -----
Total..................... 100.0% $ 100.0%
========== ===== =========== ===== =====
</TABLE>
This table excludes the following shares as of December 31, 1998:
. 6,473,648 shares subject to options outstanding as of December 31, 1998,
at a weighted average exercise price of $0.31 per share;
. 4,718,774 additional shares that could be issued under our stock plans,
of which 1,755,170 shares were approved by the Board of Directors on
April 8, 1999, subject to stockholder approval; and
. 202,000 shares reserved for issuance on the exercise of warrants
outstanding as of March 31, 1999, at an exercise price of $3.29 per share
(such warrants are not exercisable at this time and expire, if not
earlier exercised, upon the closing of this offering).
Subsequent to December 31, 1998 through March 31, 1999:
. we granted options to purchase 1,522,900 shares at a weighted average
exercise price of $2.75 per share;
. 360,580 shares subject to options have been exercised; and
. options covering 4,126 shares have been cancelled.
See "Management--Stock Plans," "Description of Capital Stock--Options" and
Note 9 of Notes to Consolidated Financial Statements.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The tables that follow present portions of our consolidated financial
statements and are not complete. You should read the following selected
consolidated financial data in conjunction with our Consolidated Financial
Statements and related Notes beginning on page F-1 of this prospectus and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 25 of this prospectus. The consolidated statement
of operations data for the period from July 2, 1996 (inception) through
December 31, 1996, and the years ended December 31, 1997 and 1998, and the
consolidated balance sheet data as of December 31, 1997 and 1998, are derived
from our Consolidated Financial Statements that have been audited by Ernst &
Young LLP, independent auditors, which are included elsewhere in this
prospectus. The historical results presented below are not necessarily
indicative of the results to be expected for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Year Ended
Period from December 31,
July 2, 1996 (inception) ----------------
to December 31, 1996 1997 1998
------------------------ ------- -------
(in thousands, except per share data)
<S> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenue........................ $ -- $ 3,359 $14,647
Cost of revenue.................... -- 1,189 6,653
----- ------- -------
Gross profit....................... -- 2,170 7,994
Operating expenses:
Research and development......... 136 1,044 3,356
Sales and marketing.............. -- 2,046 7,099
General and administrative....... 140 639 2,484
Amortization of deferred
compensation.................... -- -- 522
Settlement expense............... -- 570 --
----- ------- -------
Total operating expenses....... 276 4,299 13,461
----- ------- -------
Loss from operations............... (276) (2,129) (5,467)
----- ------- -------
Interest income, net............... -- 70 32
----- ------- -------
Loss before income taxes........... (276) (2,059) (5,435)
Provision for income taxes......... -- -- (40)
----- ------- -------
Net loss........................... $(276) $(2,059) $(5,475)
===== ======= =======
Pro forma basic and diluted net
loss per share.................... $ (0.39)
=======
Shares used to compute pro forma
basic and diluted net loss
per share(1)...................... 14,108
=======
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ -------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.................................... $ 474 $11,903
Working capital.............................................. 781 11,531
Total assets................................................. 2,818 25,177
Total stockholders' equity................................... 1,334 13,764
</TABLE>
- --------
(1) See Note 11 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
per share data.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section includes a number of forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. Our actual results and the timing of certain events could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus.
Overview
We design, develop, market and sell integrated IP telephony systems. We were
incorporated in July 1996 and commenced sales of our products in March 1997.
Prior to March 1997, we had no sales and our operations consisted primarily of
various start-up activities, such as research and development, recruiting
personnel and raising capital. We first recognized revenue from product sales
in March 1997. We generated net revenue of $3.4 million in 1997 and $14.6
million in 1998. We incurred net losses of $2.1 million in 1997 and $5.5
million in 1998. As of December 31, 1998, we had an accumulated deficit of $7.8
million.
We generate revenue from sales of our integrated hardware and software
products and from maintenance and support of those products. Revenue derived
from product sales constituted 99% of net revenue in 1997 and 96% of net
revenue in 1998. Although service revenue does not currently constitute a
material portion of our revenue, we believe service revenue will become an
increasing portion of our revenue. Product revenue is generally recognized upon
shipment. Service revenue includes revenue from implementation and integration
services, system management services, warranty coverage and customer support.
Revenue from implementation and system integration services is recognized as
the services are performed, while revenue from system management services,
warranty coverage and customer support is recognized ratably over the period of
the contract.
We sell our products primarily through our direct sales force and, to a
lesser extent, through distribution channels. We have sales and support offices
in Belgium, Germany, Japan, Korea, Spain, Taiwan, the United Kingdom and the
United States. We intend to increase sales through distribution channels. In
1998, we expanded the breadth of our support services by establishing a
professional services group to provide product installation and customization,
technical support, customer training and product maintenance.
Net revenue from international sales totaled $3.1 million or approximately
94% of net revenue in 1997 and $7.1 million or approximately 48% of net revenue
in 1998. We expect that over time we will derive a majority of our revenue from
foreign-based service providers, subjecting our revenue stream to risks from
economic uncertainties, currency fluctuations, political instability and
uncertain cultural and regulatory environments. See "Risk Factors--Sales To
Customers Based Outside The United States Have Historically Accounted For A
Significant Portion Of Our Revenue Which Exposes Us To Risks Inherent In
International Operations."
Cost of revenue consists of component and material costs, direct labor
costs, warranty costs, royalties, overhead related to manufacturing our
products and customer support costs, as well as materials, travel and labor
costs related to personnel engaged in our service operations. Our gross margin
is affected by the proportion of our net revenue derived from the sale of
software and services. Software sales, which typically carry higher gross
margins than hardware sales, currently make up only a fraction of our net
revenue. However, we expect that the proportion of software sales will increase
in the future. Service sales, which typically carry a lower gross margin than
product sales, currently make up a small proportion of our net revenue. We
expect the proportion of service revenue to increase in the future. The net
impact that the increased proportion of sales of both software and services
will have on our total gross margin cannot be determined at this time.
Furthermore, we expect to derive an increasing proportion of our net revenue
from the sale of our products through distribution channels. Revenue derived
from indirect sales typically carries a lower gross margin than direct
25
<PAGE>
sales. As a result, we expect the increased proportion of net revenue derived
from indirect sales to have a negative impact on our total gross margin in the
future.
Research and development expenses consist primarily of compensation and
related costs for research and development personnel and expenses for testing
facilities and equipment. We expect to continue to make substantial investments
in research and development and anticipate that research expenses will continue
to increase in absolute dollars.
Sales and marketing expenses consist primarily of compensation and related
costs for sales and marketing personnel, sales commissions, marketing programs,
public relations, promotional materials, advertising, travel expenses and trade
show exhibit expenses. We expect to incur substantial expenditures related to
sales and marketing activities, the recruitment of additional sales and
marketing personnel and the expansion of our domestic and international
distribution channels.
General and administrative expenses consist primarily of salaries and
related expenses, finance, accounting and human resources expenses,
professional fees and other general corporate expenses. We expect general and
administrative expenses to increase in absolute dollars as we add personnel and
incur additional costs related to the anticipated growth of our business and
operation as a public company.
We expect each of these operating expense categories, research and
development, sales and marketing and general and administrative, to increase in
absolute dollars. However, the percentage of net revenue that each of these
categories represents will vary depending on the rate of our revenue growth and
investments that may be required to support the development of new products and
our penetration of new markets.
We have a limited operating history and face a number of risks encountered
by early stage companies. These risks include, among others:
. the market acceptance of IP telephony solutions;
. our ability to anticipate and respond to changing market conditions,
including competition;
. our ability to retain key customers; and
. our dependence upon key personnel.
In addition, although our revenue has grown in recent quarters, we cannot be
certain that our revenue will continue to grow or that we will achieve or
maintain profitability in the future. We expect to continue to experience
significant growth in product development, sales and marketing and
administrative expenses as we attempt to expand our business and maintain or
improve our market position. We cannot accurately predict the future growth
rate, if any, or the ultimate size of our market. In addition, our ability to
increase revenue and achieve or maintain profitability depends on a number of
factors outside our control, including the extent to which:
. our products are able to gain market acceptance;
. our competitors develop competing products; and
. our distributors and other marketing partners dedicate resources to
selling our products.
Furthermore, we have experienced significant erosion of average selling
prices due to a number of factors, including competitive pricing pressures,
rapid technological change and increases in sales discounts. We anticipate that
the average selling prices of our products will decrease in the future in
response to the same factors. Therefore, to maintain or increase our gross
margins, we must develop and introduce new products and product enhancements on
a timely basis and continually reduce our product costs. Our failure to do so
will cause our revenue to grow more slowly and our gross margins to decline,
which will seriously harm our business, financial condition and results of
operations.
26
<PAGE>
Because of continuing and substantial capital expenditures and increasing
product development, sales, marketing, and general and administrative expenses,
we will need to generate significant revenue growth to achieve profitability
and positive operating cash flow. Even if we do achieve profitability and
positive cash flow, we may not be able to sustain or increase profitability or
positive operating cash flow on a quarterly or annual basis. See "Risk
Factors--We Have A Limited Operating History Which Makes It Difficult To
Evaluate Our Prospects," "--We Expect To Increase Our Operating Expenses And
Incur Future Losses," "--We Expect Continued Erosion In The Average Selling
Prices Of Our Products" and "--Our Operating Results Will Fluctuate Because Of
Many Factors."
Results of Operations
Prior to the first quarter of 1997, our operations were limited and
consisted primarily of start-up activities. Accordingly, we believe that year-
to-year comparisons of 1996 against 1997, and 1997 against 1998, are not
meaningful.
The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue.
<TABLE>
<CAPTION>
Year ended
December
31,
-------------
1997 1998
----- -----
<S> <C> <C>
As a Percentage of Net Revenue:
Net revenue.................................................. 100.0% 100.0%
Cost of revenue.............................................. 35.4 45.4
----- -----
Gross profit................................................. 64.6 54.6
Operating expenses:
Research and development................................... 31.1 22.9
Sales and marketing........................................ 60.9 48.5
General and administrative................................. 19.0 17.0
Amortization of deferred compensation...................... -- 3.5
Settlement expense......................................... 17.0 --
----- -----
Total operating expenses................................. 128.0 91.9
----- -----
Loss from operations......................................... (63.4) (37.3)
Interest income, net......................................... 2.1 0.2
----- -----
Loss before income taxes..................................... (61.3) (37.1)
Provision for income taxes................................... -- (0.3)
----- -----
Net loss..................................................... (61.3)% (37.4)%
===== =====
</TABLE>
Fiscal Years Ended December 31, 1997 and 1998
Net Revenue
We began generating net revenue in the first quarter of 1997. Net revenue
consists of sales of both our integrated hardware and software products, as
well as revenue generated from the maintenance and support of those products.
Net revenue increased from $3.4 million in 1997 to $14.6 million in 1998. The
increase in net revenue was primarily due to an increase in new customers and
additional sales to existing customers. A limited number of customers have
historically accounted for a substantial portion of our net revenue. Entities
affiliated with AT&T Corporation accounted for 36% and Technet International
accounted for 12% of net revenue in 1998. Entities affiliated with AT&T
Corporation accounted for 46% and Wherever Computer Technology Company Limited
(Wherever) accounted for 35% of net revenue in 1997.
27
<PAGE>
Cost of Revenue
Cost of revenue increased from $1.2 million in 1997 to $6.7 million in 1998.
Gross margins declined from 65% in 1997 to 55% in 1998. The decline was a
result of decreases in our pricing due to increased competition in the
marketplace, partially offset by a decrease in the material cost of our
products.
The mix of products we sell will significantly impact our gross margins. We
expect a negative impact on our gross margin from the introduction of new
integrated hardware and software products and new versions of existing
integrated hardware and software products. However, we expect that increased
sales of our software products both in absolute dollars and as a percentage of
net revenue to positively impact our gross margin. The net impact that the
increased proportion of sales of both software and services will have on our
gross margin cannot be determined at this time.
Research and Development Expenses
Research and development expenses increased from $1.0 million in 1997 to
$3.4 million in 1998. Research and development expenses consist primarily of
payroll and related expenses for research and development personnel, costs
related to systems infrastructure and third party consultants. The absolute
dollar increases in research and development expenses from period to period
were primarily attributable to increases in the number of research and
development personnel. Research and development expenses decreased as a
percentage of net revenue from 31% in 1997 to 23% in 1998 because the growth
rate of net revenue exceeded the growth rate of research and development
expenses for the period.
Sales and Marketing Expenses
Sales and marketing expenses increased from $2.0 million in 1997 to $7.1
million in 1998. Sales and marketing expenses consist primarily of payroll and
related expenses for personnel engaged in sales and marketing, as well as
public relations and marketing communications expenditures. The absolute dollar
increases in sales and marketing expenses from period to period were primarily
attributable to increased personnel and related expenses required to implement
our sales and marketing strategy as well as increased public relations,
advertising and other promotional expenses. Sales and marketing expenses
decreased as a percentage of net revenue from 61% in 1997 to 49% in 1998
primarily due to increased productivity of our sales personnel and increased
net revenue in such periods.
General and Administrative Expenses
General and administrative expenses increased from $639,000 in 1997 to $2.5
million in 1998. General and administrative expenses consist primarily of
payroll and related costs for general corporate functions, including finance,
accounting, business development, human resources, facilities and
administration, as well as legal fees and fees for professional services. The
absolute dollar increases in general and administrative expenses from period to
period were primarily due to increases in the number of general and
administrative personnel, higher professional services fees and increased
facility expenses to support the growth of our operations. General and
administrative expenses decreased as a percentage of net revenue from 19% in
1997 to 17% in 1998 because the growth in net revenue for the period exceeded
the growth rate of general and administrative expenses for the period.
Amortization of Deferred Compensation
In connection with certain stock option grants in 1998, $2.3 million in
deferred compensation has been recorded. Deferred compensation expense reflects
the amortization of stock compensation charges resulting from the granting of
stock options at prices below the deemed fair value of our common stock. In the
first quarter of 1999, an additional amount totaling $3.6 million will be
recorded. These amounts are being amortized using the accelerated method over
the vesting period of the stock options. Of the total deferred compensation,
approximated $522,000 was amortized in 1998. Including those amounts to be
recorded in the
28
<PAGE>
first quarter of 1999, we expect to amortize approximately $3.0 million of this
deferred compensation expense in 1999, $1.5 million in 2000, $670,000 in 2001
and $191,000 in 2002.
Settlement Expense
Settlement expense totaled $570,000 in 1997 and consisted of our legal
expenses and the settlement expense that we paid in connection with a dispute
with one of our distributors. Under the terms of the settlement agreement, we
made cash payments to the distributor of $250,000 and granted the distributor a
5% increase in its existing discount rate for a specific quantity of its
purchase from us in 1998. In addition, under the terms of the settlement
agreement, we issued 45,592 shares of Series C preferred stock to the
distributor at a value of $6.58 per share in August 1998. See Note 5 of Notes
to Consolidated Financial Statements.
Income Taxes
In 1997 we incurred net losses for federal and state income tax purposes and
did not recognize any income tax provision or benefit during such period. In
1998 we recorded a provision for income taxes of $40,000 related to current
foreign income tax provided on the profits attributable to our foreign
operations. As of December 31, 1998, we had $2.0 million of federal and $1.4
million of state net operating loss carryforwards to offset future taxable
income. The difference between available net operating losses and our
accumulated deficit as reported for financial statement purposes is principally
the result of differences in the tax treatment of our deferred revenue, which
totaled $4.4 million as of December 31, 1998.
We cannot assure you that we will realize the benefit of the net operating
loss carryforwards and have therefore set up a full valuation allowance against
these deferred tax assets. The federal and state net operating loss
carryforwards will expire at various dates beginning in fiscal year 2004
through 2018, if we do not use them. Due to the "change of ownership"
provisions of the Internal Revenue Code, the availability of our pre 1998 net
operating loss and tax credit carryforwards are subject to an annual limitation
against taxable income in future periods. Post 1997 net operating loss and tax
credit carryforwards could also be subject to a substantial annual limitation
if future ownership changes should occur. It is likely that the shares to be
issued in this offering will create such a change. See Note 6 of Notes to
Consolidated Financial Statements.
29
<PAGE>
Quarterly Results of Operations
The following tables present certain consolidated statements of operations
data for our four most recent quarters ended December 31, 1998, in dollars and
as a percentage of net revenue. In management's opinion, this unaudited
information has been prepared on the same basis as the audited annual
consolidated financial statements and includes all adjustments (consisting only
of normal recurring adjustments) necessary for fair presentation of the
unaudited information for the quarters presented. You should read this
information in conjunction with the consolidated financial statements,
including the notes thereto, included elsewhere in this prospectus. The results
of operations for any quarter are not necessarily indicative of results that we
might achieve for any subsequent periods.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998
-------- -------- --------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Net revenue.......................... $2,396 $ 3,083 $ 3,269 $ 5,899
Cost of revenue...................... 780 1,396 1,469 3,008
------ ------- ------- -------
Gross profit......................... 1,616 1,687 1,800 2,891
Operating expenses:
Research and development........... 540 698 843 1,275
Sales and marketing................ 1,182 1,553 1,970 2,394
General and administrative......... 176 554 770 984
Amortization of deferred
compensation...................... -- 3 198 321
------ ------- ------- -------
Total operating expenses.......... 1,898 2,808 3,781 4,974
------ ------- ------- -------
Loss from operations................. (282) (1,121) (1,981) (2,083)
------ ------- ------- -------
Interest income, net................. (40) (101) 92 81
Loss before income taxes............. (322) (1,222) (1,889) (2,002)
------ ------- ------- -------
Provision for income taxes........... (1) 2 2 (43)
------ ------- ------- -------
Net loss............................. $ (323) $(1,220) $(1,887) $(2,045)
====== ======= ======= =======
As a Percentage of Net Revenue:
Net revenue.......................... 100% 100% 100% 100%
Cost of revenue...................... 33 45 45 51
------ ------- ------- -------
Gross profit......................... 67 55 55 49
Operating expenses:
Research and development........... 23 23 26 22
Sales and marketing................ 49 50 60 40
General and administrative......... 7 18 24 17
Amortization of deferred
compensation...................... -- -- 6 5
------ ------- ------- -------
Total operating expenses.......... 79 91 116 84
------ ------- ------- -------
Loss from operations................. (12) (36) (61) (35)
------ ------- ------- -------
Interest income, net................. (1) (4) 3 1
------ ------- ------- -------
Loss before income taxes............. (13) (40) (58) (34)
Provision for income taxes........... -- -- -- (1)
------ ------- ------- -------
Net loss............................. (13)% (40)% (58)% (35)%
====== ======= ======= =======
</TABLE>
30
<PAGE>
Our operating expenses have increased significantly in absolute dollars, but
not as a percentage of net revenue, in each quarter since inception as we have
transitioned from the development stage to the commercialization of our
products and services and expansion of our business. We expect to incur an
increase in operating expenses in the future as we attempt to expand our
business. To the extent that these expenses are not accompanied by an increase
in net revenue, our business, results of operations and financial condition
could be adversely affected.
In the quarter ended September 30, 1998, we experienced a significant
increase in operating expenses, both in absolute dollars and as a percentage of
net revenue. We hired additional employees in anticipation of customer orders
that were subsequently delayed or cancelled. These delays and cancellations
were attributable primarily to the anticipated release of a new version of our
product and the weak economic conditions in Asia.
We expect our operating results to fluctuate significantly in the future as
a result of a variety of factors, many of which are outside our control.
Consequently, we believe that period-to-period comparisons of our operating
results may not necessarily be meaningful, and as a result, you should not rely
on them as an indication of future performance. See "Risk Factors--We Have A
Limited Operating History Which Makes It Difficult To Evaluate Our Prospects"
and "--Our Operating Results Will Fluctuate Because Of Many Factors."
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of convertible preferred stock, which totaled $18.5 million in aggregate
net proceeds through December 31, 1998. We have also financed our operations
through a $5.0 million line of credit, of which $2.5 million had been drawn
down as of December 31, 1998. As of December 31, 1998, we had $11.9 million of
cash and cash equivalents and $2.5 million available under our line of credit.
Net cash used in operating activities was $276,000 in 1996, $2.3 million in
1997 and $5.8 million in 1998. For 1997, cash used in operating activities was
attributable primarily to a net loss of $2.1 million, an increase in trade
accounts receivable of $777,000 and an increase in inventory of $889,000,
offset in part by increases in accounts payable and accrued liabilities of $1.3
million. For 1998, cash used in operating activities was attributable primarily
to a net loss of approximately $5.5 million, and increases in trade accounts
receivable of $6.2 million and inventory of $2.7 million. These amounts were
offset in part by depreciation and amortization of approximately $516,000,
deferred compensation charges of $522,000 and increases in accounts payable and
accrued liabilities of approximately $3.5 million and deferred revenue of
approximately $4.3 million.
Net cash used in investing activities was approximately $95,000 in 1996,
$539,000 in 1997 and $2.2 million in 1998. For each of these years, cash used
in investing activities was attributable to purchases of property and
equipment.
Net cash provided by financing activities was $518,000 in 1996, $3.2 million
in 1997 and $19.5 million in 1998. For 1996 and 1997, cash provided by
financing activities was attributable principally to proceeds for the issuance
of preferred stock. In 1998 cash provided by financing activities was
attributable to $14.8 million in proceeds from the issuance of preferred stock,
$2.5 million of short-term borrowings and $2.6 million of funds received from
the issuance of Series C bridge notes offset by $550,000 in repayment of Series
C bridge notes.
As of December 31, 1998, our principal commitments consisted of obligations
outstanding under operating leases. Although we have no material commitments
for capital expenditures, we anticipate a substantial increase in capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel. We also may establish additional
operations as we expand globally.
31
<PAGE>
From July 2, 1996 through December 31, 1998, we issued warrants to purchase
160,266 shares of Series C preferred stock at prices ranging from $5.59 to
$6.58 per share and 1,760,000 shares of common stock at a price of $0.05 per
share. Warrants for 768,238 shares of common stock have been exercised and
warrants for 59,266 shares of Series C preferred stock and 991,672 shares of
common stock are exercisable. All of these warrants expire upon the completion
of an initial public offering. See Notes 2 and 4 of Notes to Consolidated
Financial Statements.
In February 1998, we obtained $2.6 million in bridge financing in the form
of promissory notes from certain investors and other parties. In June 1998,
approximately $2.1 million of the promissory notes were converted to Series C
preferred stock and the remainder was repaid.
In May 1998, we established a $5.0 million line of credit with a financial
institution. As of December 31, 1998, $2.5 million was outstanding under this
line of credit. The effective interest rate on this credit facility is equal to
one-half of one percentage point above the prime rate. Borrowings under this
agreement are limited to our eligible receivable base. The terms of the line of
credit agreement establish certain affirmative and negative covenants, under
which we must maintain certain financial ratios and reporting practices. We
failed certain financial ratios required under the agreement as of December 31,
1998. The financial institution waived these events of default. On February 16,
1999, the financial institution increased the line of credit, including a
$3 million equipment line, to $10 million and revised the financial ratios.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next
12 months. If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt
securities or increase the available borrowings under our line of credit. If
additional funds are raised through the issuance of debt securities, these
securities could have certain rights, preferences and privileges senior to
holders of common stock, and the term of this debt could impose restrictions on
our operations. The sale of additional equity or convertible debt securities
could result in additional dilution to our stockholders, and we cannot be
certain that additional financing will be available in amounts or on terms
acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and marketing efforts, which could harm our business, financial
condition and operating results.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish between 20th and 21st century dates. This may result in software
failures or the creation of erroneous results.
We have conducted the first phases of a Year 2000 readiness review for the
current versions of our products. The review includes assessment,
implementation (including remediation, upgrading and replacement of certain
product versions), validation testing and contingency planning. We continue to
respond to customer questions about prior versions of our products on a case-
by-case basis.
We have largely completed all phases of this plan, except for contingency
planning, for the current versions of our products. As a result, all current
versions of our products are "Year 2000 Compliant," as defined below, when
configured and used in accordance with the related documentation, and provided
that the underlying operating system of the host machine and any other software
used with or in the host machine or our products are also Year 2000 Compliant.
We have not tested our products on all platforms or all versions of operating
systems that we currently support.
We have defined "Year 2000 Compliant" as the ability to:
. correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
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. where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined and predetermined
manner;
. if the date elements in interfaces and data storage specify the century,
store and provide output of date information in ways that are unambiguous
as to century; and
. recognize the year 2000 as a leap year.
We have tested software obtained from third parties (licensed software,
shareware, and freeware) that is incorporated into our products, and we are
seeking assurances from our vendors that licensed software is Year 2000
Compliant. Despite testing by us and by current and potential clients, and
assurances from developers of products incorporated into our products, our
products may contain undetected errors or defects associated with Year 2000
date functions. Known or unknown errors or defects in our products could result
in delay or loss of revenue, diversion of development resources, damage to our
reputation, or increased service and warranty costs, any of which could
materially adversely affect our business, operating results or financial
condition. Some industry analysts have predicted significant litigation
regarding Year 2000 compliance issues, and we are aware of such lawsuits
against other software vendors. Because of the unprecedented nature of such
litigation, it is uncertain whether or to what extent we may be affected by it.
Our internal systems include both our information technology, or IT, and
non-IT systems. We have initiated an assessment of our material internal IT
systems (including both our own software products and third-party software and
hardware technology) but we have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1999. To the extent
that we are not able to test the technology provided by third-party vendors, we
are seeking assurances from vendors that their systems are Year 2000 Compliant.
We are not currently aware of any material operational issues or costs
associated with preparing our internal IT and non-IT systems for the Year 2000.
Our costs incurred through December 31, 1998, have totaled less than $25,000.
We expect to incur less than $100,000 in costs to complete our Year 2000
compliance efforts. However, we may experience material unanticipated problems
and costs caused by undetected errors or defects in the technology used in our
internal IT and non-IT systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. If our current or future customers fail to achieve
Year 2000 compliance or if they divert technology expenditures (especially
technology expenditures that were reserved for IP telephony products) to
address Year 2000 compliance problems, our business could suffer.
We have funded our Year 2000 plan from available cash and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could adversely affect our business, results of
operations, and financial condition.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
material. Finally, we are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failures and related service interruptions.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which establishes guidelines
for the accounting for the costs of all computer software developed or obtained
for internal use. We are required to adopt SOP 98-1 effective January 1, 1999.
The adoption of SOP 98-1 is not expected to have a material impact on our
consolidated financial statements.
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In December 1998, the American Institute of Certified Public Accountants
(AIPCA) issued Statement of Position 98-9. "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions" (SOP 98-9). SOP 98-9
requires use of the "residual method" for recognition of revenue when vendor-
specific objective evidence (VSOE) exists for undelivered elements but does not
exist for delivered elements of a software arrangement. We will be required to
comply with the provisions of SOP 98-9 for transactions entered into beginning
January 1, 2000. The adoption of SOP 98-9 is not expected to have a material
impact on our consolidated financial statements.
Financial Market Risk
Our principal financial market risk relates to the interest rate associated
with our short term debt. At December 31, 1998, our market risk related to this
debt was immaterial.
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BUSINESS
The following Business section contains forward-looking statements relating
to future events or our future financial performance, which involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
prospectus.
Overview
Clarent is a leading provider of integrated Internet Protocol (IP) telephony
systems. The Clarent IP Telephony Solution (Clarent System) is a rapidly
deployable end-to-end solution that enables telecommunications service
providers to offer a broad range of IP telephony services, including voice, fax
and data. Using the Clarent System, service providers are able to provide a
level of voice quality over packet-switched networks that is indistinguishable
from circuit-switched voice services, while simultaneously delivering a
superior level of fax and data transmission quality compared to existing
circuit-switched fax and data services. As a result, the Clarent System enables
service providers to deliver to their end-user customers lower-cost
communications services and deploy new communications features as they become
available.
The Clarent System currently consists of three main components: (1) the
Clarent Gateway, a standards-based network server; (2) the Clarent Command
Center, a proprietary client/server software package; and (3) a relational
database, which must be acquired from a third-party. The Clarent Gateway
converts voice, fax and data into packets that are transmitted over a network.
The Clarent Command Center serves as the data processing engine supporting all
network management functions, including call routing, call pricing (call
rating), subscriber authentication, billing, diagnostics and maintenance. The
database houses all stored data for the network, including all customer
destination addresses and billing information.
We began commercial shipment of the Clarent System in March 1997, and, as of
March 31, 1999, had shipped the Clarent System to approximately 100
organizations in 45 countries worldwide. The Clarent System has been installed
in some of the world's leading service providers' networks, including AT&T
Corporation, Chunghwa Telecom (Taiwan), Ji-Tong Communications (People's
Republic of China), KDD (Japan), Korea Telecom, KPN Telecom Netherlands,
Singapore Telecom, Star Telecom (United States) and Telia Telecom (Sweden).
Industry Background
The telecommunications services industry has historically followed a path of
development based on the belief that voice and data are distinct modes of
communication that require separate network resources. This belief has led to
the development of separate network architectures and technologies for voice
and data communications. Data communications were originally transmitted over
circuit-switched networks. As a result of the development of packet-switched
architectures and other technological advances, most data traffic today is
transmitted over IP-based packet-switched networks. Packet-switched
architecture employed in today's data networks, such as the Internet, is more
efficient because it allocates network capacity only during transmission. In an
IP-based packet-switched network, a signal is divided into packets that are
simultaneously routed over different paths to a final destination where they
are recombined in the original order in which they were transmitted. In a
packet-switched network, excess network capacity is available for the
transmission of additional traffic. Traditional voice networks, however, are
still built around a circuit-switched architecture. A circuit-switched network
establishes and maintains a dedicated circuit between calling parties for the
entire duration of a call.
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[Graphic depicting the differences between a circuit-switched and IP telephony
call]
[A phone call transmits signals that direct a series of switches to open a
dedicated circuit to second phone. The dedicated circuit carries the electronic
signals through the line. The phones transists the signals back into speech.]
[Unlike the traditional circuit switched phone call, which travels on a
dedicated circuit, the electronic signals go to a Clarent Gateway, which
converts them into small packets of digital information. The packets may take
different routes to their destination. After traveling through the IP network,
the packets are converted back into electronic signals by another Clarent
Gateway and put back on the phone network.]
Recent advances in packet-switching technology have significantly bridged
the gap between circuit-switched and IP-based packet-switched voice quality.
The result is that today a voice call placed over an IP-based packet-switched
network can sound virtually indistinguishable from the same call made over a
circuit-switched network. What distinguishes IP telephony technology, however,
is that it allows service providers to share these networks for voice, fax and
data traffic and quickly deploy additional features and services without the
need for costly network upgrades. In contrast, circuit-switched networks are
costly and difficult to modify. For example, the recent integration of such
basic services as caller ID and call return services into the circuit-switched
network took over a decade and hundreds of millions of dollars to implement in
the United States alone.
The added flexibility and cost-effectiveness of IP telephony networks are
particularly important in an increasingly deregulated and competitive market
environment. Deregulation acts as a catalyst for the rapid deployment of these
services by allowing new service providers to quickly enter formerly regulated
markets and by forcing existing service providers to rapidly respond to the
challenge of competition. According to a 1998 Frost & Sullivan report, the
total number of worldwide voice minutes running over IP-based packet-switched
networks is expected to grow from 6.3 million in 1997 to 8.8 billion in 2002,
representing a compound annual growth rate of 325% for the period. Accordingly,
spending on IP telephony equipment is projected to grow from $47.3 million in
1997 to $3.2 billion in 2002, representing a compound annual growth rate of
132%.
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A significant market opportunity now exists for the makers of systems that
enable service providers to deliver voice and data services over their IP-based
packet-switched networks. Although several of our competitors have attempted to
address this market opportunity, we believe that none to date has developed a
comprehensive solution that incorporates the functionality that service
providers require to provide end-to-end service. Some vendors have developed
products that embed the IP telephony call routing functionality in the same
equipment that houses the voice and data processing gateway technology. This
approach limits service providers' flexibility to make modifications to their
networks because any modification must be made at each individual switch. Many
vendors only provide limited billing and network management data. Even though
this operational support data is centralized, it is gathered and formatted in a
simplistic fashion, limiting the ability of service providers to manage
sophisticated networks or to bill using any pricing structure they desire.
Also, these simplistic billing systems make it difficult to connect service
providers' networks to the networks of other service providers. Many IP
telephony vendors, such as certain router and switch companies, have formed
partnerships with billing and network management technology providers in order
to provide even the most basic operational support solution to service
providers. This partnering necessitates integration, which can be
technologically difficult, time consuming and expensive. Finally, many vendors
require dedicated ports, which serve as a bridge to the circuit-switched
network, for voice, fax or data. Many vendors do not have the technical
capacity to integrate those ports with switches in the circuit-switched network
to allow the service provider to appropriately account for the transmission.
For example, the integrated port must be able to interpret busy signals, dial
tones and disconnects. The inability to integrate the ports makes it more
difficult for end-users to gain the benefits of this technology because they
have to dial separate phone numbers or use multi-step dialing processes.
In order to compete effectively in the emerging market for IP telephony
services, service providers need a cost-effective, comprehensive solution that
combines a high level of functionality with a flexible architecture designed to
support growth and new features. This solution must enable service providers to
deliver clear and robust voice quality that can be merged efficiently with fax
and data IP telephony services. The solution must also possess robust back-
office features to permit service providers to operate and manage a viable
communications business. Some service providers and their enterprise customers
will use these features to support interconnection with other networks, while
others will use these features to connect to a clearinghouse to facilitate the
sharing of network traffic. The solution must allow service providers to
centrally make changes to their network. The solution must also be able to
incorporate feature enhancements, because there will be many and varied new
feature requests. The solution must also be transparent to end users and easy
to use. Finally, we expect that customers will prefer a solution that is
technologically advanced enough to allow service providers to quickly adapt
their IP telephony network architectures to emerging standards.
The Clarent Solution
We have developed a comprehensive IP telephony solution that offers the
following key benefits:
Circuit-switched quality voice and simultaneous voice, fax and data
transmission. The Clarent System combines state-of-the-art compression and echo
cancellation technologies with our proprietary packet handling technologies to
enable the transmission of calls over a Clarent network that sound
indistinguishable from a circuit-switched call. In addition, the Clarent System
enables the simultaneous transmission of voice, fax and data traffic over IP-
based packet-switched networks.
Rapid, low-cost deployment and maintenance. The Clarent System provides a
comprehensive solution that can be rapidly deployed by service providers with a
modest initial capital investment. By centralizing management and distributing
functionality, the Clarent System allows service providers to perform network
administration in an economical manner.
Transparent and secure interconnection with different networks. The Clarent
System is designed to support the seamless interconnection between Clarent-
based and circuit-switched networks. The Clarent System allows a service
provider to interconnect its network with the Clarent-based network of another
service
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provider or the Clarent-based network installed in a corporate intranet. These
interconnections provide a level of security that enables service providers to
exchange large volumes of traffic and billing data with each other and with
their enterprise customers. This process requires that only relevant
transaction information is disclosed, either bilaterally or through an
intermediary, such as an IP telephony clearinghouse.
Complementary call processing and centralized network management
functions. The Clarent System provides centralized processing of such network
functions as caller authentication, billing, call routing, call rating and
network diagnostics and maintenance. Because we provide both the call
processing and operational support functions in a network, we can effect
system-wide enhancements and new features quickly and efficiently.
Adaptability to changing standards and technologies. The Clarent System is
designed based on a modular and distributed architecture. Compared to a
circuit-switched network, a Clarent-based network may be modified quickly to
accommodate new features, support new protocols or handle new end-user devices,
such as cable modems and IP-based telephones, as they become available.
Strategy
Our objective is to be the leading provider of comprehensive IP telephony
solutions to service providers worldwide. Key elements of our strategy include
the following:
Increase our penetration of service provider market. We plan to increase the
sales of our products by expanding our relationships with existing customers
and by capturing new customer relationships. We have shipped our solutions to
approximately 100 organizations, including several of the world's leading long
distance carriers. We believe the demand for our products will increase as new
and existing customers increasingly derive revenue from IP telephony-based
services.
Provide the core technology enabling the delivery of a broad range of IP
telephony services. We have designed the Clarent System to provide service
providers with a unified technology platform for the effective and rapid
deployment of a broad range of IP telephony services. This will enable service
providers to offer their customers a wide array of value-added services,
including virtual private networks and worldwide roaming, based on the Clarent
System. An additional element of our strategy is to increase the level of
technological interoperability of our products with those of certain other
vendors to expand the breadth of opportunities our products can address.
Target key growth markets worldwide. We will continue to focus our sales,
marketing and support efforts on key growth markets for IP telephony services.
We currently maintain a global sales and support presence, with offices in
Belgium, Germany, Japan, Korea, Spain, Taiwan and the United Kingdom. We
believe that international markets represent particularly attractive early
markets for our products and services due to rapid telecommunications
deregulation and increasing demand for network capacity. We will continue to
add sales, marketing and support resources in these regions and will respond to
emerging opportunities in these markets.
Extend our technology leadership position. We believe we have established a
technology leadership position in the market for IP telephony solutions, and we
intend to extend this position by leveraging our proprietary packet
intelligence architecture. Our architecture is a modular technology that
segregates the call processing and network management functions in the Clarent
System. We believe that our architecture differentiates the Clarent System from
competing vendors' systems by enabling service providers to deploy and manage
new features and services across a network with a minimum level of service
disruption.
Promote strategic relationships between our customers. We will continue to
promote the formation of bilateral alliances and clearinghouse arrangements
between our customers based on the Clarent System. For example, AT&T
Corporation and Telia Telecom have established international IP telephony
clearinghouses based on the Clarent System. We expect other service providers
in different geographic regions to continue to
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establish bilateral relationships with other Clarent customers or join
additional clearinghouses. We believe these relationships will lead to
increased deployment of our products in both existing and new customers'
networks.
Deliver added value through customer support and services. To drive the
rapid deployment of our solutions, we will continue to assist our customers in
the installation of our IP telephony systems and provide comprehensive ongoing
technical support, training and other services. We plan to continue to build
our internal professional services organization and explore additional
relationships with potential global services partners as a means of generating
additional revenue.
Products and Technology
The Clarent System incorporates internally-developed and third-party
technologies, including our proprietary packet intelligence technology. This
technology integrates all functions performed by the Clarent System in a
modular, flexible manner that enables the easy addition or alteration of system
components and features.
The Clarent System is comprised of three main components: (1) the Clarent
Gateway; (2) the Clarent Command Center; and (3) a third-party relational
database.
[Graphic depicting the architectural structure of our solution, the Clarent
System]
Clarent Gateway
The Clarent Gateway is a standards-based telephony server that converts
voice, fax and data into IP packets, merges and transmits these packets over
the IP network and then converts them back into circuit-switched voice, fax and
data streams. The Clarent Gateway provides the following functionality:
Standard telephony interfaces. The Clarent Gateway supports many standard
telephony interfaces and signaling protocols. Available telephony interfaces
include both analog (FX0) and digital (T1 and E1). Supported signaling
protocols include multi-frequency receiver 1 (MFR1), multi-frequency compelled
receiver 2 (MFCR2), primary rate interface integrated services digital network
(PRI-ISDN), Feature Group D and signaling system 7 (SS7/C7), among others.
Caller interface. Our programmable interactive voice response (IVR) software
provides a voice interface for prepaid calling card applications, captures
account codes for specific calls and routes users to specific features or
options. The IVR software also processes different call types based on the
number dialed (such as
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toll free 800 numbers), the automatic number identification (ANI) of the
calling party or characteristics stored as part of a subscriber's user record.
Integrated voice, fax and data. Clarent Gateways simultaneously handle
voice, fax and data traffic through universal ports, eliminating the need to
dedicate ports to specific types of traffic. A port is the bridge between the
circuit-switched and packet-switched networks. Each port handles a single call.
Compliance with major telecommunications standards. Clarent Gateways
incorporate relevant International Telecommunications Union (ITU) telephony
standards, including the H.323, G.723.1, G.729a, and G.711 coders/decoders
(codecs), as well as the proprietary AudioCodes, Ltd. NetCoder codecs, among
others. We also utilize Q.931 signaling for call setup and control between the
gateways, as specified in H.323.
Low call latency. Clarent Gateways have a measured latency, the lag between
transmission and reception of a voice message, of approximately 100
milliseconds (ms). Even with the addition of a typical 100 ms to 150 ms of
network-induced latency, the total system latency typically experienced with
Clarent Gateways is only between 200 ms to 250 ms.
Echo cancellation. Clarent Gateways employ the G.165 echo cancellation
standard to provide clear, virtually echo-less voice transmission.
Clarent Command Center
The Clarent Command Center is a centralized client/server software package
that functions as the processing engine supporting network management and back
office functions, including call routing, call rating, subscriber management,
gateway monitoring and billing. By centralizing all network management and
back-office functions, Clarent-based networks can be configured and modified
quickly and easily. Furthermore, the Clarent Command Center is designed to be
fully redundant through the use of multiple Clarent Command Centers to enhance
network efficiency and reliability. Examples of network management and back
office functions performed by the Clarent Command Center include:
Dynamic call routing. Calls are dynamically directed to specified groups of
gateways (server groups). In the event that a server group is unavailable for a
particular destination, the Clarent Command Center will automatically route the
call to the specified backup server group for completion. Furthermore, if there
are no gateways for a particular destination, the Clarent Command Center can
always route the call through the circuit-switched network, so that call
completion can be guaranteed.
Call rating. The Clarent Command Center supports a wide range of rating
options that allow service providers to customize their pricing schemes to
their business needs and to offer different rates for the same routes based on
individual call or subscriber characteristics. Examples of call rating options
supported by the Clarent Command Center include time-of-day rates and drop-off
rates (i.e. reduced rates after the first minute of a call). Rates can also be
varied, based on the identity of the caller, the calling number or the called
number, such as toll-free numbers.
Relational Database
The Clarent System also requires the installation of a third-party
relational database that houses all call routing, subscriber, billing and
network management information in a centralized data repository. The Clarent
System is currently compatible with certain databases, including current
releases from Oracle Corporation and Microsoft Corporation. As a result,
customers using the Clarent System can develop their own customized Web
interfaces, billing systems and advanced management tools. Examples of the data
stored in the relational database include:
Billing information. Billing data is collected and stored in the relational
database and includes extensive detail on all calls made through the network.
Invoice generation and reporting programs can be developed using standard
database reporting tools.
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Domain management. The Clarent System provides the capability to segment a
network into domains, or "subnetworks" within a larger network. This allows
service providers to determine what calls can be completed within their
networks. A domain operates as an independent network in the way it processes
calls, but reports to the same centralized management as the other domains in
the network.
Other Clarent Products and Services
The following table provides a summary of additional Clarent products and
services:
<TABLE>
<CAPTION>
Product or Service Features
<C> <S>
Clarent Connect Provides network interconnection; real-time
account settlement; least-cost routing;
traffic balancing between partners; and
bridging between service providers and
enterprise networks
- -------------------------------------------------------------------------------
Clarent Clearinghouse Products Harvest, sort, group and archive billing
data from individual gateways or networks of
gateways
- -------------------------------------------------------------------------------
Clarent SS7/C7 Gateway Signaling Provides seamless integration between a
service provider's SS7 or C7 network and a
Clarent Gateway
- -------------------------------------------------------------------------------
Clarent Care Provides software upgrades and worldwide
technical support to customers seven days a
week, 24 hours a day
- -------------------------------------------------------------------------------
Clarent University Provides basic and advanced training courses
to users of Clarent technology
</TABLE>
Customers
We began commercial shipments of our products in March 1997 and, as of March
31, 1999, had already shipped Clarent Systems to approximately 100
organizations in 45 countries. We sell our products directly and through
distributors to service providers.
The following table is a list of our top 15 service provider customers by
revenue for 1998:
<TABLE>
<S> <C> <C>
AT&T Corporation Hemisphere Communications Corporation Sprint Corporation
AT&T GCSI Inc. IT&E Overseas, Inc. Star Telecom
AT&T Jens Corporation Korea Telecom International Technet International, Inc.
Bitro Telecommunications,
Inc. Rapid Link Telecommunications Telecomet International Inc.
Dacom International Inc. Singapore Telecommunications Ltd. Telia Telecom
</TABLE>
In 1998, sales to these customers represented approximately 70% of our
revenues. Entities affiliated with AT&T Corporation accounted for 36% and
Technet International accounted for 12% of net revenue in 1998.
Customer Case Studies
The following case studies illustrate how certain of our customers have
deployed our products.
AT&T Jens Corporation. AT&T Jens Corporation, a subsidiary of AT&T
Corporation, launched commercial voice service over its IP-based packet-
switched network using the Clarent System in September 1997. Its first service
offering, AT&T @Phone, is a prepaid and postpaid calling card service that
initially allowed consumers in Japan to call 57 other countries around the
world. By the fall of 1998, AT&T Jens Corporation had expanded this service to
provide voice and fax service to 224 countries. Using the Clarent System, AT&T
Jens Corporation has been able to provide international long-distance telephone
services to
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customers in Japan, a market in which it had previously not been able to
provide service using circuit-switched technology. We believe that the success
of AT&T @Phone stems from its ability to offer a lower priced international
long-distance alternative compared to existing circuit-switched services.
Rapid Link Telecommunications. Rapid Link Telecommunications, an
international telecommunications service provider based in Atlanta, Georgia,
launched commercial long-distance service using the Clarent System in the fall
of 1998. The initial service launched was a prepaid long-distance calling card
service between Asia, Europe and the United States. Rapid Link
Telecommunications is expanding its IP telephony network by setting up
bilateral partnerships with major international telecom carriers offering IP
telephony services in their geographic regions. The first partnership was
signed with Korea Telecom International in November 1998.
Telia Telecom. Telia Telecom, the leading telecommunications service
provider in Scandinavia and the incumbent telephone company in Sweden, began
commercial IP telephony trials in the summer of 1998 using the Clarent System.
After testing our products against those of seven other vendors, Telia Telecom
selected the Clarent System and launched the service in February 1999. At that
same time, Telia Telecom also launched Europe's first IP telephony
clearinghouse, based on the Clarent System, for international IP-based packet-
switched voice traffic. Since then, Telia Telecom has recruited nine service
providers to join the clearinghouse.
Sales, Marketing And Customer Service and Support
Sales
We currently have a global sales organization with sales and support offices
in Belgium, Germany, Japan, Korea, Spain, Taiwan and the United Kingdom. Our
sales force sells our products to services providers both directly and through
third-party distributors. Direct sales accounted for 82% of our net revenue for
the year ended December 31, 1998. In addition, we have 11 third party
distributors in five countries. Our arrangements with these distributors
provide discount levels, territories and other material terms, but generally do
not grant exclusivity to the distributors, and can be terminated by either
party. See "Risk Factors--We May Not Be Able To Expand Our Direct Sales And
Distribution Channels."
Marketing
Our marketing organization develops strategies and implements programs to
support the sale of our products. Our current marketing efforts include a
number of programs designed to increase industry visibility, including
press/analyst tours, trade shows and events, speaking engagements and ongoing
interaction with analysts and the media as well as targeted marketing programs.
Additional programs include our customer summit, which provides the opportunity
for our customers to meet each other and learn more about our products.
Customer Service and Support
We believe that customer service and support are critical to maintaining
existing customer relationships and developing relationships with new
customers. Our professional services group performs the following functions:
. pre-sales support;
. product installation and customization;
. technical support and consulting services;
. customer training; and
. product maintenance.
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In addition to our sales and support offices in North America, Asia and
Europe, we have established a support center in the United States that provides
support seven days a week, 24 hours a day. We also currently partner with
Equant Integration Services, Inc., a supplier of international network support
services, to provide global call center and technical support to our customers.
Competition
We compete in a new, rapidly evolving and highly competitive market. We
expect competition to intensify in the future. We believe that the main
competitive factors in our market are product quality, features, cost and
customer relationships. We believe a critical component to success in this
market is the ability to establish and maintain strong customer relationships
with a wide variety of international service providers and to facilitate
relationships between those service providers to increase the geographic
coverage of their services.
Our principal competitors include large networking equipment manufacturers,
such as Cisco Systems, Inc., large telecommunications equipment manufacturers,
such as Lucent Technologies, emerging IP telephony technology companies, such
as VocalTec Communications Ltd., and operational support systems, such as
billing and network management, manufacturers. Many of our competitors are
substantially larger than we are and have significantly greater financial,
sales and marketing, technical, manufacturing and other resources and more
established distribution channels and stronger relationships with service
providers. These competitors may be able to respond more rapidly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than we can.
Furthermore, some of our competitors offer aggressive sales terms, including
financing alternatives, which we cannot match. These competitors may enter our
existing or future markets with solutions that may be less expensive, provide
higher performance or additional features or be introduced earlier than our
solutions. Given the market opportunity, we also expect that other companies
may enter our market with better products and technologies. If any technology
that is competing with ours is more reliable, faster, less expensive or has
other advantages over our technology, then the demand for our products and
services could decrease.
We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies. Successful new
product introductions or enhancements by our competitors could reduce the sales
or market acceptance of our products and services, perpetuate intense price
competition or make our products obsolete. To be competitive, we must continue
to invest significant resources in research and development, sales and
marketing and customer support. We cannot be sure that we will have sufficient
resources to make such investments or that we will be able to make the
technological advances necessary to be competitive.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share. Our failure to compete successfully against
current or future competitors could seriously harm our business, financial
condition and results of operations.
Research and Development
To maintain our technology leadership position, we focus our research and
development efforts on improving the functionality and performance of our
existing products and developing new products. We obtain extensive product
development input from our customers and monitor our customers' needs and
changes in the marketplace. We are currently working on key areas such as
packet concentration, system interoperability, network management and enhanced
end-user features.
We believe our success will depend, in part, on our ability to develop and
introduce new products and enhancements to our existing products. In the past
we have made, and intend to continue to make, significant investments in
product and technological development. Our engineering, research and
development expenditures totaled approximately $136,000 in 1996, $1.0 million
in 1997 and $3.4 million in 1998.
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We perform our research and product development activities at our principal
offices in Redwood City, California. As of March 31, 1999, we had 32 employees
in our research and development department. If we are unable to develop new
products or enhancements to existing products on a timely basis, or if such new
products or enhancements fail to achieve market acceptance, our business,
financial condition and results of operations could be seriously harmed. See
"Risk Factors--Our Market Is Subject To Rapid Technological Change."
Manufacturing and Assembly
Our manufacturing operations consist of materials planning and procurement,
final assembly, product assurance testing, quality control and packaging and
shipping. We assemble and test our products at our facilities in Redwood City,
California. Based on volume, geographic or customer requirements, we may begin
outsourcing certain assembly and test functions. We have developed an assembly
process that enables us to configure our products to be adapted to different
customer specifications at the final assembly stage. This flexibility is
designed to reduce both our assembly cycle time and our need to maintain a
large inventory of finished goods. We believe that the efficiency of our
assembly process to date is largely due to our product architecture and our
commitment to assembly process design. However, this assembly process involves
certain risks, including the potential absence of adequate capacity and reduced
control over delivery schedules, manufacturing yields, quality and costs. See
"Risk Factors--We Face Risks Associated With The Assembly Of Our Products."
We test our products both during and after the assembly process using
internally-developed product assurance testing procedures. Although we
generally use standard components for our products and try to maintain
alternative sources of supply, some key components are purchased from sole or
single source suppliers for which alternative sources are not currently
available. We may experience supply problems in the future from any of our
suppliers, which could delay our ability to assemble and ship our products and
seriously harm our business, financial condition and results of operations. See
"Risk Factors--We Rely On Third-Party Technology And Products."
Patents and Intellectual Property
We rely on a combination of copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. We
currently do not have any United States patents issued for any of our
technology, although we do have four United States applications, one German
application and one Japanese application on file.
We also enter into confidentiality and proprietary information and
inventions agreements with our employees and consultants, and control access to
and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Monitoring unauthorized use of our products is
difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology. The laws of some foreign countries do not
protect our proprietary rights to as great an extent as the laws of the United
States, and many United States companies have encountered substantial
infringement problems in such countries, some of which are countries in which
we have sold and continue to sell products. There is a risk that our means of
protecting our proprietary rights may be inadequate. For example, our
competitors may independently develop similar technology, duplicate our
products or design around our patents, when or if issued, or our other
intellectual property rights. If we fail to adequately protect our intellectual
property, it would be easier for our competitors to sell competing products.
From time to time, third parties may assert exclusive patent, copyright,
trademark and other intellectual property rights to technologies that are
important to us. In addition, third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers with respect
to existing or future products, trademarks or other proprietary rights. We have
not conducted an exhaustive search of patents issued to other
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<PAGE>
companies or organizations. Because of the number of patents issued and patent
applications filed relating to the transmission of voice over packet-switched
networks, we believe there is a risk that current and potential customers and
other third parties have filed, or in the future will file applications for, or
have received or in the future will receive, patents or obtain additional
intellectual property rights relating to materials or processes that we use or
propose to use. If such third-party patents or other proprietary rights have
been or are issued, or are otherwise asserted by third parties, the holders of
these patents or other proprietary rights may bring infringement claims against
us. Furthermore, former employers of our current and future employees may
assert that our employees have improperly disclosed confidential or proprietary
information to us. We may in the future initiate claims or litigation against
third parties for infringement of our proprietary rights or to determine the
scope and validity of our proprietary rights and the rights of competitors. Any
such claims, with or without merit, may be time-consuming, result in costly
litigation and diversion of technical and management personnel or require us to
develop non-infringing technology. Alternatively, others may claim that we
infringe their intellectual property rights, and we may be required to obtain a
license or royalty agreement under the intellectual property rights of those
parties claiming the infringement. In addition, an adverse ruling could result
in substantial, including treble damages or the issuance of an injunction
against us requiring that we cease development and withdraw certain products
from the marketplace. Limitations on our ability to market our products and
delays and costs associated with monetary damages and redesigns in compliance
with an adverse judgment or settlement could harm our business, financial
condition and results of operations.
We have certain obligations to indemnify our customers when their use of our
products results in an intellectual property infringement claim by a third
party. In the future, third parties could assert infringement claims, or
customers and end users of our products could try to obtain indemnification
from us. Such assertions, if proven to be true, could seriously harm our
business, financial condition and results of operations.
Employees
As of March 31, 1999, we had a total of approximately 155 employees, of
which approximately 32 were in research and development, 82 were in sales,
marketing and customer support and 41 were in finance, administration and
operations. Our future performance depends, in significant part, upon our
ability to attract new personnel and retain existing personnel in key areas
including engineering, technical support and sales. Competition for such
personnel is intense, especially in the San Francisco Bay Area where we are
headquartered, and we cannot be sure that we will be successful in attracting
or retaining such personnel in the future. None of our employees is subject to
a collective bargaining agreement. We consider our relationship with our
employees to be satisfactory.
Facilities
We occupy approximately 39,000 square feet of space in Redwood City,
California. The term of the lease for 14,000 square feet of this facility
expires on December 31, 1999, and the initial term for the remaining 25,000
square feet of this facility expires as early as December 2003. In addition to
our principal office space in Redwood City, California, we also lease sales and
support offices in Illinois and internationally in Belgium, Germany, Japan,
Korea, Spain, Taiwan and the United Kingdom. We believe that existing
facilities are adequate for our needs through calendar year 1999 and are
currently in the process of locating additional space to meet our expected
requirements thereafter. If we require additional space, we believe that we
will be able to secure such space on commercially reasonable terms without
undue operational disruption.
Legal Proceedings
We are not currently a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company and their ages as of
March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jerry Shaw-Yau Chang.............. 40 Chief Executive Officer, President and
Director
Richard J. Heaps.................. 46 Chief Operating Officer, Chief Financial
Officer, General Counsel and Secretary
Michael F. Vargo.................. 38 Chief Technology Officer and Director
Mark E. McIlvane.................. 45 Vice President, Worldwide Sales
Heidi H. Bersin................... 43 Vice President, Marketing
Mong Hong (Mahan) Wu.............. 39 Vice President and General Manager, Asia
Pacific
Wen Chang Ko(1)(2)................ 49 Director
Syaru Shirley Lin(1)(2)........... 30 Director
</TABLE>
- --------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mr. Chang, one of our co-founders, has served as our President and Chief
Executive Officer and as a Director since our inception in July 1996. From
March 1996 through June 1996, Mr. Chang worked as the system architect for
Relations Software, a developer of network and applications monitoring
software. From September 1994 through February 1996, Mr. Chang served as a
Senior Software Engineer at OnLive! Technologies, Inc. (OnLive!), a developer
of on-line communications technology. Prior to September 1994, Mr. Chang spent
seven years at Centura Software Corporation (Centura), formerly Gupta
Corporation, a supplier of client/server application development and
deployment technology, as a manager and developer of Centura's client/server
database solution. Mr. Chang holds a B.S. degree in commercial economics from
National Chiao-Tung University and an M.S. degree in computer science from
Pennsylvania State University. Mr. Chang's brother-in-law, Shoon Shen Tony
Wang, serves as our Controller of the Asia Pacific region.
Mr. Heaps has served as our Chief Operating Officer, Chief Financial
Officer, General Counsel and Secretary since September 1998. From July 1997
through August 1998, Mr. Heaps worked as an independent consultant and headed
a private consulting firm and law practice serving Silicon Valley-based high-
technology companies. From October 1987 through July 1997, Mr. Heaps served in
various management positions at Centura, most recently serving as Senior Vice
President of Business Development and General Counsel. Mr. Heaps is a member
of the State Bar of California and a member of the Board of Directors of the
Children's Discovery Museum of San Jose. Mr. Heaps holds a B.A. degree in
economics and mathematics from Yale University and J.D. and M.B.A. degrees
from Stanford University.
Mr. Vargo, one of our co-founders, has served as our Chief Technology
Officer and as a Director since our inception in July 1996. From April 1996
through June 1996, Mr. Vargo served as a Senior Software Engineer at Oracle
Corporation, a leading provider of relational databases. From January 1995
through April 1996, Mr. Vargo served as a Senior Software Engineer at OnLive!
From January 1992 through December 1994, Mr. Vargo served as a Senior Software
Engineer at Centigram Corporation, a voice messaging equipment manufacturer.
Prior to Centigram Corporation, Mr. Vargo spent seven years at Pacific Bell.
Mr. Vargo holds a B.S. degree in electrical engineering and an M.E. degree in
electrical engineering from California State Polytechnic University at Pomona.
Mr. McIlvane has served as our Vice President, Worldwide Sales since July
1997. From January 1993 through June 1997, Mr. McIlvane served as Vice
President of Sales and Marketing for Comverse Technology, Inc. (Comverse), a
manufacturer of high-performance voice processing computers for network-based
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<PAGE>
telecommunications service providers. Prior to Comverse, Mr. McIlvane served in
various senior positions at Applied Communications, Inc., a wholly owned
subsidiary of U.S. WEST, Inc. and Bell & Howell Corporation. Mr. McIlvane holds
a B.S. degree in business and economics from MacMurray College.
Ms. Bersin has served as our Vice President, Marketing since February 1997.
From 1983 through January 1997, Ms. Bersin served in various management
positions at Pacific Bell and Pacific Bell Information Services, including
Director of Pacific Bell Information Services from 1986 to 1997. Ms. Bersin
holds a B.A. degree from Stanford University and an M.B.A. degree from Yale
University.
Mr. Wu has served as our Vice President and General Manager of the Asia
Pacific region since April 1997. From January 1996 through March 1997, Mr. Wu
served as the Regional Sales Manager of Computer Sales Operations for Hewlett-
Packard Company, a measurement and computer equipment manufacturer, in Asia,
except Japan, and Australia after Hewlett Packard Company acquired Convex
Computer Corporation, a supercomputer manufacturer, where Mr. Wu served as
General Manager of the Asia Pacific region, except Japan, from January 1994
through December 1995. Mr. Wu holds a B.S. degree in electrical engineering and
an M.B.A. degree from National Chiao-Tung University.
Mr. Ko has served as a Director since June 1997. Since 1990, Mr. Ko has
served as Chairman of the WK Technology Funds and also served as Chairman of
the Taipei Venture Capital Association from 1992 to 1995. From 1977 to 1990,
Mr. Ko served in various management positions at Hewlett Packard Taiwan Ltd.,
most recently serving as Chairman and President from 1979 to 1990. From 1974 to
1977, Mr. Ko served in various positions at IBM in the United States, most
recently serving as Research and Development Project Manager from 1975 to 1977.
Mr. Ko holds a B.S. in electrical engineering from National Cheng Kung
University and an M.S. degree in system science from Michigan State University.
Ms. Lin has served as a Director since July 1998. Since 1993, Ms. Lin has
been employed by Goldman Sachs (Asia) Limited. She currently serves as an
Executive Director in the Merchant Banking Division, which manages several
merchant banking funds. From 1990 to 1993, Ms. Lin worked for Morgan Stanley &
Co. in New York and Hong Kong. Ms. Lin is also a non-executive director of Hung
Hing Printing Group Limited, a publicly listed company on the Hong Kong Stock
Exchange. Ms. Lin holds a B.A. degree from Harvard University.
Executive officers are appointed by the Board of Directors and serve until
their successors are qualified and appointed. There are no family relationships
among any of our directors or executive officers.
Board Composition
Upon the closing of this offering, the number of directors will be set at
five. In accordance with the terms of our Amended and Restated Certificate of
Incorporation, the terms of the office of the Board of Directors will be
divided into three classes, with each class holding office for staggered three
year terms: Class I directors' terms will expire at the annual meeting of
stockholders to be held in 2000, Class II directors' terms will expire at the
annual meeting of stockholders to be held in 2001, and Class III directors'
terms will expire at the annual meeting of stockholders to be held in 2002. The
Class I director is Ms. Lin, and there is one vacancy in this class of
directors. The Class II directors are Mr. Ko and Mr. Vargo, and the Class III
director is Mr. Chang.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, our Amended and Restated Certificate of
Incorporation provides that the authorized number of directors may be changed
only by resolution of the Board of Directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of the Board of Directors may
have the effect of delaying or preventing changes in control. Although our
directors may be removed for cause by the affirmative vote of the holders of a
majority of the
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<PAGE>
common stock, our Amended and Restated Certificate of Incorporation provides
that holders of two-thirds of the common stock must vote to approve the removal
of directors without cause.
Board Committees
The Compensation Committee consists of Mr. Ko and Ms. Lin. The Compensation
Committee:
. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our Equity Incentive Plans; and
. makes recommendations to the Board of Directors regarding such matters.
The Audit Committee consists of Mr. Ko and Ms. Lin. The Audit Committee:
. makes recommendations to the Board of Directors regarding the selection
of independent auditors;
. reviews the results and scope of the audit and other professional
services provided by our independent auditors;
. reviews the independence of the independent auditors; and
. reviews and evaluates our internal control functions.
Compensation Committee Interlocks and Insider Participation
The members of our Compensation Committee are Mr. Ko and Ms. Lin. None of
the members of the Compensation Committee of the Board of Directors is
currently or has been, at any time since our formation, one of our officers or
employees.
Director Compensation
Directors who are also executive officers do not receive any additional
compensation for serving as members of the Board of Directors or any committee
thereof. Non-employee directors are expected to receive an initial option to
purchase 5,000 shares of common stock and an annual option to purchase 2,000
shares of common stock under our 1999 Non-Employee Directors' Stock Option
Plan. See "--1999 Non-Employees Directors' Stock Option Plan."
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<PAGE>
Executive Compensation
The following table sets forth certain information for the year ended
December 31, 1998, regarding the compensation of our Chief Executive Officer
and each of our four most highly-compensated executive officers whose salary
and bonus for such year were in excess of $100,000 on an annualized basis
(Named Executive Officers):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------------------- ---------------------
Name and Principal Other Annual Securities Underlying All Other
Position Salary($) Bonus($) Compensation(1) Options(#) Compensation($)(2)
- ------------------ --------- -------- --------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
Jerry Shaw-Yau Chang
President and Chief
Executive Officer..... $110,000 -- -- -- --
Richard J. Heaps(3)
Chief Operating
Officer, Chief
Financial Officer,
General Counsel and
Secretary............. 67,500 $ 6,160 -- 400,000 --
Michael F. Vargo
Chief Technology
Officer............... 131,875 7,500 -- -- --
Mark E. McIlvane
Vice President,
Worldwide Sales....... 150,000 20,000 $52,717 160,000 $9,800
Mong Hong (Mahan) Wu
Vice President and
General Manager, Asia
Pacific............... 131,640 26,145 -- -- --
</TABLE>
- ---------------------
(1) Consists of sales commissions.
(2) Consists of reimbursement of automobile expenses and life insurance
premiums.
(3) Mr. Heaps started his employment with us in September 1998. Mr. Heaps would
have earned a salary of $180,000 if he had been employed by us for the
entire year. See "--Employment Agreements."
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information relating to stock options
awarded to each of the Named Executive Officers during the fiscal year ended
December 31, 1998. All such options were awarded under the 1999 Equity
Incentive Plan.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Stock Option Term(3)
------------------------------------------ -----------------------
Number of
Securities % of Total
Underlying Options Exercise
Options Granted Price Per Expiration
Name Granted in 1998(1) Share(2) Date 5% 10%
- ---- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jerry Shaw-Yau Chang.... -- -- -- -- -- --
Richard J. Heaps........ 400,000 13.2% $0.75 08/27/08 $ 188,668 $ 478,122
Michael F. Vargo........ -- -- -- -- -- --
Mark E. McIlvane........ 160,000 5.3 0.329 07/20/08 38,578 92,610
Mong Hong (Mahan) Wu.... -- -- -- -- -- --
</TABLE>
- ---------------------
(1) The total number of options granted to our employees in fiscal year 1998
was 3,030,896.
(2) The exercise price per share of options granted represents the fair market
value of the underlying shares of common stock on the dates the respective
options were granted. Time options vest over a four-year schedule.
(3) In order to comply with the rules of the Securities and Exchange Commission
(Commission), we are including the gains or "option spreads" that would
exist for the respective options we granted to the Named Executive
Officers. We calculate these gains by assuming an annual compound stock
price appreciation of 5% and 10% from the date of the option grant until
the termination date of the option. These gains do not represent our
estimate or projection of the future common stock price.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
The following table sets forth the number and value of securities underlying
unexercised options held by the Named Executive Officers at December 31, 1998:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1998 December 31, 1998(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry Shaw-Yau Chang.... -- -- -- -- -- --
Richard J. Heaps........ -- -- -- 400,000 -- $100,000
Michael F. Vargo........ -- -- -- -- -- --
Mark E. McIlvane........ -- -- 324,882 175,118 $298,442 138,164
Mong Hong (Mahan) Wu.... 221,664 $210,581 11,668 326,668 11,376 318,501
</TABLE>
- ---------------------
(1) The value of unexercised "in-the-money" options is based on the fair market
value as of December 31, 1998, as determined by the Board of Directors,
minus the exercise price, multiplied by the number of shares underlying the
option.
Employment Agreements
In June 1997, we entered into an employment agreement with Mark E. McIlvane,
Vice President, Worldwide Sales. The agreement was amended on June 1, 1998. The
agreement, as amended, provides for an annual base salary of $150,000. Mr.
McIlvane is also eligible to receive sales commissions. The agreement also
provides Mr. McIlvane with incentive stock options to purchase an aggregate of
500,000 shares of common stock. Of those options, 40,000 shares vested
immediately upon the signing of the amendment to the
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employment agreement, 370,000 shares are subject to time-based vesting over a
four-year period and 90,000 shares are subject to certain milestone-based
vesting, but must vest by August 1, 2004. The agreement provides that Mr.
McIlvane is employed "at-will," and the employment relationship may be
terminated for any reason at any time, but if we terminate Mr. McIlvane's
employment without cause, we must pay Mr. McIlvane a severance payment equal to
100% of his annual salary.
In August 1998, we entered into an employment agreement with Richard J.
Heaps, Chief Operating Officer, Chief Financial Officer, General Counsel and
Secretary. The agreement provides for an annual base salary of $180,000. Mr.
Heaps is also eligible to receive a performance-based annual bonus. The amount
of the bonus is targeted to be $40,000 for the first year of his employment,
and will be reviewed and reset in each subsequent year. The agreement also
provides Mr. Heaps with an incentive stock option to purchase 400,000 shares of
common stock, which is subject to time-based vesting over a four-year period.
In the event Mr. Heaps is terminated without cause or constructively terminated
within 18 months of any change of control, between 50% to 100% of the
outstanding options then held by Mr. Heaps will accelerate and vest, depending
on how long Mr. Heaps was one of our employees prior to termination.
"Constructive termination" is defined in the agreement as a voluntary
termination of employment after his duties or benefits are materially reduced.
The agreement provides that Mr. Heaps is employed "at-will," and the employment
relationship may be terminated for any reason at any time, but if we terminate
Mr. Heaps' employment without cause or if Mr. Heaps voluntarily terminates his
employment after his duties or benefits are materially reduced, we must pay Mr.
Heaps a severance payment equal to up to 100% of his annual salary, depending
on the amount of time Mr. Heaps has been employed by us.
Stock Plans
1999 Amended and Restated Equity Incentive Plan. Our 1999 Amended and
Restated Equity Incentive Plan (Equity Incentive Plan) was adopted in October
1996, amended in May 1997, May 1998 and October 1998, and amended and restated
by the Board of Directors in April 1999, subject to stockholder approval. An
aggregate of 11,358,170 shares of common stock currently are authorized for
issuance under the Equity Incentive Plan. However, on January 31 of 2000, 2001,
2002, 2003 and 2004, respectively, the aggregate number of shares of common
stock that are available for issuance under the Equity Incentive Plan will
automatically be increased by that number of shares of common stock equal to
2.5% of our outstanding shares of common stock on such date or a lesser amount
as determined by the Board of Directors for each year.
The Equity Incentive Plan provides for the grant of incentive stock options,
as defined under the Internal Revenue Code of 1986, as amended (Code), to
employees (including officers and employee directors) and non-statutory stock
options restricted stock purchase awards and stock bonuses to our and our
affiliates' employees (including officers and employee directors), directors
and consultants. The Equity Incentive Plan is administered by the Compensation
Committee, which determines the recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award and the
exercisability thereof.
The terms of options granted under the Equity Incentive Plan may not exceed
ten years. The Compensation Committee determines the exercise price of options
granted under the Equity Incentive Plan. However, the exercise price for an
incentive stock option and a non-statutory stock option cannot be less than
100% of the fair market value of the common stock on the date of the option
grant. Options granted under the Equity Incentive Plan vest at the rate
specified in the option agreement. Generally, the right to exercise 25% of the
total number of shares granted vests 12 months after the date of option grant,
with the remainder vesting monthly over three years thereafter, such that an
option is fully vested on the fourth anniversary of the date of the option
grant. Generally, the optionee may not transfer a stock option other than by
will or the laws of descent or distribution. However, an optionee may designate
a beneficiary who may exercise the option in the event of the optionee's death
or disability. Unless the terms of an optionee's option agreement provide for
an earlier termination, in the event of the optionee's cessation of his or her
relationship with us due to death or disability, the optionee's beneficiary may
exercise any vested options up to 18 months after death and 12 months after
disability after the date of such cessation. If such optionee's relationship
with us ceases for any
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<PAGE>
reason other than the optionee's death or disability, the optionee may exercise
any vested options during a minimum of 30 days following such cessation.
No incentive stock option, and, prior to our stock being publicly traded, no
non-statutory stock option, may be granted to any person who, at the time of
the grant, owns, or is deemed to own, stock possessing more than 10% of our
total combined voting power or that of any of our affiliates, unless the option
exercise price is at lease 110% of the fair market value of the stock subject
to the option on the date of grant and the term of the option does not exceed
five years from the date of the grant. In addition, the aggregate fair market
value, determined at the time of grant, of the shares of common stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year, under the Equity Incentive Plan and all
of our other stock plans and those of our affiliates, may not exceed $100,000.
Pursuant to Section 162(m) of the Code, no person may be granted options under
the Equity Incentive Plan covering more than 360,000 shares of common stock in
any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the Equity Incentive Plan. The Compensation Committee has the
authority to reprice outstanding options or to offer optionees the opportunity
to replace outstanding options with new options for the same or a different
number of shares. Both the original and new options will count toward the Code
Section 162(m) limitations set forth above.
If there is any sale of all or substantially all of our assets, any merger
or any consolidation in which we are not the surviving corporation, or a like
transaction involving us, all outstanding awards under the Equity Incentive
Plan either will be assumed or substituted for by any surviving entity. If the
surviving entity determines not to assume or substitute for such awards, the
vesting of stock awards held by persons still serving us or our affiliate will
be accelerated as to all of the shares and such awards will terminate if not
exercised prior to the sale of assets, merger or consolidation.
As of March 31, 1999, 1,426,328 shares of common stock had been issued upon
the exercise of options granted under the Equity Incentive Plan, options to
purchase 7,631,842 shares of common stock were outstanding and as of April 8,
1999, 2,300,000 shares remained available for future grant. The Equity
Incentive Plan will terminate on April 7, 2009, unless terminated by the Board
before then. As of April 8, 1999, neither stock bonuses nor restricted stock
has been granted under the Equity Incentive Plan.
1999 Non-Employee Directors' Stock Option Plan. In April 1999, the Board
adopted the 1999 Non-Employee Directors' Stock Option Plan (Directors' Plan),
subject to stockholder approval, to provide for the automatic grant of options
to purchase shares of common stock to our non-employee directors who are not
any of our affiliates' employees or consultants (Non-Employee Director). The
Board administers the Directors' Plan, but they may delegate the administration
to a committee.
The aggregate number of shares of common stock that may be issued under
options granted under the Directors' Plan is 300,000 shares. Under the terms of
the Directors' Plan, as of the initial public offering, each Non-Employee
Director, and each person who is thereafter elected or appointed for the first
time to be a Non-Employee Director automatically shall, upon the date of his or
her initial election or appointment to be a Non-Employee Director by our Board
or stockholders, be granted an option to purchase 5,000 shares of common stock.
In addition, on the day of each regular meeting of the Board, commencing with
the third regular meeting subsequent to the date of each Non-Employee
Directors' initial grant under the Director's Plan, each person who is then
serving as a Non-Employee Director automatically shall be granted an option to
purchase 2,000 shares of common stock.
The exercise price of the options granted under the Directors' Plan will be
equal to the fair market value of the common stock on the date of grant. No
option granted under the Directors' Plan may be exercised after the expiration
of ten years from the date it was granted. Options granted under the Directors'
Plan vest and
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become exercisable immediately. Options granted under the Directors' Plan
generally are non-transferable. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death. An
optionee whose service relationship with us or any of our affiliates (whether
as one of our Non-Employee Directors or subsequently as our affiliates'
employee, director or consultant) ceases for any reason, the vested option may
be exercised as provided in the option agreement, which is three months
generally, 12 months in the event of optionee's disability and 18 months in the
event of optionee's death.
1999 Employee Stock Purchase Plan. In April 1999, our Board of Directors
approved the 1999 Employee Stock Purchase Plan (Purchase Plan), subject to
stockholder approval, covering an aggregate of 600,000 shares of common stock.
The Purchase Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Code. Under the Purchase Plan, the
Board of Directors or a committee may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no more than 27
months.
Under the Purchase Plan, employees are eligible to participate if they are
employed by us or one of our affiliates designated by the Board of Directors
and are employed at least 20 hours per week and at least five months per year.
Employees who participate in an offering will have the right to purchase up to
the number of shares of common stock purchasable with a percentage designated
by the Board of Directors, up to 10%, of an employee's earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by the
Board of Directors, to the purchase of shares of common stock. The price of
common stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the common stock on the commencement date of
each offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with us.
In the event of certain changes in control, the Board of Directors has
discretion to provide that each right to purchase common stock will be assumed
or an equivalent right will be substituted by the successor corporation, or
that such rights may continue in full force and effect, or that for all sums
collected by payroll deductions be applied to purchase stock immediately prior
to the change in control. The Purchase Plan will terminate at the Board's
discretion or when all of the shares reserved for issuance under the Purchase
Plan have been issued.
As of April 8, 1999, no employees have rights to purchase shares of common
stock under the Purchase Plan.
Description of 401(k) Plan
401(k) Plan. We maintain the Clarent Corporation 401(k) Retirement Plan
(401(k) Plan) for eligible employees (Participants). In order to be a
Participant, an employee must have attained age 18. A Participant may
contribute up to 25% of his or her total annual compensation to the 401(k)
Plan, or up to a statutorily prescribed annual limit, if less. The annual limit
for 1999 is $10,000. Each Participant is fully vested in his or her deferred
salary contributions. Participant contributions are held and invested by the
401(k) Plan's trustee. We may make discretionary contributions as a percentage
of Participant contributions, subject to established limits. To date, we have
not made any contributions to the 401(k) Plan on behalf of the Participants.
The 401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions by us or our employees or to the 401(k) Plan, and income earned
on the 401(k) Plan contributions, are not taxable to employees until withdrawn
from the 401(k) Plan, and so that our contributions, if any, will be deductible
by us when made.
Limitation of Liability and Indemnification Matters
Our Amended and Restated Certificate of Incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that a director of a corporation will not be personally liable for
monetary damages for breach of such individual's fiduciary duties as a director
except for liability (1)
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for any breach of such director's duty of loyalty to us or to our stockholders,
(2) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (3) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (4) for any transaction from
which the director derives an improper personal benefit.
Our Bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the full
extent permitted by law. We believe that indemnification under our Bylaws
covers at least negligence and gross negligence on the part of an indemnified
party. Our Bylaws also require us to advance expenses incurred by directors and
executive officers in connection with the defense of any action or proceeding,
subject to certain exceptions, arising out of such party's status or service as
one of our directors or executive officers upon an undertaking by such party to
repay such advances if it is ultimately determined that such party is not
entitled to indemnification. Furthermore, our Bylaws authorize us to enter into
indemnification agreements with our directors, officers, employees and agents
and we intend to enter into such agreements. A copy of the form of such
indemnity agreement has been filed as an exhibit to the Registration Statement.
We also maintain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any of our directors, officers, employees or agents where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that may result in a claim for such
indemnification.
We are aware that the Commission considers indemnification for liabilities
arising under the Securities Act to be against public policy. Even if our
indemnification of our directors, officers and controlling persons is permitted
under indemnification agreements, it would be unenforceable as a matter of
public policy.
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CERTAIN TRANSACTIONS
On March 25, 1997 and June 10, 1997, we sold an aggregate of 3,220,000
shares of Series B preferred stock at a per share price of $1.00, in a private
placement equity financing with certain stockholders and one of our directors,
including: (1) an aggregate of 900,000 shares purchased by entities affiliated
with WK Technology Fund, a principal stockholder, of which Mr. Ko, one of our
directors, is Chairman; and (2) 900,000 shares purchased by Mr. Ko. See
"Principal Stockholders."
In June 1997, we entered into an employment agreement with Mr. McIlvane, our
Vice President, Worldwide Sales. The agreement provides for an annual base
salary of $150,000, sales commissions, stock options and severance and other
benefits. See "Management--Employment Agreements."
On June 3, 1997, we entered into an Advisory Services Agreement with WK
Technology Fund under which WK Technology Fund agreed that it would provide us
with certain business advisory services and finder services to identify,
evaluate and recommend outside director candidates. As compensation for these
services, we agreed to issue WK Technology Fund a warrant to purchase 1,400,000
shares of common stock that vests monthly or immediately 30 days prior to the
closing of this offering at an exercise price of $0.05 per share and a warrant
to purchase 360,000 shares of common stock that was exercisable on the date of
issuance at an exercise price of $0.05. As of March 31, 1999, WK Technology
Fund had exercised the warrants with respect to 768,328 shares of common stock.
The warrant covering the remaining 991,672 shares of common stock expires, if
not earlier exercised, on the closing of this offering. The term of Advisory
Services Agreement with respect to the business advisory service is four years
and the term with respect to the finder services is one year. See "Principal
Stockholders."
In August 1998, we entered into an employment agreement with Mr. Heaps, our
Chief Operating Officer Chief Financial Officer, General Counsel and Secretary.
The agreement provides for an annual base salary of $180,000, stock options and
severance and other benefits. See "Management--Employment Agreements."
On February 24, 1998, we issued secured convertible subordinated promissory
notes with an aggregate principal amount of $2,600,000 and warrants to purchase
an aggregate of 59,266 shares of Series C preferred stock at an exercise price
of $5.59, in a private placement debt and equity financing with certain of our
stockholders. In connection with this financing we issued notes evidencing an
aggregate principal amount of $2,000,000 and warrants to purchase an aggregate
of 45,590 shares of Series C preferred stock to entities affiliated with WK
Technology Fund. In addition, we issued a note in the principal amount of
$100,000 and a warrant to purchase 2,279 shares of Series C preferred stock to
Alice Wang, the spouse of Mr. Chang, one of our co-founders and Chief Executive
Officer. Ms. Wang's promissory note has been paid in full. $2,050,000 of the
promissory notes were converted into shares of Series C preferred stock on June
11, 1998. The warrants expire, if not earlier exercised, on the closing of this
offering. See "Principal Stockholders."
On June 11, 1998 and December 7, 1998, we sold an aggregate of 2,644,241
shares of Series C preferred stock, at a per share price of $6.58, in a private
placement equity financing with certain of our stockholders. In connection with
this financing we issued an aggregate of 312,194 shares in connection with the
conversion of certain promissory notes by entities affiliated with WK
Technology Fund. We also entered into a voting agreement with certain of our
stockholders in connection with the sale of its Series C preferred stock. In
connection with the voting agreement, we issued warrants to purchase 101,000
shares of our Series C preferred stock at an exercise price of $6.58 per share
to each of (1) WK Technology Fund III; and (2) The Goldman Sachs Group, L.P., a
principal stockholder, of whose affiliate, Goldman Sachs (Asia) Limited, Ms.
Lin, one of our directors, is an Executive Director. Each warrant is
exercisable only in the event the other warrant holder and its affiliated
entities convert at least 258,000 shares of Series C preferred stock into
common stock and expires, if not earlier exercised, on the closing of this
offering. Neither warrant is exercisable at this time. See "Principal
Stockholders."
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On December 7, 1998, we entered into an agreement with Intel Corporation
under which we agreed to collaborate on certain technical, public relations and
marketing activities. We agreed to allow Intel to purchase our products at
certain prices. Intel can terminate the agreement at its convenience after
September 30, 1999, without cause and both parties can terminate the agreement
for cause upon giving a 30-day notice and allowing for a 60-day cure period.
Intel is one of our principal stockholders. See "Principal Stockholders."
We intend to enter into indemnification agreements with our directors and
executive officers for the indemnification of and advancement of expenses to
such persons to the full extent permitted by law. We also intend to execute
such agreements with our future directors and executive officers.
We believe that the foregoing transactions were in our best interest. As a
matter of policy the transactions were, and all future transactions between us
and any of our officers, directors or principal stockholders will be, approved
by a majority of the independent and disinterested members of the Board of
Directors, will be on terms no less favorable to us than could be obtained from
unaffiliated third parties and will be in connection with bona fide business
purposes.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of our common stock offered hereby by: (1) each stockholder who is
known by us to own beneficially more than 5% of our common stock; (2) each of
our Named Executive Officers; (3) each of our directors; and (4) all of our
directors and executive officers as a group. Unless otherwise indicated, to our
knowledge, all persons listed below have sole voting and investment power with
respect to their shares of our common stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding(1)
----------------------
Number of Shares Before the After the
Name of Beneficial Owner Beneficially Owned(1) Offering Offering(2)
- ------------------------ --------------------- ---------- -----------
<S> <C> <C> <C>
WK Technology Funds(3)........... 5,072,732 22.74% %
1998 Wang/Chang Family Revocable
Trust(4)........................ 2,667,708 11.96
1998 Vargo Family Trust(5)....... 2,580,000 11.57
The Goldman Sachs Group,
L.P.(6)......................... 2,127,658 9.54
Intel Corporation(7)............. 1,519,756 6.81
Jerry Shaw-Yau Chang(8).......... 2,667,708 11.96
Richard J. Heaps(9).............. 0 *
Michael F. Vargo(10)............. 2,580,000 11.57
Mark E. McIlvane(11)............. 345,360 1.52
Heidi H. Bersin(12).............. 506,250 2.26
Mong Hong (Mahan) Wu(13)......... 491,666 2.20
Wen Chang Ko(14)................. 6,872,732 30.82
Syaru Shirley Lin(15)............ 2,127,658 9.54
All officers and directors as a
group (8 persons)(16)........... 15,591,374 68.29
</TABLE>
- ---------------------
* Represents beneficial ownership of less than one percent of the common
stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Applicable percentage ownership based
on 22,302,944 shares of common stock outstanding as of March 31, 1999
(including 1,084,806 shares issuable upon exercise of warrants), together
with applicable options for such stockholder. Shares of common stock
subject to options currently exercisable, or exercisable within 60 days of
March 31, 1999, are not deemed outstanding for computing the percentage
ownership of any other person.
(2) After giving effect to the issuance of shares of common stock offered
hereby (assuming no exercise of the underwriters' over-allotment option).
(3) The address of record for each of the WK Technology Funds is c/o Ms.
Leslie Kuo, 10th floor, No. 115, Sec. 3 Ming Sheng East Road, Taipei,
Taiwan. Consists of 556,028 shares held by and 14,838 shares issuable
pursuant to a warrant held by WK Global Fund Ltd., 763,130 shares held by
and 1,005,798 shares issuable pursuant to warrants held by WK Technology
Fund, 684,374 shares held by and 11,126 shares issuable pursuant to a
warrant held by WK Technology Fund II, 817,618 held by shares and 17,806
shares issuable pursuant to a warrant held by WK Technology Fund III,
587,176 shares held by and 14,838 shares issuable pursuant to a warrant
held by WK Technology Fund IV and 600,000 shares held by WK Technology
Fund V. If not previously exercised, such warrants will expire upon the
closing of the offering. Mr. Ko is the chairman and a beneficial owner of
each of the above entities to the extent of his proportional partnership
interest.
(4) The address of record for the 1998 Wang/Chang Family Revocable Trust is
c/o Clarent Corporation, 700 Chesapeake Drive, Redwood City, California
94063. Consists of 2,664,000 shares held by the 1998 Wang/Chang Family
Revocable Trust and 3,708 shares issuable pursuant to a warrant held by
Alice Wang, one of the trustees of the 1998 Wang/Chang Family Revocable
Trust. If not previously exercised, such warrant will expire upon the
closing of the offering.
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(5) The address of record for the 1998 Vargo Family Trust is c/o Clarent
Corporation, 700 Chesapeake Drive, Redwood City, California 94063.
(6) The address of record for The Goldman Sachs Group, L.P. is c/o Goldman
Sachs Group, L.P., 47/F 1 New York Plaza, New York, NY 10004, attention
Richard Friedman. Consists of 1,519,756 shares held by The Goldman Sachs
Group, L.P., 140,930 shares held by the Bridge Street Fund 1998, L.P. and
466,972 shares held by the Stone Street Fund 1998, L.P. The Bridge Street
Fund 1998, L.P. and the Stone Street Fund 1998, L.P. are affiliates of The
Goldman Sachs Group, L.P. (Goldman Group). The Goldman Group is the
general partner, managing general partner or investment manager of these
funds. The Goldman Group disclaims beneficial ownership of the shares
owned by these investment partnerships to the extent attributable to
partnership interests therein held by persons other than the Goldman Group
and its affiliates. Each of these investment partnerships shares voting
and investment power with certain of its respective affiliates.
(7) The address of record for Intel Corporation is 2200 Mission Boulevard,
Santa Clara, California 95052.
(8) Consists of 2,664,000 shares held by the 1998 Wang/Chang Family Revocable
Trust, of which Mr. Chang is a trustee, and 3,708 shares issuable pursuant
to a warrant held by Alice Wang, Mr. Chang's spouse. If not previously
exercised, such warrant will expire upon the closing of the offering.
(9) None of the options held by Mr. Heaps are exercisable within 60 days of
March 31, 1999.
(10) Consists of 2,580,000 shares held by the 1998 Vargo Family Trust, of which
Mr. Vargo is a trustee.
(11) Consists of 345,360 shares issuable pursuant to options exercisable within
60 days of March 31, 1999.
(12) Consists of 393,750 shares held by the Bersin Family Trust, of which Ms.
Bersin is a trustee. Also includes 112,500 shares issuable pursuant to
options exercisable within 60 days of March 31, 1999.
(13) Consists of 421,664 shares held by Mr. Wu and 70,002 shares issuable
pursuant to options exercisable within 60 days of March 31, 1999.
(14) Includes 4,008,326 shares held by and 1,064,406 shares issuable pursuant
to warrants held by the WK Technology Funds. Mr. Ko is the Chairman of the
WK Technology Funds. Mr. Ko disclaims beneficial ownership of these shares
except to the extent of his proportional partnership interest therein.
(15) Consists of 2,127,658 shares held by The Goldman Sachs Group, L.P. and its
affiliated entities. Ms. Lin disclaims beneficial ownership of these
shares.
(16) Includes an aggregate of 527,862 shares issuable pursuant to options
exercisable within 60 days of March 31, 1999. Also includes an aggregate
of 4,008,326 shares held by the WK Technology Funds, 2,664,000 shares held
by the 1998 Wang/Chang Family Revocable Trust, 2,580,000 shares held by
the 1998 Vargo Family Trust, 393,750 shares held by the Bersin Family
Trust, 2,127,658 shares held by The Goldman Sachs Group, L.P. and its
affiliated entities, 1,064,406 shares issuable pursuant to warrants held
by the WK Technology Funds and 3,708 shares issuable pursuant to a warrant
held by Alice Wang.
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DESCRIPTION OF CAPITAL STOCK
Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 50,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value.
Common Stock
As of March 31, 1999, there were 22,302,944 shares of common stock
outstanding held of record by approximately 107 stockholders after giving
effect to the exercise of warrants for shares of common stock, on an as-
converted basis. There will be shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option and no
exercise or conversion of outstanding convertible securities after March 31,
1999) after giving effect to the sale of the shares of common stock offered
hereby.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred
stock, the holders of common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of our liquidation,
dissolution or winding up, holders of the common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders
of common stock have no preemptive rights 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, and
all shares of common stock to be outstanding upon completion of this offering
will be, fully-paid and nonassessable.
Preferred Stock
Effective upon the closing of this offering, we will be authorized to issue
5,000,000 shares of undesignated preferred stock. The Board of Directors will
have the authority to issue the undesignated preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing any change in control
without further action by the stockholders and may adversely affect the voting
and other rights of holders of common stock, and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control. At
present, we have no plans to issue any shares of preferred stock.
Registration Rights of Certain Holders
The holders of 20,825,616 shares of common stock (Registrable Securities),
including 1,084,806 shares issuable upon exercise of warrants, or their
transferees are entitled to certain rights with respect to the registration of
such shares under the Securities Act. These rights are provided under the terms
of an agreement between us and the holders of Registrable Securities. Subject
to certain limitations in this agreement, the holders of the Registrable
Securities may require, on two occasions at any time after one year from the
effective date of this offering, that we use our best efforts to register the
Registrable Securities, except for the 5,244,000 shares held by the founders,
for public resale, provided that the proposed aggregate offering price exceeds
$10,000,000. If we register any of our common stock either for our own account
or for the account of other security holders, the holders of Registrable
Securities are entitled to include their shares of common stock in the
registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in this offering. All fees, costs and expenses of such
registrations must be borne by us and all selling expenses, including
underwriting discounts, selling commissions and stock transfer taxes, relating
to Registrable Securities must be borne by the holders of the securities being
registered.
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Delaware Law and Certain Charter Provisions
We are subject to the provisions of Section 203 of the Delaware Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale or other transaction resulting in a financial benefit to
the stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's outstanding voting stock. This provision may have the
effect of delaying, deferring or preventing a change in control without further
action by the stockholders. In addition, upon completion of this offering,
certain provisions of our charter documents, including a provision eliminating
the ability of stockholders to take actions by written consent, may have the
effect of delaying or preventing changes in control or management, which could
harm the market price of our common stock. Our stock option and purchase plans
generally provide for assumption of such plans or substitution of an equivalent
option of a successor corporation or, alternatively, acceleration of vesting of
shares issued pursuant to stock grants, upon a change of control or similar
event. The Board of Directors has authority to issue up to 5,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the stockholders. The rights of the holders of the common stock
will be subject to, and may be harmed by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding
voting stock, thereby delaying, deferring or preventing a change in control.
Furthermore, such preferred stock may have other rights, including economic
rights senior to the common stock, and, as a result, the issuance of such
preferred stock could harm the market value of the common stock. We have no
present plan to issue shares of preferred stock.
California Foreign Corporation Law
Pursuant to section 2115 (Section 2115) of the California Corporations Code
(California Code), under certain circumstances certain provisions of the
California Code may be applied to foreign corporations qualified to do business
in California notwithstanding the law of the jurisdiction where the corporation
is incorporated. Such corporations are referred to herein as "quasi-California"
corporations. Section 2115 applies to foreign corporations which have more than
half of their voting stock held by stockholders residing in California and more
than half of their business deriving from California, measured on or after the
135th day of the corporation's fiscal year. If we were determined to be a
quasi-California corporation, we would have to comply with California law with
respect to, among other things, elections of directors and distributions to
stockholders. Under the California Code, a corporation is prohibited from
paying dividends unless (1) the retained earnings of the corporation
immediately prior to the distribution equals or exceeds the amount of the
proposed distribution; or (2) (a) the assets of the corporation (exclusive of
certain non-tangible assets) equal or exceed 1 1/4 times its liabilities
(exclusive of certain liabilities), and (b) the current assets of the
corporation at least equal its current liabilities. If the average pre-tax net
earnings of the corporation before interest expense for the two years preceding
the distribution was less than the average interest expense of the corporation
for those years, however, the current assets of the corporation must exceed 1
1/4 times its current liabilities. Following this offering, we will be exempt
from the application of Section 2115 until January 1, 2000, and thereafter in
the event that more than half of our voting stock is held by stockholders with
residences outside of California or is held by more than 800 persons.
Transfer Agent and Registrar
Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and
registrar for our common stock.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock. We cannot provide any assurances that a significant public market for
the common stock will develop or be sustained after this offering. Future sales
of substantial amounts of common stock in the public market, or the possibility
of such sales occurring, could adversely affect prevailing market prices for
the common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding shares of common stock.
Of these shares, the shares to be sold in this offering ( shares if the
underwriters' over-allotment option is exercised in full) will be freely
tradable in the public market without restriction under the Securities Act,
unless such shares are held by "Affiliates" of Clarent, as that term is defined
in Rule 144 under the Securities Act.
The remaining 22,302,944 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144
(Restricted Shares). We issued and sold the Restricted Shares in private
transactions in reliance on exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act, as summarized below.
Pursuant to certain "lock-up" agreements between our stockholders and either
Clarent or the underwriters, all of the holders of the Restricted Shares have
agreed not to offer, sell, pledge or otherwise dispose of, directly or
indirectly, or announce their intention to do the same, any common stock of
Clarent or security convertible into, or exchangeable or exercisable for any
security of Clarent for a period of 180 days from the date of this offering.
However, if the holder of the Restricted Shares is an individual, he or she may
transfer any such securities either during his or her lifetime or on death by
will or intestacy to his or her immediate family or to a trust the
beneficiaries of which are exclusively the holder of the securities and/or a
member of his or her immediate family. We also have entered into an agreement
with the underwriters that we will not offer, sell or otherwise dispose of
common stock for a period of 180 days from the date of this offering. On the
date of the expiration of the lock-up agreements, all of the Restricted Shares
will be eligible for immediate sale (of which 18,301,030 shares will be subject
to certain volume, manner of sale and other limitations under Rule 144).
Following the expiration of such lock-up periods, certain shares issued upon
exercise of options we granted prior to the date of this offering will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of such shares in reliance upon Rule
144 under the Securities Act but without compliance with certain restrictions,
including the holding-period requirement, imposed under Rule 144. In general,
under Rule 144 as in effect at the closing of this offering, beginning 90 days
after the date of this prospectus, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year
(including the holding period of any prior owner who is not an Affiliate) would
be entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of (1) 1% of the then-outstanding shares of common
stock or (2) the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been an Affiliate at
any time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years (including the holding period
of any prior owner who is not an Affiliate) is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
We intend to file, after the effective date of this offering, a Registration
Statement on Form S-8 to register approximately 10,831,842 shares of common
stock reserved for issuance under the 1999 Amended and Restated Equity
Incentive Plan, the 1999 Non-Employee Directors' Stock Option Plan and the 1999
Employee Stock Purchase Plan. The Registration Statement will become effective
automatically upon filing. Shares issued under the foregoing Plans, after the
filing of a Registration Statement on Form S-8, may be sold in the open
61
<PAGE>
market, case of certain holders, to the Rule 144 limitations applicable to
Affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by us.
In addition, following this offering, the holders of 20,825,616 shares of
common stock, including 1,084,806 shares issuable upon exercise of warrants,
will, under certain circumstances, have rights to require us to register their
shares for future sale. See "Description of Capital Stock--Registration Rights
of Certain Holders."
62
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens Inc., Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray Inc.
are acting as representatives, the following respective numbers of shares of
common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
BancBoston Robertson Stephens Inc..................................
Thomas Weisel Partners LLC.........................................
U.S. Bancorp Piper Jaffray Inc.....................................
----
Total............................................................
====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of nondefaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per Share Over-Allotment Over-Allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and
commissions payable by us........
Expenses payable by us............
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We and our officers and directors and certain other stockholders and option
holders have agreed not to offer, sell, contract to sell, announce our
intention to sell, pledge or otherwise dispose of, directly or indirectly, or ,
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to any additional shares of common stock or
securities convertible into or exchangeable or exercisable for any shares of
our common stock without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors and certain
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent such persons
purchase reserved shares. Any reserved shares not so purchased will be offered
by the underwriters to the general public on the same terms as the other
shares.
63
<PAGE>
We have agreed to indemnify the underwriters against liabilities, under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq National
Market.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include: the information set forth in
this prospectus and otherwise available to the representatives; the history and
the prospects for the industry in which we will compete; the ability of our
management; our prospects for future earnings; the present state of our
development and our current financial condition; the general condition of the
securities markets at the time of this offering; and the recent market prices
of, and the demand for, publicly traded common stock of generally comparable
companies.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has co-managed eighteen public offerings
of equity securities and has acted as an underwriter in an additional seven
public offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.
The representatives, on behalf of the underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934 (Exchange Act). Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by the syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (2) where
required by law, that such purchaser is purchasing as principal and not as
agent and (3) such purchaser has reviewed the text above under "Resale
Restrictions."
64
<PAGE>
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario Securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts names
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under
the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors and with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal
matters in connection with the offering will be passed upon for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1997 and 1998 and the period from July
2, 1996 (inception) to December 31, 1996 and the years ended December 31, 1997
and 1998, as set forth in their report, included in this prospectus and
registration statement. Our consolidated financial statements are included in
this prospectus and registration statement in reliance on their report, given
on their authority as experts in accounting and auditing.
65
<PAGE>
ADDITIONAL INFORMATION
A registration statement on Form S-1, including amendments thereto, relating
to the common stock offered hereby has been filed by us with the Commission.
This prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. Statements contained in this prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to us and the common stock
offered hereby, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, NW, Judiciary Plaza, Washington, D.C. 20549, and copies of
all or any part thereof maybe obtained from the Commission upon payment of
certain fees prescribed by the Commission. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information filed electronically with the Commission. The address of the site
is http://www.sec.gov.
66
<PAGE>
CLARENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statement of Stockholders' Equity.............................. F-5
Consolidated Statements of Cash Flows....................................... F-7
Notes to Consolidated Financial Statements.................................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Clarent Corporation
We have audited the accompanying consolidated balance sheets of Clarent
Corporation as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from July 2, 1996 (inception) to December 31, 1996 and for the years ended
December 31, 1997 and 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Clarent Corporation at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from July 2, 1996 (inception) to
December 31, 1996 and for the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Palo Alto, California
February 12, 1999,
except for the second paragraph of Note 4 and Note 12, as to which the date is
April , 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the
effectiveness of the stock split and the approval of the Certificate of
Incorporation in the state of Delaware as discussed in Note 12 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Palo Alto, California
April 9, 1999
F-2
<PAGE>
CLARENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma
stockholders'
December 31, equity at
--------------- December 31,
1997 1998 1998
------ ------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 474 $11,903
Accounts receivable, net of allowance for
doubtful accounts of $38 and $807 at December
31, 1997 and 1998, respectively.............. 777 6,943
Inventories................................... 889 3,620
Prepaid expenses and other current assets..... 125 478
------ -------
Total current assets........................ 2,265 22,944
Property and equipment, net..................... 543 2,233
Other assets.................................... 10 --
------ -------
$2,818 $25,177
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 506 $ 2,905
Short-term borrowings......................... -- 2,500
Settlement expense accrual.................... 570 --
Deferred revenue.............................. 155 4,414
Other accrued liabilities..................... 253 1,594
------ -------
Total current liabilities................... 1,484 11,413
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par value,
issuable in series (aggregate liquidation
preference of $21,119):
Authorized shares--8,000,000 at December 31,
1997 and 1998 and pro forma
Issued and outstanding shares--4,220,000 in
1997, 6,864,241 in 1998 and none pro forma... 3,685 21,024 $ --
Common stock: $0.001 par value:
Authorized shares--50,000,000 at December 31,
1997 and 1998 and pro forma
Issued and outstanding shares--5,401,000 in
1997, 7,129,076 in 1998 and 20,857,558 pro
forma........................................ 27 2,389 23,413
Deferred compensation.......................... -- (1,771) (1,771)
Notes receivable from stockholders............. (9) -- --
Accumulated other comprehensive loss........... (34) (68) (68)
Accumulated deficit............................ (2,335) (7,810) (7,810)
------ ------- -------
Total stockholders' equity.................. 1,334 13,764 $13,764
------ ------- -------
$2,818 $25,177
====== =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
CLARENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
July 2, 1996 Year ended
(inception) to December 31,
December 31, ----------------
1996 1997 1998
-------------- ------- -------
<S> <C> <C> <C>
Net revenue.................................. $ -- $ 3,359 $14,647
Cost of revenue.............................. -- 1,189 6,653
----- ------- -------
Gross profit............................. -- 2,170 7,994
Operating expenses:
Research and development................... 136 1,044 3,356
Sales and marketing........................ -- 2,046 7,099
General and administrative................. 140 639 2,484
Amortization of deferred compensation...... -- -- 522
Settlement expense......................... -- 570 --
----- ------- -------
Total operating expenses................. 276 4,299 13,461
----- ------- -------
Loss from operations......................... (276) (2,129) (5,467)
Other income (expense):
Interest income............................ -- 70 204
Interest expense........................... -- -- (172)
----- ------- -------
Total other income....................... -- 70 32
----- ------- -------
Loss before income taxes..................... (276) (2,059) (5,435)
Provision for income taxes................... -- -- (40)
----- ------- -------
Net loss..................................... $(276) $(2,059) $(5,475)
===== ======= =======
Historical basic and diluted net loss per
share....................................... N/A $ (2.14) $ (1.52)
===== ======= =======
Shares used to compute historical basic and
diluted net loss per share.................. -- 962 3,604
===== ======= =======
Pro forma basic and diluted net loss per
share....................................... $ (0.39)
=======
Shares used to compute pro forma basic and
diluted net loss per share.................. 14,108
=======
</TABLE>
See accompanying notes.
F-4
<PAGE>
CLARENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Notes Accumulated
Preferred Stock Common Stock Receivable Other
---------------- ------------------ Deferred from Comprehensive Comprehensive Accumulated
Shares Amount Shares Amount Compensation Stockholders Loss Loss Deficit
--------- ------ ---------- ------ ------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
restricted common
stock to founders
in exchange for
cash, technology,
debt forgiveness
and stockholder
receivables...... -- $ -- 7,400,000 $37 $ -- $(11) $ -- $-- $ --
Issuance of
Series A
convertible
preferred stock,
net of issuance
costs of $8...... 1,000,000 492 -- -- -- -- -- -- --
Net loss......... -- -- -- -- -- -- -- -- (276)
--------- ----- ---------- --- ----- ---- ------- ---- ------
Balances as of
December 31,
1996............. 1,000,000 492 7,400,000 37 -- (11) -- -- (276)
Issuance of
Series B
convertible
preferred stock,
net of issuance
costs of $27..... 3,220,000 3,193 -- -- -- -- -- -- --
Exercise of
common stock
options.......... -- -- 1,000 -- -- -- -- -- --
Repurchase of
common stock..... -- -- (2,000,000) (10) -- 2 -- -- --
Comprehensive
income:
Net loss........ -- -- -- -- -- -- $(2,059) -- (2,059)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- (34) (34) --
-------
Comprehensive
loss............. -- -- -- -- -- -- $(2,093) -- --
--------- ----- ---------- --- ----- ---- ======= ---- ------
Balances as of
December 31, 1997
(carried
forward)......... 4,220,000 3,685 5,401,000 27 -- (9) (34) (2,335)
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Issuance of
restricted common
stock to founders
in exchange for
cash, technology,
debt forgiveness
and stockholder
receivables...... $ 26
Issuance of
Series A
convertible
preferred stock,
net of issuance
costs of $8...... 492
Net loss......... (276)
-------------
Balances as of
December 31,
1996............. 242
Issuance of
Series B
convertible
preferred stock,
net of issuance
costs of $27..... 3,193
Exercise of
common stock
options.......... --
Repurchase of
common stock..... (8)
Comprehensive
income:
Net loss........ (2,059)
Foreign currency
translation
adjustment...... (34)
Comprehensive
loss............. --
-------------
Balances as of
December 31, 1997
(carried
forward)......... 1,334
</TABLE>
See accompanying notes.
F-5
<PAGE>
CLARENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Notes Accumulated
Preferred Stock Common Stock Receivable Other
----------------- ----------------- Deferred from Comprehensive Comprehensive Accumulated
Shares Amount Shares Amount Compensation Stockholders Loss Loss Deficit
--------- ------- --------- ------ ------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31, 1997
(brought
forward)......... 4,220,000 $ 3,685 5,401,000 $ 27 $ -- $ (9) $(34) $(2,335)
Issuance of
Series C
convertible
preferred stock,
net of issuance
costs of $159.... 2,278,650 14,834 -- -- -- -- $ -- -- --
Issuance of
Series C
preferred stock
for settlement
expense.......... 45,592 300 -- -- -- -- -- -- --
Conversion of
Series C bridge
notes and related
accrued interest
of $56 to Series
C preferred
stock, net of
issuance costs of
$129............. 319,999 1,977 -- -- -- -- -- -- --
Issuance of
warrants in
conjunction with
Series C bridge
financing........ -- 228 -- -- -- -- -- -- --
Exercise of
common stock
options.......... -- -- 1,064,748 36 -- -- -- -- --
Exercise of
common stock
warrants......... -- -- 768,328 38 -- -- -- -- --
Repurchase of
common stock..... -- -- (105,000) (5) -- -- -- -- --
Forgiveness of
stockholder notes
receivable....... -- -- -- -- -- 9 -- -- --
Deferred
compensation
related to grant
of stock
options.......... -- -- -- 2,293 (2,293) -- -- -- --
Amortization of
deferred
compensation..... -- -- -- -- 522 -- -- -- --
Comprehensive
loss:
Net loss........ -- -- -- -- -- -- $(5,475) -- (5,475)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- (34) (34) --
-------
Comprehensive
loss............. -- -- -- -- -- -- $(5,509) -- --
--------- ------- --------- ------ ------- ----- ======= ---- -------
Balances as of
December 31,
1998............. 6,864,241 $21,024 7,129,076 $2,389 $(1,771) $ -- $(68) $(7,810)
========= ======= ========= ====== ======= ===== ==== =======
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Balances as of
December 31, 1997
(brought
forward)......... $ 1,334
Issuance of
Series C
convertible
preferred stock,
net of issuance
costs of $159.... 14,834
Issuance of
Series C
preferred stock
for settlement
expense.......... 300
Conversion of
Series C bridge
notes and related
accrued interest
of $56 to Series
C preferred
stock, net of
issuance costs of
$129............. 1,977
Issuance of
warrants in
conjunction with
Series C bridge
financing........ 228
Exercise of
common stock
options.......... 36
Exercise of
common stock
warrants......... 38
Repurchase of
common stock..... (5)
Forgiveness of
stockholder notes
receivable....... 9
Deferred
compensation
related to grant
of stock
options.......... -
Amortization of
deferred
compensation..... 522
Comprehensive
loss:
Net loss........ (5,475)
Foreign currency
translation
adjustment...... (34)
Comprehensive
loss............. --
-------------
Balances as of
December 31,
1998............. $13,764
=============
</TABLE>
See accompanying notes.
F-6
<PAGE>
CLARENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
July 2, 1996 Year ended
(inception) to December 31,
December 31, ----------------
1996 1997 1998
-------------- ------- -------
<S> <C> <C> <C>
Operating activities
Net loss...................................... $(276) $(2,059) $(5,475)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 9 82 516
Amortization of deferred compensation....... -- -- 522
Interest expense from warrant issued in
conjunction with Series C bridge notes..... -- -- 99
Preferred stock issued for interest
payable.................................... -- -- 56
Forgiveness of stockholder notes
receivable................................. -- -- 9
Changes in operating assets and liabilities:
Accounts receivable....................... -- (777) (6,166)
Inventories............................... -- (889) (2,731)
Prepaid expenses and other current
assets................................... (1) (124) (353)
Other assets.............................. (10) -- 10
Accounts payable and accrued liabilities.. 2 1,327 3,470
Deferred revenue.......................... -- 155 4,259
----- ------- -------
Net cash used in operating activities......... (276) (2,285) (5,784)
Investing activities
Purchases of property and equipment........... (95) (539) (2,206)
----- ------- -------
Net cash used in investing activities......... (95) (539) (2,206)
Financing activities
Proceeds from short-term borrowings........... -- -- 2,500
Proceeds from Series C bridge notes........... -- -- 2,600
Principal payment on Series C bridge notes.... -- -- (550)
Proceeds from issuance of common stock........ 37 (8) 69
Net proceeds from issuance of preferred
stock........................................ 492 3,193 14,834
Issuance of stockholder notes receivable...... (11) -- --
----- ------- -------
Net cash provided by financing activities..... 518 3,185 19,453
----- ------- -------
Effect of exchange rate changes on cash and
cash equivalents............................. -- (34) (34)
----- ------- -------
Net increase in cash and cash equivalents..... 147 327 11,429
Cash and cash equivalents at beginning of pe-
riod......................................... -- 147 474
----- ------- -------
Cash and cash equivalents at end of period.... $ 147 $ 474 $11,903
===== ======= =======
</TABLE>
See accompanying notes.
F-7
<PAGE>
CLARENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
<TABLE>
<CAPTION>
Period from
July 2, 1996
(inception) Year ended
to December 31,
December 31, -------------
1996 1997 1998
------------ -------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information
Cash paid for interest............................. $-- $ -- $ 28
==== ===== =======
Supplemental disclosure of noncash financing
activities
Issuance of common stock for technology............ $ 37 $ -- $ --
==== ===== =======
Issuance of common stock for note receivable....... $ 11 $ -- $ --
==== ===== =======
Repurchase of common stock in exchange for
forgiveness of note receivable.................... $-- $ 2 $ --
==== ===== =======
Conversion of Series C bridge notes to Series C
preferred stock, less unamortized cost of related
preferred stock warrant........................... $-- $ -- $ 1,921
==== ===== =======
Issuance of preferred stock for settlement
expense........................................... $-- $ -- $ 300
==== ===== =======
</TABLE>
See accompanying notes.
F-8
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. The Company and Summary of Significant Accounting Policies
The Company
Clarent Corporation (Company) was incorporated in the state of California on
July 2, 1996. The Company designs, develops and sells Internet Protocol (IP)
telephony systems to telecommunications service providers.
The Company has incurred operating losses to date, including a net loss of
approximately $5,475,000 for the year ended December 31, 1998.
The Company anticipates additional equity funding will be needed in order to
finance its expected operations for the year ending December 31, 1999, as well
as to fund its existing obligations. If additional equity funding is not
available, management believes, based on anticipated obligations, that
available resources will be sufficient to enable the Company to meet its
obligations through at least December 31, 1999. If anticipated operations are
not achieved, management has the intent and believes it has the ability to
delay or reduce expenditures so as not to require additional financial
resources if such resources were not available.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. The Company has export sales from the United States and
has operations in Taiwan and the United Kingdom. All significant intercompany
transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized at the time of shipment of the products and when no
significant contractual obligations or acceptance terms, if any, remain
outstanding and collection of the resulting receivable is deemed probable.
Revenue from services is recognized when the services are performed. Amounts
received in advance of satisfying revenue recognition criteria are classified
as deferred revenue in the accompanying balance sheets.
Concentrations of Credit Risk and Credit Evaluations
Financial instruments which subject the Company to concentrations of credit
risk primarily consist of cash and trade accounts receivable. The Company
maintains its cash and cash equivalents principally in domestic financial
institutions of high-credit standing. The Company's receivables are derived
primarily from sales of software and hardware products and services to
companies primarily in the domestic and international telecommunications arena.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. Reserves are maintained for potential credit
losses and such losses to date have been within management's expectations.
A limited number of customers have historically accounted for a substantial
portion of the Company's revenue. Two customers accounted for 44% and 35% of
the Company's revenue for the year ended December 31, 1997. Two customers
accounted for 36% and 12% of net revenue for the year ended December 31, 1998.
Sales of the Company's products and contracts for its technology will vary as a
result of
F-9
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
fluctuations in market demand for such products and technology. Further, the
markets in which the Company competes are characterized by rapid technological
change and increasing competition.
Cash Equivalents
Cash equivalents consist of money market funds. For purposes of the
accompanying statements of cash flows, the Company considers all such liquid
instruments with an original maturity date of three months or less to be cash
equivalents. The fair value, based on quoted market prices of the cash
equivalents, is substantially equal to their carrying value at December 31,
1997 and 1998.
Inventories
Inventories are stated at the lower of cost or market on a first-in, first-
out basis. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
(in thousands)
<S> <C> <C>
Raw materials................................................ $392 $2,529
Finished goods............................................... 497 1,091
---- ------
$889 $3,620
==== ======
</TABLE>
Property and Equipment
The Company records computer equipment and furniture at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally three to five years.
Software Development Costs
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Costs incurred by the Company
between the establishment of technological feasibility and the point at which
the product is ready for general release have been insignificant. Accordingly,
the Company has charged all such costs to research and development expenses in
the accompanying statements of operations.
Stock-Based Compensation
The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123).
Advertising Expenses
The Company expenses advertising costs in the period in which they are
incurred. Advertising expenses for 1996, 1997 and 1998 were approximately $0,
$319,000, and $706,000, respectively.
F-10
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation
Assets and liabilities of Clarent's wholly owned foreign subsidiaries are
translated from their respective functional currencies at exchange rates in
effect at the balance sheet date, and revenues and expenses are translated at
average exchange rates prevailing during the year. Resulting translation
adjustments are reflected as a separate component of stockholders' equity.
Foreign currency transaction gains and losses, which have been immaterial, are
included in results of operations.
Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS
130 establishes new rules for the reporting and display of comprehensive income
and its components, requiring foreign currency translation adjustments, which
currently are reported in stockholders' equity, to be included in other
comprehensive income/loss. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130. At December 31,
1997 and 1998, the Company's accumulated other comprehensive loss consisted
entirely of cumulative translation adjustments.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 requires companies to capitalize certain
qualifying computer software costs which are incurred during the application
development stage and amortize them over the software's estimated useful life.
The Company is required to adopt SOP 98-1 effective January 1, 1999. The
Company does not currently expect the adoption of SOP 98-1 to be material to
its consolidated financial position or results of operations.
In December 1998, the AICPA issued Statement of Position 98-9, "Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"). SOP 98-9 requires use of the "residual method" for
recognition of revenue when vendor-specific objective evidence (VSOE) exists
for undelivered elements but does not exist for delivered elements of a
software arrangement. The Company will be required to comply with the
provisions of SOP 98-9 for transactions entered into beginning January 1, 2000.
2. Related Party Transactions
In June 1997, the Company entered into an agreement for advisory services
with WK Technology Fund, a Taiwanese corporation, one of whose principals is a
member of Clarent's board of directors. The advisory services primarily relate
to business strategy for Clarent and are to be performed over a four-year term.
As consideration for the advisory services, the Company granted to WK
Technology Fund a warrant to purchase up to 1,400,000 shares of the Company's
common stock at an exercise price of $0.05 per share. On the 6-month
anniversary of the warrant effective date, 175,000 of the warrants vested with
the remaining warrants vesting ratably over the subsequent 42 months or
immediately 30 days prior to the closing of the Company's public offering. The
warrant has a life of five years. At the date of grant, the value ascribed to
this warrant was immaterial for financial statement purposes. During 1998, WK
Technology Fund exercised the option to purchase 408,328 shares of the
Company's common stock under this warrant.
Also in June 1997, the Company entered into another agreement for certain
services with WK Technology Fund. These services were to assist the Company in
identifying, evaluating, and recommending an outside director for the Company.
Under the terms of this agreement, the Company is to grant to WK Technology
Fund a fully vested warrant to purchase up to 360,000 shares of the Company's
common stock at $0.05 per share upon the successful identification, evaluation,
and recommendation of an outside director of the Company. In
F-11
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
February 1998, WK Technology Fund was successful in obtaining an outside
director for the Company, and was granted the aforementioned warrant. The fair
market value of the Company's common stock on the date of this grant was $0.05
per share. At the date of the grant, the value ascribed to this warrant was
immaterial for financial statement purposes. During 1998, WK Technology Fund
exercised the option to purchase 360,000 shares of the Company's common stock
under this warrant.
In December 1998, the Company issued a warrant to purchase up to 101,000
shares of the Company's Series C preferred stock to both WK Technology Fund and
another Series C investor. These warrants are only exercisable upon the early
conversion of Series C preferred stock into common stock by certain other
Series C preferred stock investors. Upon such an event, one warrant for 101,000
shares will become exercisable and the other warrant for 101,000 shares will be
canceled. The warrants have an exercise price of $6.58 per share, and have a
contractual life of five years. As of December 31, 1998, no value was ascribed
to these warrants as they are only exercisable based on future events which are
not currently deemed probable.
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- --------
(in thousands)
<S> <C> <C>
Computer hardware and software................................ $ 473 $ 1,415
Office equipment, furniture, and fixtures..................... 108 1,204
Leasehold improvements........................................ 53 221
------ --------
634 2,840
Less accumulated depreciation and amortization................ (91) (607)
------ --------
$ 543 $ 2,233
====== ========
</TABLE>
4. Short-Term Borrowings
In February 1998, the Company obtained $2,600,000 in bridge financing from
certain investors and other parties. The financing was obtained via promissory
notes convertible into shares of the Company's Series C preferred stock issued
by the Company. In conjunction with this bridge financing, the Company issued
to the bridge financing investors warrants to purchase 59,266 shares of the
Company's Series C preferred stock at an exercise price of $5.593 per share.
The warrants have a contractual life of 10 years. As of the date of this grant,
the value ascribed to the warrants was approximately $228,000, of which
approximately $99,000 was recorded by the Company as additional interest
expense over the period the debt was outstanding. The remaining $129,000 was
recorded as issuance costs upon the conversion to Series C preferred stock. The
effective interest rate of the bridge promissory notes, as adjusted for the
ascribed value of the bridge financing warrants, was approximately 24.3%. In
June 1998, $2,050,000 of the bridge financing and approximately $56,000 of
related accrued interest was converted into 319,999 shares of the Company's
Series C preferred stock. The Company repaid the remaining $550,000 of the
bridge financing and all related accrued interest in June 1998.
In May 1998, the Company established a $5,000,000 line of credit with a
financial institution. The interest rate on this credit facility is variable
and is equal to one-half of one percentage point above the prime rate (8.5% in
total at December 31, 1998). Under the terms of this arrangement, the Company
is to pay an additional, pro-rated fee of 0.4% of all advances drawn in excess
of $3,000,000. In addition, borrowings under this arrangement are limited to
the Company's eligible receivable base. The terms of the line-of-credit
agreement establish certain affirmative and negative covenants, under which the
Company must maintain certain financial ratios and corporate reporting
practices, respectively. The Company failed to meet certain
F-12
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
financial ratios required to be maintained under the line of credit agreement
as of December 31, 1998. The financial institution waived these events of
default. On February 16, 1999, the financial institution increased the line of
credit, including a $3,000,000 equipment line, to $10,000,000 and revised the
ratios. Borrowings under the line of credit are secured by substantially all
assets of the Company. At December 31, 1998, $2,500,000 was outstanding under
this line of credit. The line of credit agreement expires February 16, 2000.
5. Settlement Expense
In November 1997, Wherever Computer Technology Co., Ltd. ("Wherever") filed
a complaint against the Company seeking to enforce a distributorship agreement
between Wherever and the Company or, in the alternative, for damages claimed in
connection with the breach of the distributorship agreement. On February 13,
1998, the Company's board of directors approved a settlement agreement with
Wherever. Under the terms of the agreement, the Company made an initial cash
payment to Wherever of $50,000, a cash payment to Wherever of $200,000 in
September 1998 and granted Wherever a 5% increase in the existing discount
Wherever receives applicable to a specific quantity of purchases of the
Company's products. In addition, under the terms of the settlement agreement,
the Company issued 45,592 shares of Series C preferred stock to Wherever at
$6.58 per share on August 12, 1998.
6. Income Taxes
The provision for income taxes of approximately $40,000 for 1998 consists
entirely of foreign income taxes provided on the profits attributable to the
Company's foreign operations. Due to operating losses and the Company's
inability to recognize an income tax benefit from these losses, there is no
provision for income taxes for 1997 or 1996.
The difference between the provision for income taxes and the amount
computed by applying the Federal statutory income tax rate (34%) to income
before taxes is explained below:
<TABLE>
<CAPTION>
Period from
July 2, 1996 Year ended
(inception) to December 31,
December 31, ---------------
1996 1997 1998
------------ ----- ------
(in thousands)
<S> <C> <C> <C>
Tax (benefit) at Federal statutory rate...... $(94) $(700) $(1,848)
Loss for which no tax benefit is currently
recognizable................................ 94 700 1,848
Foreign tax.................................. -- -- 40
---- ----- -------
Total provision.............................. $-- $ -- $ 40
==== ===== =======
</TABLE>
F-13
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $ 524 $ 798
Tax credit carryforwards....................................... -- 200
Deferred revenue............................................... -- 1,061
Accruals and reserves not currently deductible................. 376 949
----- -------
Total deferred tax assets....................................... 900 3,008
Valuation allowance............................................. (900) (3,008)
----- -------
Net deferred tax assets......................................... $ -- $ --
===== =======
</TABLE>
Financial Accounting Standards Board Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based upon the weight of available evidence, which includes the
Company's historical operating performance and the reported cumulative net
losses in all prior years, the Company has provided a full valuation allowance
against its net deferred tax assets.
The valuation allowance increased by $800,000 and $2,108,000 during the
years ended December 31, 1997, and 1998, respectively.
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $2,000,000 and $1,400,000, respectively. As
of December 31, 1998, the Company also had research and development tax credit
carryforwards of approximately $200,000. The net operating loss and tax credit
carryforwards will expire at various dates beginning in 2004 through 2018, if
not utilized.
Utilization of the pre 1998 net operating loss and tax credit carryforwards
is subject to substantial annual limitations due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation results in the expiration of an immaterial amount of 1996
net operating loss carryforwards before utilization. Future ownership changes
may also subject the post 1997 net operating loss and tax credit carryforwards
to an annual limitation on utilization.
7. Employee Benefit Plan
The Company has a pretax savings plan that qualifies under Section 401(k) of
the Internal Revenue Code. Under the plan, participating employees may defer up
to 25% of their pretax salary but not more than statutory limits. The Company
may elect to make matching contributions to the plan. For the period from July
2, 1996 (inception) to December 31, 1996, and for the years ended December 31,
1997 and 1998, the Company made no matching contributions and incurred
immaterial expenses related to the plan.
8. Commitments
Leases
The Company leases its principal office under a noncancelable operating
lease agreement that expires in 2003.
F-14
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1998, minimum lease payments under all noncancelable
lease agreements with initial terms in excess of one year were as follows (in
thousands):
<TABLE>
<CAPTION>
Operating
Year ended December 31, Leases
----------------------- ---------
<S> <C>
1999........................................................... $1,298
2000........................................................... 848
2001........................................................... 821
2002........................................................... 836
2003........................................................... 857
------
Total minimum lease payments.................................... $4,660
======
</TABLE>
Rent expense was approximately $24,000 for the period from July 2, 1996
(inception) to December 31, 1996, and $81,000 and $492,000 for the years ended
December 31, 1997 and 1998, respectively. At December 31, 1998, the Company's
aggregate future minimum rentals to be received under noncancelable subleases
is approximately $350,000.
9. Stockholders' Equity
Convertible Preferred Stock
Convertible Preferred Stock at December 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
Shares Issued and
Outstanding
-------------------
December 31,
Authorized -------------------
Series Shares 1997 1998
- ------ ---------- --------- ---------
<S> <C> <C> <C>
A............................................... 1,000,000 1,000,000 1,000,000
B............................................... 3,300,000 3,220,000 3,220,000
C............................................... 2,650,000 -- 2,644,241
Undesignated.................................... 1,050,000 -- --
--------- --------- ---------
Total Preferred Stock............................ 8,000,000 4,220,000 6,864,241
========= ========= =========
</TABLE>
Each share of Series A, B, and C preferred stock is convertible into common
stock at the exchange rate in effect at the time of conversion, currently two-
for-one, and is subject to adjustment for common stock splits, stock dividends,
and similar transactions. Conversion is automatic upon the closing of an
initial public offering of common stock in which the aggregate gross proceeds
to the Company are at least $20,000,000 with a minimum offering price of $10.00
per share.
Each holder of Series A, B, and C preferred stock is entitled to the number
of votes equal to the number of shares of common stock into which such
preferred stock is convertible. For so long as at least 500,000 shares of
Series C preferred stock (subject to adjustment for any stock split, reverse
split, or other similar event affecting the Series C preferred stock) remain
outstanding, the vote or written consent of at least a majority of the Series C
preferred stock, voting as a separate series, shall be required to effect or
validate specified corporate actions. For so long as at least 250,000 and
500,000 shares of Series A and Series B preferred stock (as adjusted),
respectively, remain outstanding, the vote or written consent of the holders of
the majority of the Series A and Series B preferred stock shall be required to
effect or validate specified corporate actions. In certain instances, Series A
and Series B vote together as a single series.
F-15
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each holder of Series C preferred stock is entitled to receive, in
preference to the holders of any Series A and Series B preferred stock and
common stock, when and as declared by the board of directors, noncumulative
cash dividends at an annual rate of $0.53 per share of Series C preferred
stock. Thereafter, each holder of Series A and Series B preferred stock is
entitled to receive, in preference to any holder of common stock, when and as
declared by the board of directors, noncumulative cash dividends at an annual
rate of $0.04 and $0.08 per share, respectively, on a pari passu basis.
In the event of liquidation, before any distribution or payment is made to
holders of Series A and Series B preferred stock, the holders of Series C
preferred stock shall be entitled to a liquidation preference equal to $6.58
per share, plus all declared and unpaid dividends. Thereafter, before any
distribution or payment is made to holders of common stock, the holders of
Series A and Series B preferred stock shall be entitled to receive $0.50 and
$1.00, respectively, plus all declared and unpaid dividends. Any remaining
assets shall be distributed on a pro rata basis among the holders of common
stock.
Common Stock
In July 1996, 7,400,000 shares of common stock were issued to the Company's
founders at $0.005 per share in exchange for cash, technology, debt forgiveness
and stockholder notes receivable. The outstanding shares are subject to certain
transfer restrictions. These shares are subject to repurchase at the issuance
price upon the occurrence of certain events, including termination of
employment. The Company's right of repurchase expires ratably over four years.
In June 1997, 2,000,000 shares were repurchased. At December 31, 1998,
5,400,000 shares remain outstanding and 1,996,876 shares remain subject to
repurchase.
Stock Option Plan
During 1996, the Company adopted the 1996 Stock Option Plan (Option Plan).
Under the Option Plan, an aggregate of up to 10,503,000 shares of the Company's
common stock may be granted to directors, employees, and certain consultants.
During 1998, the board of directors approved the increase of options available
under the Option Plan by 3,303,000 shares. Under the Option Plan, options to
purchase common stock may be granted at no less than 85% of the fair value on
the date of the grant (110% of fair value in certain instances), as determined
by the board of directors. Options generally vest over a 48-month period and
have a maximum term of 10 years. Certain stock options (Performance Options)
issued under the Option Plan vest over a time period determined by the board of
directors; however, the vesting could be accelerated based on achievement of
certain performance criteria. As of December 31, 1998, the board of directors
has granted Performance Options to purchase 492,000 shares of common stock to
certain employees at an exercise price equal to the fair market value on the
date of grant. These options vest in seven years, but the vesting could be
accelerated based on the achievement of the performance criteria. The
accelerated vesting schedule provides that the grants will vest ratably over a
48 month term.
F-16
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of activity under the Option Plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding
Shares ------------------------ Weighted-
Available Number of Price Average
for Grant Shares Per Share Exercise Price
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Authorized............... 7,200,000 -- -- --
Granted.................. (380,000) 380,000 $ 0.025 $ 0.025
---------- ----------
Balance at December 31,
1996..................... 6,820,000 380,000 $ 0.025 $ 0.025
Granted.................. (5,040,000) 5,040,000 $0.025-$0.05 $ 0.032
Exercised................ -- (1,000) -- --
Canceled................. 400,000 (400,000) -- --
---------- ----------
Balance at December 31,
1997..................... 2,180,000 5,019,000 $0.025-$0.05 $0.0285
Authorized............... 3,303,000 -- -- --
Granted.................. (3,030,896) 3,030,896 $ 0.05-$1.00 $ 0.62
Exercised................ -- (1,064,748) $0.025-$1.00 $ 0.035
Canceled................. 511,500 (511,500) $ 0.05-$0.35 $ 0.13
---------- ----------
Balance at December 31,
1998..................... 2,963,604 6,473,648 $0.025-$1.00 $ 0.305
========== ==========
</TABLE>
The following table summarizes information concerning options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ------------------------
Weighted-
Average
Weighted- Remaining Weighted-
Number of Average Contractual Number of Average
Exercise Price Shares Exercise Price Life Shares Exercise Price
- -------------- --------- -------------- ----------- --------- --------------
(in years)
<S> <C> <C> <C> <C> <C>
$0.025.......... 1,608,796 $0.025 8.22 324,206 $0.025
$0.05........... 2,491,252 $0.05 8.87 356,344 $0.05
$0.35........... 520,500 $0.35 9.55 61,166 $0.35
$0.75........... 929,100 $0.75 9.68 -- --
$1.00........... 924,000 $1.00 9.84 -- --
--------- -------
6,473,648 741,716
========= =======
</TABLE>
Deferred Compensation
The Company has recorded deferred compensation charges of approximately
$2,293,000 for the year ended December 31, 1998, for the difference between the
exercise price and the deemed fair value of certain stock options granted by
the Company. These amounts are being amortized as charges to operations, using
the accelerated method, over the vesting periods of the individual stock
options, generally four years.
Pro Forma Disclosure of the Effect of Stock-Based Compensation
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 FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
F-17
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In fiscal 1996, 1997 and 1998, the fair value of each option grant was
estimated on the date of grant using the minimum value method with the
following weighted average assumptions:
<TABLE>
<CAPTION>
December 31,
----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate.................................. 6.00% 6.00% 5.40%
Expected life of option in years......................... 4.00 4.00 4.21
Expected dividend yield.................................. -- -- --
</TABLE>
The effect of applying FAS 123 to the Company's stock option awards did not
result in pro forma net loss that was materially different from historical
amounts reported. Therefore, such pro forma information is not separately
presented herein. Future pro forma net income (loss) results may be materially
different from actual amounts reported.
The weighted average fair value of options granted to employees during the
years ended December 31, 1996, 1997 and 1998, were approximately $0.005, $0.005
and $0.125, respectively.
Shares Reserved for Future Issuance
Common stock reserved for future issuance at December 31, 1998 is as
follows:
<TABLE>
<S> <C>
Stock option plan............................................... 9,437,252
Warrants........................................................ 1,312,204
Conversion of outstanding preferred stock....................... 13,728,482
----------
Total common stock reserved for future issuance................. 24,477,938
==========
</TABLE>
10. Segments of an Enterprise and Related Information
The Company operates in one industry segment. The Company designs, develops
and sells IP telephony systems. The Chief Executive Officer has been identified
as the Chief Operating Decision Maker (CODM) because he has final authority
over resource allocation decisions and performance assessment. The CODM does
not receive discrete financial information about individual components.
Net revenue for non-U.S. locations are substantially the result of export
sales from the U.S. Net revenue by geographic region based on customer location
were as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
1997 1998
------ -------
(in thousands)
<S> <C> <C>
Net revenue:
United States................................................... $ 213 $ 7,544
Other North America............................................. 2 99
Europe.......................................................... 58 740
Asia............................................................ 3,086 6,264
------ -------
Total............................................................ $3,359 $14,647
====== =======
</TABLE>
F-18
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Net Loss Per Share and Unaudited Pro Forma Stockholders' Equity
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Basic and diluted net loss per share
is computed by dividing net loss by the weighted average number of common
shares outstanding during the period less outstanding nonvested shares.
Outstanding nonvested shares are not included in the computations of basic and
diluted net loss per share until the time-based vesting restrictions have
lapsed.
If the offering contemplated by this prospectus is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into 13,728,482 shares of common stock based on the
shares of convertible preferred stock outstanding at December 31, 1998. The
unaudited pro forma stockholders' equity reflects this conversion.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Period from Year ended
July 2, 1996 December 31,
(inception) to ----------------
December 31, 1996 1997 1998
----------------- ------- -------
(in thousands, except per share
amounts)
<S> <C> <C> <C>
Net loss (numerator)...................... $ (276) $(2,059) $(5,475)
====== ======= =======
Shares used in computing historical basic
and diluted net loss per share
(denominator):
Weighted average common shares
outstanding............................. 5,400 5,400 6,248
Less shares subject to repurchase........ (5,400) (4,438) (2,644)
------ ------- -------
Denominator for historical basic and
diluted net loss per share............... -- 962 3,604
====== =======
Conversion of preferred stock (pro
forma)................................... 10,504
-------
Denominator for pro forma basic and
diluted net loss per share............... 14,108
=======
Historical basic and diluted net loss per
share.................................... N/A $(2.14) $ (1.52)
====== ======= =======
Pro forma basic and diluted net loss per
share.................................... $ (0.39)
=======
</TABLE>
12. Subsequent Events
In April 1999, the Company's Board of Directors approved the 1999 Amended
and Restated Equity Incentive Plan (Plan), subject to stockholder approval. The
Plan increases the authorized shares under the Company's existing stock option
plan from 10,503,000 to 11,358,170.
In April 1999, the Board adopted the 1999 Non-Employee Directors' Equity
Incentive Plan (Directors' Plan), subject to stockholder approval, to provide
for the automatic grant of options to purchase shares of common stock to our
non-employee directors who are not any of the Company's affiliates' employees
or consultants (Non-Employee Director). The Directors' Plan is administered by
the Board, and may be delegated to a committee.
The aggregate number of shares of common stock that may be issued under the
Directors' Plan is 300,000 shares. Under the terms of the Directors' Plan, as
of the initial public offering, each Non-Employee Director, and each person who
is thereafter elected or appointed for the first time to be a Non-Employee
Director automatically shall, upon the date of his or her initial election or
appointment to be a Non-Employee Director by the Board or stockholders, be
granted an option to purchase 5,000 shares of common stock. In addition,
commencing with the third regular meeting subsequent to the date of each Non-
Employee Directors' initial
F-19
<PAGE>
CLARENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
grant under the Director's Plan, each person who is then serving as a Non-
Employee Director automatically shall be granted an option to purchase 2,000
shares of common stock. The exercise price of the options granted under the
Directors' Plan will be equal to the fair market value of the common stock on
the date of grant. Options granted under the Directors' Plan vest and become
exercisable immediately.
In April 1999, the Company's Board of Directors approved the 1999 Employee
Stock Purchase Plan (Purchase Plan), subject to stockholder approval, covering
an aggregate of 600,000 shares of common stock. Under the Purchase Plan, the
Board of Directors or a committee may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no more than 27
months. The price of common stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the common stock on the
commencement date of each offering period or the relevant purchase date.
In the event of certain changes in control, the Board of Directors has
discretion to provide that each right to purchase common stock will be assumed
or an equivalent right will be substituted by the successor corporation, or
that such rights may continue in full force and effect, or that all sums
collected by payroll deductions be applied to purchase stock immediately prior
to the change in control. The Purchase Plan will terminate at the Board's
discretion or when all of the shares reserved for issuance under the Purchase
Plan have been issued.
In April 1999, the Company's Board of Directors approved a two-for-one split
of the Company's common stock. The stock split will become effective with the
approval of the Amended and Restated Certificate of Incorporation by the state
of Delaware in connection with the Company's reincorporation. In addition, each
share of the Company's preferred stock will be convertible into two shares of
common stock. All share and per share amounts in the accompanying consolidated
financial statements have been adjusted retroactively.
On April , 1999, the Company's board of directors, subject to approval of
the Amended and Restated Certificate of Incorporation by the state of Delaware,
authorized the reincorporation of the Company in Delaware. The par value of the
preferred and common stock is $0.001 per share. The Company's Certificate of
Incorporation will be amended to authorize 5,000,000 shares of preferred stock
and 50,000,000 shares of Common Stock. The board of directors has the authority
to fix or alter the designations, powers, preferences, and rights of the shares
of each such series. The Company's reincorporation has been reflected in the
consolidated financial statements for all periods presented.
F-20
<PAGE>
[Graphic featuring a world map with stars indicating geographic locations of
our deployed products]
The Clarent System has been installed in approximately 45 countries worldwide
<PAGE>
[LOGO OF CLARENT]
CLARENT(TM)
T H E C L E A R E R. T H E B E T T E R.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the distribution of the common stock being registered. All amounts are
estimated, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Filing Fee:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $20,461
NASD Filing Fee................................................... 7,860
Nasdaq National Market Filing Fee.................................
Blue Sky Fees and Expenses........................................
Accounting Fees...................................................
Legal Fees and Expenses...........................................
Transfer Agent and Registrar Fees.................................
Printing and Engraving............................................
Miscellaneous.....................................................
-------
Total........................................................... $ *
=======
</TABLE>
- --------
* To be supplied by amendment.
ITEM 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act").
Article VI of the Registrant's Amended and Restated Certificate of
Incorporation provides for indemnification of its directors to the maximum
extent permitted by the Delaware General Corporation Law and Section 43 of
Article XI of the Registrant's Bylaws provides for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by the Delaware General Corporation Law. In addition, the Registrant intends to
enter into Indemnification Agreements with each director and certain officers
containing provisions which are in some respects broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require the Company, among other things, to
indemnify its directors against certain liabilities that may arise by reason of
their status or service as directors (other than liabilities arising from
willful misconduct of culpable nature), to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified,
and to obtain directors' insurance if available on reasonable terms. Reference
is also made to Section of the Underwriting Agreement contained in Exhibit
1.1 hereto, indemnifying officers and directors of the Company against certain
liabilities.
ITEM 15. Recent Sales of Unregistered Securities
Item 15. Recent Sales of Unregistered Securities
a) Since July 2, 1996, the Company has issued and sold (without payment or
any selling commissions to any person) the following registered securities:
(1) Prior to completion of this offering, the Registrant intends to
effect a two-for-one stock split of its outstanding Common Stock in which
every one outstanding share of Common Stock will be split into two shares
of Common Stock.
II-1
<PAGE>
(2) Since July 2, 1996, the Registrant issued 3,400,000 shares of Common
Stock (net of repurchases) to three employees, consultants and non-employee
directors at a weighted average purchase price of $0.005 per share.
(3) Since October 11, 1996 and through March 31, 1999, the Registrant
has granted stock options to purchase 9,813,796 shares of Common Stock (net
of cancellations) to a total of 150 employees, consultants and non-employee
directors at a weighted average exercise price of $0.64 per share pursuant
to the Company's stock plans.
(4) On December 15, 1996, the Registrant issued and sold shares of
Series A Preferred Stock convertible into an aggregate of 2,000,000 shares
of Common Stock to a total of five private investors for an aggregate
purchase price of $500,000.
(5) From March 25, 1997 to June 10, 1997, the Registrant issued and sold
shares of Series B Preferred Stock convertible to an aggregate of 6,440,000
shares of Common Stock to a total of 24 private investors for an aggregate
purchase price of $3,220,000.
(6) As of March 31, 1998, 1,426,328 shares of Common Stock had been
issued upon exercise of options and 7,631,842 shares of Common Stock were
issuable upon exercise of outstanding options under the Registrant's 1996
Stock Option Plan.
(7) On February 24, 1998, the Registrant issued and sold warrants to
purchase an aggregate of 118,532 shares of Series C Preferred Stock to
eight private investors for an aggregate exercise price of $331,297.
(8) On April 2, 1998, the Registrant issued warrants to purchase an
aggregate of 1,760,000 shares of Common Stock to WK Technology Fund for an
aggregate exercise price of $88,000.
(9) From June 11, 1998 to December 7, 1998, the Company issued and sold
shares of Series C Preferred Stock convertible into an aggregate of
5,288,482 shares of Common Stock to 15 private investors for an aggregate
purchase price of $17,399,106.
The issuance described in Item 15(a)(1) was or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transaction did not involve a "sale" of securities.
The sales and issuances of securities in the transactions described in
paragraphs (2), (3) and (4) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2), Regulation S or Rule 701
promulgated thereunder, as transactions by an issuer not involving any public
offering, in that the purchasers in each case represented their intention to
acquire the securities for investment only and not with a view to the
distribution thereof, received either adequate information about the Registrant
or had access, through employment or other relationship, to such information,
and the securities were offered and sold, either pursuant to a written
compensatory benefit plan or pursuant to a written contract relating to
compensation as provided by Rule 701. Appropriate legends are affixed to the
stock certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities.
The sales and issuances of securities in transactions described in
paragraphs (5) through (9) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2), Regulation D or Regulation
S promulgated thereunder as transactions by an issuer not involving any public
offering. The purchasers in each case represented their intention to acquire
the securities for investment only and not with a view to the distribution
thereof. Appropriate legends are affixed to the stock certificates issued in
such transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients received either
adequate information about the Registrant or had access, through employment or
other relationships, to such information.
There were no underwritten offerings employed in connection with any of the
transactions set forth in Item 15(a).
II-2
<PAGE>
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant
3.2* Form of Restated Certificate of Incorporation to be filed upon the
closing of the offering made pursuant to this Registration Statement
3.3* Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
4.2* Amended and Restated Investor Rights Agreement, dated June 11, 1998 (as
amended December 7, 1998 and April 8, 1999)
4.3 Founder Stock Purchase Agreement, dated July 2, 1996
5.1* Opinion of Cooley Godward LLP
10.1 Form of Indemnity Agreement between the Registrant and its directors
and officers.
10.2 1999 Amended and Restated Equity Incentive Plan and Form of Stock
Option Grant Notice and Agreement
10.3 1999 Non-Employee Directors' Stock Option Plan and Form of Nonstatutory
Stock Option
10.4 1999 Employee Stock Purchase Plan and Offering Document
10.5 Employment Agreement, dated August 1, 1998, by and between the
Registrant and Richard J. Heaps
10.6 Employment Agreement, dated June 9, 1997, by and between the Registrant
and Mark E. McIlvane (as amended June 9, 1998)
10.7** OEM Purchase Agreement, dated effective as of December 1, 1998, by and
between the Registrant and AudioCodes, Ltd.
10.8 Master Maintenance and Support Services Agreement and Statement of
Work, dated December 29, 1998, by and between the Registrant and Equant
Integration Services, Inc.
10.9 Loan and Security Agreement, dated May 28, 1998, between Silicon Valley
Bank and the Registrant (as modified on February 16, 1999)
10.10 Lease Agreement, dated August 12, 1998, by and between the Registrant
and Seaport Centre Associates, LLC
10.11 Sublease, dated May 27, 1998, by and between the Registrant and Unwired
Planet, Inc.
23.1 Consent of Ernst & Young LLP, independent auditors
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1 Power of Attorney (see signature pages)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
** Confidentiality requested
(b) Financial Statement Schedules
II-3
<PAGE>
Schedule II--Valuation and Qualifying Accounts
Allowance For Doubtful Accounts:
<TABLE>
<CAPTION>
Additions-
Balances at Charged to Balances at
Beginning Costs and Deductions- End of
of Period Expenses Write-Offs Period
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Period from July 2, 1996
(inception) through
December 31, 1996.............. $ -- $ -- $ -- $ --
====== ====== ====== ======
Year Ended December 31, 1997.... $ -- $ 38 $ -- $ 38
====== ====== ====== ======
Year Ended December 31, 1998.... $ 38 $ 803 $ (34) $ 807
====== ====== ====== ======
</TABLE>
Schedules other than those listed above have been omitted since they are not
required or are not applicable or the required information is shown in the
financial statements or related notes.
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 for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act 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 Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has
duly caused this Registration Statement to be signed on its behalf, by the
undersigned, thereunto duly authorized, in the City of Redwood City, County of
San Mateo, State of California, on April 9, 1999.
CLARENT CORPORATION
/s/ Jerry Shaw-Yau Chang
By: _________________________________
Jerry Shaw-Yau Chang
Chief Executive Officer,
President and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerry Shaw-Yau Chang and Richard J. Heaps, and
each of them, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and to sign any registration statement
for the same offering covered by this Registration Statement that is to be
effective upon filing pursuant to Rule 462(b) promulgated under the Securities
Act of 1933, and all post-effective amendments thereto, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof. This Power of Attorney may be signed in several counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jerry Shaw-Yau Chang Chief Executive Officer, April 9, 1999
______________________________________ President and Director
Jerry Shaw-Yau Chang (Principal Executive
Officer)
/s/ Richard J. Heaps Chief Operating Officer April 9, 1999
______________________________________ and Chief Financial
Richard J. Heaps Officer (Principal
Financial and Accounting
Officer)
/s/ Michael F. Vargo Chief Technology Officer April 9, 1999
______________________________________ and Director
Michael F. Vargo
/s/ Wen Chang Ko Director April 9, 1999
______________________________________
Wen Chang Ko
/s/ Syaru Shirley Lin Director April 9, 1999
______________________________________
Syaru Shirley Lin
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant
3.2* Form of Restated Certificate of Incorporation to be filed upon the
closing of the offering made pursuant to this Registration Statement
3.3* Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
4.2* Amended and Restated Investor Rights Agreement, dated June 11, 1998
(as amended December 7, 1998 and April 8, 1999)
4.3 Founder Stock Purchase Agreement, dated July 2, 1996
5.1* Opinion of Cooley Godward LLP
10.1 Form of Indemnity Agreement between the Registrant and its directors
and officers.
10.2 1999 Amended and Restated Equity Incentive Plan and Form of Stock
Option Grant Notice and Agreement
10.3 1999 Non-Employee Directors' Stock Option Plan and Form of
Nonstatutory Stock Option
10.4 1999 Employee Stock Purchase Plan and Offering Document
10.5 Employment Agreement, dated August 1, 1998, by and between the
Registrant and Richard J. Heaps
10.6 Employment Agreement, dated June 9, 1997, by and between the
Registrant and Mark E. McIlvane (as amended June 9, 1998)
10.7** OEM Purchase Agreement, dated effective as of December 1, 1998, by and
between the Registrant and AudioCodes, Ltd.
10.8 Master Maintenance and Support Services Agreement and Statement of
Work dated, December 29, 1998, by and between the Registrant and
Equant Integration Services, Inc.
10.9 Loan and Security Agreement, dated May 28, 1998, between Silicon
Valley Bank and the Registrant (as modified on February 16, 1999)
10.10 Lease Agreement dated, August 12, 1998, by and between the Registrant
and Seaport Centre Associates, LLC
10.11 Sublease, dated May 27, 1998, by and between the Registrant and
Unwired Planet, Inc.
23.1 Consent of Ernst & Young LLP, independent auditors
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1 Power of Attorney (see signature pages)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
** Confidentiality requested
<PAGE>
EXHIBIT 4.3
NETIPHONE, INC.
FOUNDER STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the July 2, 1996 by and between NetiPhone,
Inc., a California corporation (the "Corporation"), and Jerry Chang (the
"Purchaser").
WHEREAS, pursuant to Section 408 of the California General Corporation Law,
the Corporation desires to issue, and the Purchaser desires to acquire, stock of
the Corporation as herein described, on the terms and conditions hereinafter set
forth;
WHEREAS, the issuance of common stock hereby is in partial consideration
for funds advanced to the Corporation by Purchaser, the sum of $8,500.00, which
represents all amounts owed by the Corporation to Purchaser as of the date of
this Agreement;
WHEREAS, the issuance of common stock hereby is in connection with a
compensatory benefit plan for the employees, directors, officers, advisers or
consultants of the Corporation and is intended to comply with the provisions of
Rule 701 promulgated by the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "Act").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. The Purchaser hereby agrees to purchase from the Corporation, and the
Corporation hereby agrees to sell to the Purchaser, an aggregate of one million
three hundred fifty thousand (1,350,000) shares of the Common Stock of the
Corporation (the "Stock") at $0.01 per share, for an aggregate purchase price of
$13,500.00, payable as follows:
Technology transferred to the Corporation, listed in Exhibit C
............................................................... $5,000.00
Cancellation of other indebtedness of the Corporation, ( see
Schedule A).................................................... $8,500.00
The Purchaser's cancellation of debt hereby extinguishes all outstanding debt of
the Corporation to the Purchaser as of the date of this Agreement.
<PAGE>
2. In accordance with Section 408(b) of the California General
Corporation Law, the shares to be purchased by the Purchaser pursuant to this
Agreement (hereinafter sometimes collectively referred to as the "Stock") shall
be subject to the repurchase options of the Corporation set forth in
subparagraphs (a) and (b) below ("Purchase Option"):
(A) In the event the Purchaser ceases to be an employee of the
Corporation for any reason (including death), or no reason, with or without
cause, then the Corporation shall have the right at any time within ninety (90)
business days after said cessation or such longer period as may be determined by
the Company if such later repurchase is deemed necessary by the Company for
treatment of its stock as Qualified Small Business Stock under Section 1202 of
the Internal Revenue Code of 1986, as amended and regulations promulgated
thereunder, to exercise its option to repurchase from the Purchaser or his
personal representative, as the case may be, at the total price per share
indicated above as paid by the Purchaser for such Stock ("Option Price"), up to
but not exceeding the number of shares of stock which have not vested under the
provisions of paragraph (6) below. As used herein, employment with the
Corporation shall include employment with a "parent" or "subsidiary" of the
Corporation as those terms are defined in Sections 425(e) and (f) of the
Internal Revenue Code of 1986, as amended.
(B) The Corporation may exercise its purchase option as to the
maximum portion of the stock specified in the table below:
PORTION OF STOCK
IF EMPLOYMENT TERMINATES SUBJECT TO PURCHASE OPTION
Within 12 months after
the Employment Start Date 100%
Thereafter, The percentage
given by the following
formula:
2
<PAGE>
(48 - Number of full
months since the Employment
Start Date) divided by 48
Your Employment Start Date is June 1, 1996.
(C) The Corporation shall be entitled to pay for any shares purchased
pursuant to its Purchase Option at the Corporation's option in cash or by offset
against any indebtedness owing to the Corporation by Purchaser (including
without limitation any Note given in payment for the Stock).
(D) Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Corporation (or a parent or subsidiary of the
Corporation) to terminate Purchaser's employment for any reason, with or without
cause.
3. The Purchase Option shall be exercised by written notice signed by an
officer of the Corporation or by any assignee or assignees of the Corporation
and delivered or mailed as provided in paragraph 14. Such notice shall identify
the number of shares to be purchased and shall notify the Purchaser of the time,
place and date for settlement of such purchase, which shall be scheduled by the
Corporation within one hundred fifty (150) business days from the date of
cessation of employment.
4. If, from time to time during the term of the Purchase Option:
(I) There is any stock dividend or other distribution of cash
and/or property, stock split or other change in the character or amount of any
of the outstanding securities of the Corporation; or
(II) There is any consolidation, merger or sale of all, or
substantially all of the assets of the Corporation;
3
<PAGE>
then, in such event, any and all new, substituted or additional securities or
other property to which the Purchaser is entitled by reason of its ownership of
Stock shall be immediately subject to the Purchase Option and be included in the
word "Stock" for all purposes of the Purchase Option with the same force and
effect as the shares of the Stock presently subject to the Purchase Option.
While the total Option Price shall remain the same after each such event, the
Option Price per share of Stock upon exercise of the Purchase Option shall be
appropriately adjusted.
Upon the occurrence of any event specified in clause (ii) above, the
Purchase Option may be assigned to any successor to the Corporation, and the
Purchase Option shall apply if the Purchaser does not become or shall cease for
any reason to be employed by such successor (or its parent or subsidiaries). In
such case, the references herein to the "Corporation" shall be deemed to refer
to such successor.
5. All certificates representing any shares of Stock of the Corporation
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following forms (in addition to any other legend which may
be required by other agreements between the parties hereto):
(I) "The shares represented by this certificate are subject to
an option set forth in an agreement between the Corporation and the registered
holder, or his predecessor in interest, a copy of which is on file at the
principal office of this Corporation. Any transfer or attempted transfer of any
shares subject to such option is void without the prior express written consent
of the issuer of these shares."
(II) "The securities represented by this Certificate have not
been registered under the Securities Act of 1933. They may not be sold, offered
for sale, pledged or
4
<PAGE>
hypothecated in the absence of an effective registration statement as to the
securities under said Act or an opinion of counsel satisfactory to the Company
that such registration is not required."
(III) Any legend required by the California Commissioner of
Corporations or other state securities laws.
6. Purchaser acknowledges that he is aware that the Stock to be issued to
him by the Corporation pursuant to this Agreement has not been registered under
the Act, and that the Stock is deemed to constitute "restricted securities"
under Rule 701 and Rule 144 promulgated under the Act. In this connection,
Purchaser warrants and represents to the Corporation that Purchaser is
purchasing the Stock for Purchaser's own account and Purchaser has no present
intention of distributing or selling said stock except as permitted under the
Act and Section 25102(f) of the California Corporations Code. Purchaser further
warrants and represents that Purchaser has either (i) preexisting personal or
business relationships with the Corporation or any of its officers, directors or
controlling persons, or (ii) the capacity to protect his own interests in
connection with the purchase of the Stock by virtue of the business or financial
expertise of any professional advisors to the Purchaser who are unaffiliated
with and who are not compensated by the Corporation or any of its affiliates,
directly or indirectly. Purchaser further acknowledges that the exemption from
registration under Rule 144 will not be available for at least three years from
the date of sale of the Stock unless at least two years from the date of sale
(i) a public trading market then exists for the Common Stock of the Corporation,
(ii) adequate information concerning the Corporation is then available to the
public, and (iii) other terms and conditions of Rule 144 are complied with; and
that any sale of the Stock may be made only in limited amounts in accordance
with such terms and conditions and that exemption from registration under Rule
701 will not be available until ninety days after the Corporation becomes
subject to the reporting
5
<PAGE>
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and
that after such date the Stock may be resold by persons other than affiliates in
reliance on Rule 144 without compliance with paragraphs (c),(d),(e) and (h)
thereof, and by affiliates without compliance with paragraph (d) thereof.
7. The Purchaser agrees that during the one hundred eighty (180) day
period following the effective date of a registration statement of the
Corporation filed under the Act the Purchaser shall not, to the extent requested
by the Corporation and any underwriter, sell or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound), or enter into any
hedging or similar transaction with the same economic effect as a sale, any
Common Stock of the Corporation held by the Purchaser at any time during such
period (the "Purchaser's Registrable Securities") except Common Stock included
in such registration; provided, however, that:
(A) such agreement shall be applicable only to the first such
registration statement of the Corporation which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(B) all officers and directors of the Corporation enter into similar
agreements.
In order to enforce the foregoing covenant, the Corporation may impose
stop-transfer instructions with respect to the Purchaser's Registrable
Securities (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
8. The Purchaser shall not transfer by sale, assignment, hypothecation,
donation or otherwise any of the Stock or any interest therein subject to the
Purchase Option without the prior express written consent of the issuer of the
shares. As security for his faithful performance of the terms of this Agreement
and to insure the availability for delivery of Purchaser's Stock
6
<PAGE>
upon exercise of the Purchase Option herein provided for, the Purchaser agrees,
at the closing hereunder, to deliver to and deposit with Cooley Godward Castro
Huddleson & Tatum ("Escrow Agent"), as Escrow Agent in this transaction, three
stock assignments duly endorsed (with date and number of shares blank) in the
form attached hereto as Exhibit B, together with a certificate or certificates
evidencing all of the Stock subject to the Purchase Option; said documents are
to be held by the Escrow Agent and delivered by said Escrow Agent pursuant to
the Joint Escrow Instructions of the Corporation and the Purchaser set forth in
Exhibit A attached hereto and incorporated by this reference, which instructions
shall also be delivered to the Escrow Agent at the closing hereunder.
9. The Purchaser shall be entitled to "piggy-back" registration rights on
all registrations of the Corporation subject to the right, however, of the
Corporation and its underwriters, to reduce the number of shares proposed to be
registered.
10. The Corporation shall not be required (i) to transfer on its books any
shares of Stock of the Corporation which shall have been transferred in
violation of any of the provisions set forth in this Agreement or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
11. Subject to the provisions of paragraphs 7, 8 and 10 above, the
Purchaser (but not any unapproved transferee) shall exercise all rights and
privileges of a shareholder of the Corporation with respect to the Stock.
12. Paragraphs 2, 3 and 4 of this Agreement shall terminate upon the
exercise in full or expiration of the Purchase Option, whichever first occurs.
7
<PAGE>
13. The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to the other party hereto at his address hereinafter
shown below its signature or at such other address as such party may designate
by ten (10) days advance written notice to the other party hereto.
15. This Agreement shall inure to the benefit of the successors and
assigns of the Corporation and, subject to the restrictions on transfer herein
set forth, be binding upon the Purchaser, its successors, and assigns. The
Purchase Option of the Corporation hereunder shall be assignable by the
Corporation at any time or from time to time, in whole or in part.
16. The Purchaser shall reimburse the Corporation for all costs incurred
by the Corporation in enforcing the performance of, or protecting its rights
under, any part of this Agreement, including reasonable costs of investigation
and attorneys' fees. It is the intention of the parties that the Corporation,
upon exercise of the Purchase Option and payment of the Option Price, pursuant
to the terms of this Agreement, shall be entitled to receive the Stock, in
specie, in order to have such Stock available for future issuance without
dilution of the holdings of other shareholders. Furthermore, it is expressly
agreed between the parties that money damages are inadequate to compensate the
Corporation for the Stock and that the Corporation shall, upon proper exercise
of the Purchase Option, be entitled to specific enforcement of its rights to
purchase and receive said Stock.
17. This Agreement shall be governed by and construed in accordance with
the laws of the State of California. The parties agree that any action brought
by either party to interpret or
8
<PAGE>
enforce any provision of this Agreement shall be brought in, and each party
agrees to, and does hereby, submit to the jurisdiction and venue of, the
appropriate state or federal court for the district encompassing the
Corporation's principal place of business.
18. The parties agree to take all such further action(s) as may reasonably
be necessary to carry out and consummate this Agreement as soon as practicable,
and to take whatever steps may be necessary to obtain any governmental approval
in connection with or otherwise qualify the issuance of the securities that are
the subject of this Agreement. The closing hereunder, including payment for and
delivery of the Stock, shall occur at the offices of the Corporation on July 2,
1996 or at such other time and place as the parties may mutually agree.
19. This Agreement is not an employment contract and nothing in this
Agreement shall be deemed to create in any way whatsoever any obligations on the
part of the Purchaser to continue in the employ of the Corporation or of the
Corporation to continue the Purchaser in the employ of the Corporation.
20. Purchaser acknowledges that this Agreement has been prepared on behalf
of the Company by Cooley Godward Castro Huddleson & Tatum, counsel to the
Company and that Cooley Godward does not represent, and is not acting on behalf
of, Purchaser. Purchaser has been provided with an opportunity to consult with
its own counsel with respect to this Agreement.
21. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof. This Agreement may not be amended,
modified or revoked, in whole or in part, except by an agreement in writing
signed by each of the parties hereto.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NETIPHONE, INC.
By: /s/ Michael F. Vargo
Title Secretary
--------------------------------------
Address: 828 Nash Road
Los Altos, California 94024
PURCHASER:
/s/ Jerry Chang
---------------------------------------------
Jerry Chang
Address: 828 Nash Rd.
Los Altos, CA 94024
ATTACHMENTS
EXHIBIT A - Joint Escrow Instructions
EXHIBIT B - Stock Assignment Separate from Certificate
EXHIBIT C - Technology Transferred by Certain Founders into Corporation
10
<PAGE>
NETIPHONE, INC.
FOUNDER STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the July 2, 1996 by and between
NetiPhone, Inc., a California corporation (the "Corporation"), and Michael Vargo
(the "Purchaser").
WHEREAS, pursuant to Section 408 of the California General Corporation
Law, the Corporation desires to issue, and the Purchaser desires to acquire,
stock of the Corporation as herein described, on the terms and conditions
hereinafter set forth;
WHEREAS, the issuance of common stock hereby is in connection with a
compensatory benefit plan for the employees, directors, officers, advisers or
consultants of the Corporation and is intended to comply with the provisions of
Rule 701 promulgated by the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "Act").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. The Purchaser hereby agrees to purchase from the Corporation, and
the Corporation hereby agrees to sell to the Purchaser, an aggregate of one
million three hundred fifty thousand (1,350,000) shares of the Common Stock of
the Corporation (the "Stock") at $0.01 per share, for an aggregate purchase
price of $13,500.00, payable as follows:
<TABLE>
<S> <C>
Promissory Note................................................. $8,500.00
Technology transferred to the Corporation, listed in Exhibit C.. $5,000.00
</TABLE>
2. In accordance with Section 408(b) of the California General
Corporation Law, the shares to be purchased by the Purchaser pursuant to this
Agreement (hereinafter sometimes collectively referred to as the "Stock") shall
be subject to the repurchase options of the Corporation set forth in
subparagraphs (a) and (b) below ("Purchase Option"):
<PAGE>
(A) In the event the Purchaser ceases to be an employee of the
Corporation for any reason (including death), or no reason, with or without
cause, then the Corporation shall have the right at any time within ninety (90)
business days after said cessation or such longer period as may be determined by
the Company if such later repurchase is deemed necessary by the Company for
treatment of its stock as Qualified Small Business Stock under Section 1202 of
the Internal Revenue Code of 1986, as amended and regulations promulgated
thereunder, to exercise its option to repurchase from the Purchaser or his
personal representative, as the case may be, at the total price per share
indicated above as paid by the Purchaser for such Stock ("Option Price"), up to
but not exceeding the number of shares of stock which have not vested under the
provisions of paragraph (6) below. As used herein, employment with the
Corporation shall include employment with a "parent" or "subsidiary" of the
Corporation as those terms are defined in Sections 425(e) and (f) of the
Internal Revenue Code of 1986, as amended.
(B) The Corporation may exercise its purchase option as to the
maximum portion of the stock specified in the table below:
PORTION OF STOCK
IF EMPLOYMENT TERMINATES SUBJECT TO PURCHASE OPTION
Within 12 months after
the Employment Start Date 100%
Thereafter, The percentage
given by the following
formula:
(48 - Number of full
months since the Employment
Start Date) divided by 48
Your Employment Start Date is July 15, 1996.
(C) The Corporation shall be entitled to pay for any shares purchased
pursuant to its Purchase Option at the Corporation's option in cash or by offset
against any indebtedness
<PAGE>
owing to the Corporation by Purchaser (including without limitation any Note
given in payment for the Stock).
(D) Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Corporation (or a parent or subsidiary of the
Corporation) to terminate Purchaser's employment for any reason, with or without
cause.
3. The Purchase Option shall be exercised by written notice signed by an
officer of the Corporation or by any assignee or assignees of the Corporation
and delivered or mailed as provided in paragraph 14. Such notice shall identify
the number of shares to be purchased and shall notify the Purchaser of the time,
place and date for settlement of such purchase, which shall be scheduled by the
Corporation within one hundred fifty (150) business days from the date of
cessation of employment.
4. If, from time to time during the term of the Purchase Option:
(I) There is any stock dividend or other distribution of cash
and/or property, stock split or other change in the character or amount of any
of the outstanding securities of the Corporation; or
(II) There is any consolidation, merger or sale of all, or
substantially all of the assets of the Corporation; then, in such event, any and
all new, substituted or additional securities or other property to which the
Purchaser is entitled by reason of its ownership of Stock shall be immediately
subject to the Purchase Option and be included in the word "Stock" for all
purposes of the Purchase Option with the same force and effect as the shares of
the Stock presently subject to the Purchase Option. While the total Option Price
shall remain the same after each such event, the Option Price per share of Stock
upon exercise of the Purchase Option shall be appropriately adjusted.
<PAGE>
Upon the occurrence of any event specified in clause (ii) above, the
Purchase Option may be assigned to any successor to the Corporation, and the
Purchase Option shall apply if the Purchaser does not become or shall cease for
any reason to be employed by such successor (or its parent or subsidiaries). In
such case, the references herein to the "Corporation" shall be deemed to refer
to such successor.
5. All certificates representing any shares of Stock of the Corporation
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following forms (in addition to any other legend which may
be required by other agreements between the parties hereto):
(I) "The shares represented by this certificate are subject to
an option set forth in an agreement between the Corporation and the registered
holder, or his predecessor in interest, a copy of which is on file at the
principal office of this Corporation. Any transfer or attempted transfer of any
shares subject to such option is void without the prior express written consent
of the issuer of these shares."
(II) "The securities represented by this Certificate have not
been registered under the Securities Act of 1933. They may not be sold, offered
for sale, pledged or hypothecated in the absence of an effective registration
statement as to the securities under said Act or an opinion of counsel
satisfactory to the Company that such registration is not required."
(III) Any legend required by the California Commissioner of
Corporations or other state securities laws.
6. Purchaser acknowledges that he is aware that the Stock to be issued to
him by the Corporation pursuant to this Agreement has not been registered under
the Act, and that the Stock is deemed to constitute "restricted securities"
under Rule 701 and Rule 144 promulgated under
<PAGE>
the Act. In this connection, Purchaser warrants and represents to the
Corporation that Purchaser is purchasing the Stock for Purchaser's own account
and Purchaser has no present intention of distributing or selling said stock
except as permitted under the Act and Section 25102(f) of the California
Corporations Code. Purchaser further warrants and represents that Purchaser has
either (i) preexisting personal or business relationships with the Corporation
or any of its officers, directors or controlling persons, or (ii) the capacity
to protect his own interests in connection with the purchase of the Stock by
virtue of the business or financial expertise of any professional advisors to
the Purchaser who are unaffiliated with and who are not compensated by the
Corporation or any of its affiliates, directly or indirectly. Purchaser further
acknowledges that the exemption from registration under Rule 144 will not be
available for at least three years from the date of sale of the Stock unless at
least two years from the date of sale (i) a public trading market then exists
for the Common Stock of the Corporation, (ii) adequate information concerning
the Corporation is then available to the public, and (iii) other terms and
conditions of Rule 144 are complied with; and that any sale of the Stock may be
made only in limited amounts in accordance with such terms and conditions and
that exemption from registration under Rule 701 will not be available until
ninety days after the Corporation becomes subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934 and that after
such date the Stock may be resold by persons other than affiliates in reliance
on Rule 144 without compliance with paragraphs (c),(d),(e) and (h) thereof, and
by affiliates without compliance with paragraph (d) thereof.
7. The Purchaser agrees that during the one hundred eighty (180) day
period following the effective date of a registration statement of the
Corporation filed under the Act the Purchaser shall not, to the extent requested
by the Corporation and any underwriter, sell or
<PAGE>
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound), or enter into any hedging or similar transaction with the same economic
effect as a sale, any Common Stock of the Corporation held by the Purchaser at
any time during such period (the "Purchaser's Registrable Securities") except
Common Stock included in such registration; provided, however, that:
(A) such agreement shall be applicable only to the first such
registration statement of the Corporation which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(B) all officers and directors of the Corporation enter into similar
agreements.
In order to enforce the foregoing covenant, the Corporation may impose
stop-transfer instructions with respect to the Purchaser's Registrable
Securities (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
8. The Purchaser shall not transfer by sale, assignment, hypothecation,
donation or otherwise any of the Stock or any interest therein subject to the
Purchase Option without the prior express written consent of the issuer of the
shares. As security for his faithful performance of the terms of this Agreement
and to insure the availability for delivery of Purchaser's Stock upon exercise
of the Purchase Option herein provided for, the Purchaser agrees, at the closing
hereunder, to deliver to and deposit with Cooley Godward Castro Huddleson &
Tatum ("Escrow Agent"), as Escrow Agent in this transaction, three stock
assignments duly endorsed (with date and number of shares blank) in the form
attached hereto as Exhibit B, together with a certificate or certificates
evidencing all of the Stock subject to the Purchase Option; said documents are
to be held by the Escrow Agent and delivered by said Escrow Agent pursuant to
the Joint Escrow Instructions of the Corporation and the Purchaser set forth in
Exhibit A attached hereto and
<PAGE>
incorporated by this reference, which instructions shall also be delivered to
the Escrow Agent at the closing hereunder.
9. The Purchaser shall be entitled to "piggy-back" registration rights on
all registrations of the Corporation subject to the right, however, of the
Corporation and its underwriters, to reduce the number of shares proposed to be
registered.
10. The Corporation shall not be required (i) to transfer on its books any
shares of Stock of the Corporation which shall have been transferred in
violation of any of the provisions set forth in this Agreement or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
11. Subject to the provisions of paragraphs 7, 8 and 10 above, the
Purchaser (but not any unapproved transferee) shall exercise all rights and
privileges of a shareholder of the Corporation with respect to the Stock.
12. Paragraphs 2, 3 and 4 of this Agreement shall terminate upon the
exercise in full or expiration of the Purchase Option, whichever first occurs.
13. The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to the other party hereto at his address hereinafter
shown below its signature or at such other address as such party may designate
by ten (10) days advance written notice to the other party hereto.
<PAGE>
15. This Agreement shall inure to the benefit of the successors and
assigns of the Corporation and, subject to the restrictions on transfer herein
set forth, be binding upon the Purchaser, its successors, and assigns. The
Purchase Option of the Corporation hereunder shall be assignable by the
Corporation at any time or from time to time, in whole or in part.
16. The Purchaser shall reimburse the Corporation for all costs incurred
by the Corporation in enforcing the performance of, or protecting its rights
under, any part of this Agreement, including reasonable costs of investigation
and attorneys' fees. It is the intention of the parties that the Corporation,
upon exercise of the Purchase Option and payment of the Option Price, pursuant
to the terms of this Agreement, shall be entitled to receive the Stock, in
specie, in order to have such Stock available for future issuance without
dilution of the holdings of other shareholders. Furthermore, it is expressly
agreed between the parties that money damages are inadequate to compensate the
Corporation for the Stock and that the Corporation shall, upon proper exercise
of the Purchase Option, be entitled to specific enforcement of its rights to
purchase and receive said Stock.
17. This Agreement shall be governed by and construed in accordance with
the laws of the State of California. The parties agree that any action brought
by either party to interpret or enforce any provision of this Agreement shall be
brought in, and each party agrees to, and does hereby, submit to the
jurisdiction and venue of, the appropriate state or federal court for the
district encompassing the Corporation's principal place of business.
18. The parties agree to take all such further action(s) as may reasonably
be necessary to carry out and consummate this Agreement as soon as practicable,
and to take whatever steps may be necessary to obtain any governmental approval
in connection with or otherwise qualify the issuance of the securities that are
the subject of this Agreement. The closing hereunder,
<PAGE>
including payment for and delivery of the Stock, shall occur at the offices of
the Corporation on July 2, 1996 or at such other time and place as the parties
may mutually agree.
19. This Agreement is not an employment contract and nothing in this
Agreement shall be deemed to create in any way whatsoever any obligations on the
part of the Purchaser to continue in the employ of the Corporation or of the
Corporation to continue the Purchaser in the employ of the Corporation.
20. Purchaser acknowledges that this Agreement has been prepared on behalf
of the Company by Cooley Godward Castro Huddleson & Tatum, counsel to the
Company and that Cooley Godward does not represent, and is not acting on behalf
of, Purchaser. Purchaser has been provided with an opportunity to consult with
its own counsel with respect to this Agreement.
21. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof. This Agreement may not be amended,
modified or revoked, in whole or in part, except by an agreement in writing
signed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NETIPHONE, INC.
By: /s/ Jerry Chang
Title President
--------------------------------------
Address: 828 Nash Road
Los Altos, California 94024
<PAGE>
PURCHASER:
/s/ Michael F. Vargo
---------------------------------------------
Michael Vargo
Address: 1133 Orange Avenue
San Carlos, CA 94070
ATTACHMENTS
EXHIBIT A - Joint Escrow Instructions
EXHIBIT B - Stock Assignment Separate from Certificate
EXHIBIT C - Technology Transferred by Certain Founders into Corporation
EXHIBIT D - Promissory Note
<PAGE>
EXHIBIT 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________, 1999 by
and between CLARENT CORPORATION, a Delaware corporation (the "Corporation"), and
____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her
capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ______________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE>
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(A) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(B) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 43
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(A) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(B) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(C) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(D) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(E) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(F) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers
2.
<PAGE>
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(A) the Corporation will be entitled to participate therein at its
own expense;
(B) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of Agent's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have made
the conclusion provided for in clause (ii) above; and
3.
<PAGE>
(C) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
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12. SURVIVAL OF RIGHTS.
(A) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(B) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(A) If to Agent, at the address indicated on the signature page
hereof.
5.
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(B) If to the Corporation, to
Clarent Corporation
700 Chesapeake Drive
Redwood City, CA 94063
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
CLARENT CORPORATION
By:_________________________________
Title:______________________________
AGENT
____________________________________
Address:
____________________________________
____________________________________
6.
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EXHIBIT 10.2
CLARENT CORPORATION
1999 AMENDED AND RESTATED EQUITY INCENTIVE PLAN
ADOPTED APRIL 8, 1999
APPROVED BY STOCKHOLDERS _______________, 1999
TERMINATION DATE: APRIL 7, 2009
This Clarent Corporation 1999 Equity Incentive Plan amends and restates, in its
entirety, the Clarent Corporation 1996 Stock Option Plan adopted October 11,
1996, and amended on May 29, 1997, May 29, 1998, October 22, 1998 and April 8,
1999.
1. PURPOSES.
(A) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(B) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which selected Employees, Directors and Consultants may be given an
opportunity to benefit from increases in value of the Common Stock through the
granting of: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii)
stock bonuses and (iv) rights to acquire restricted stock.
(C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of persons who are now Employees, Directors or Consultants, to
secure and retain the services of new Employees, Directors and Consultants and
to provide incentives for such persons to exert maximum efforts for the success
of the Company and its Affiliates.
2. DEFINITIONS.
(A) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(B) "BOARD" means the Board of Directors of the Company.
(C) "CODE" means the Internal Revenue Code of 1986, as amended.
(D) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c).
(E) "COMMON STOCK" means the common stock of the Company.
(F) "COMPANY" means Clarent Corporation, a California corporation.
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(G) "CONSULTANT" means any person, including an advisor, (1) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (2) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(H) "CONTINUOUS SERVICE" means that the Participant's service with the Company
or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(I) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(J) "DIRECTOR" means a member of the Board.
(K) "DISABILITY" means (i) before the Listing Date, the inability of a person,
in the opinion of a qualified physician acceptable to the Company, to perform
the major duties of that person's position with the Company or an Affiliate of
the Company because of the sickness or injury of the person and (ii) after the
Listing Date, the permanent and total disability of a person within the meaning
of Section 22(e)(3) of the Code.
(L) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Neither service as a Director nor payment of a director's fee by the Company or
an Affiliate shall be sufficient to constitute "employment" by the Company or an
Affiliate.
(M) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(N) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock
determined as follows:
(I) If the Common Stock is listed on any established stock exchange or
traded on the NASDAQ National Market System or the NASDAQ SmallCap Market, the
Fair Market Value of a share of Common Stock shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market
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with the greatest volume of trading in the Common Stock) on the last market
trading day prior to the day of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable.
(II) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(III) Prior to the Listing Date, the value of the Common Stock shall be
determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(O) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(P) "LISTING DATE" means the first date upon which any security of the Company
is listed (or approved for listing) upon notice of issuance on any securities
exchange or designated (or approved for designation) upon notice of issuance as
a national market security on an interdealer quotation system if such securities
exchange or interdealer quotation system has been certified in accordance with
the provisions of Section 25100(o) of the California Corporate Securities Law of
1968.
(Q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current
Employee or Officer of the Company or its parent or a subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
a subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.
(R) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an
Incentive Stock Option.
(S) "OFFICER" means (i) before the Listing Date, any person designated by the
Company as an officer and (ii) on and after the Listing Date, a person who is an
officer of the Company within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.
(T) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.
(U) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
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(V) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(W) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(X) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(Y) "PLAN" means this Clarent Corporation 1999 Equity Incentive Plan.
(Z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(AA) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(BB) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(CC) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(DD) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. ADMINISTRATION.
(A) ADMINISTRATION BY BOARD. The Board will administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(B) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(I) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be
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permitted to receive stock pursuant to a Stock Award; and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(II) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(III) To amend the Plan or a Stock Award as provided in Section 12.
(IV) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(C) DELEGATION TO COMMITTEE.
(I) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(II) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more Non-
Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (ii)
delegate to a committee of one or more members of the Board who are not Non-
Employee Directors the authority to grant Stock Awards to eligible persons who
are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(A) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate Five Million Six Hundred Seventy
Nine Thousand Eighty Five (5,679,085) shares
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of Common Stock, such number to be increased each year on, respectively, January
31 2000, January 31, 2001, January 31, 2002, January 31, 2003, and January 31,
2004, by that number of shares equal to two and one-half percent (2.5%) of the
Company's outstanding shares, or such lesser amount as determined by the Board
of Directors each year measured as of such date. Notwithstanding the foregoing
(and subject to the provisions of Section 11), the stock that may be issued
pursuant to Incentive Stock Options shall not exceed in the aggregate Five
Million Six Hundred Seventy Nine Thousand Eighty Five (5,679,085) shares of
Common Stock, and the stock that may be issued pursuant to stock bonuses or
restricted stock agreements shall not exceed thirty percent (30%) of the Share
Reserve.
(B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full (or vested in the case of restricted stock), the stock
not acquired under such Stock Award shall revert to and again become available
for issuance under the Plan. If any Common Stock acquired pursuant to the
exercise of an Option shall for any reason be repurchased by the Company under
an unvested share repurchase option provided under the Plan, the stock
repurchased by the Company under such repurchase option shall revert to and
again become available for issuance under the Plan.
(C) SOURCE OF SHARES. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
(D) SHARE RESERVE LIMITATION. Prior to the Listing Date, at no time shall
the total number of shares issuable upon exercise of all outstanding Options and
the total number of shares provided for under any stock bonus or similar plan of
the Company exceed the applicable percentage as calculated in accordance with
the conditions and exclusions of Section 260.140.45 of Title 10 of the
California Code of Regulations, based on the shares of the Company which are
outstanding at the time the calculation is made.
5. ELIGIBILITY.
(A) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(B) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be eligible
for the grant of an Incentive Stock Option unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
Prior to the Listing Date, no Ten Percent Stockholder shall be
eligible for the grant of a Nonstatutory Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant.
Prior to the Listing Date, no Ten Percent Stockholder shall be
eligible for a restricted stock award unless the purchase price of the
restricted stock is at least one hundred percent (100%) of the Fair Market Value
of the Common Stock at the date of grant.
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(C) SECTION 162(M) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than three hundred sixty thousand (360,000)
shares of the Common Stock during any calendar year. This subsection 5(c) shall
not apply prior to the Listing Date and, following the Listing Date, this
subsection 5(c) shall not apply until (i) the earliest of: (1) the first
material modification of the Plan (including any increase in the number of
shares reserved for issuance under the Plan in accordance with Section 4); (2)
the issuance of all of the shares of Common Stock reserved for issuance under
the Plan; (3) the expiration of the Plan; or (4) the first meeting of
stockholders at which Directors of the Company are to be elected that occurs
after the close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under Section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code and
the rules and regulations promulgated thereunder.
(D) CONSULTANTS.
(I) Prior to the Listing Date, a Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, either the offer or the
sale of the Company's securities to such Consultant is not exempt under Rule 701
of the Securities Act ("Rule 701") because of the nature of the services that
the Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule 701 and
will satisfy another exemption under the Securities Act as well as comply with
the securities laws of all other relevant jurisdictions.
(II) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, a Form S-8
Registration Statement under the Securities Act ("Form S-8") is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(B) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (ii) that such
grant complies with the securities laws of all other relevant jurisdictions.
(III) As of April 7, 1999 Rule 701 and Form S-8 generally are
available to consultants and advisors only if (i) they are natural persons; (ii)
they provide bona fide services to the issuer, its parents, its majority-owned
subsidiaries or majority-owned subsidiaries of the issuer's parent; and (iii)
the services are not in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock
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Options or Nonstatutory Stock Options at the time of grant, and a separate
certificate or certificates will be issued for shares purchased on exercise of
each type of Option. The provisions of separate Options need not be identical,
but each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:
(A) TERM. Subject to the provisions of subsection 5(b) regarding Ten Percent
Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(B) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions of
subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each
Incentive Stock Option shall be not less than one hundred percent (100%) of the
Fair Market Value of the stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, an Incentive Stock Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(C) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Nonstatutory Stock Option granted prior to the Listing Date shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option granted on or after the Listing Date shall be not
less than one hundred percent (100%)of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(D) CONSIDERATION. The purchase price of stock acquired pursuant to an Option
shall be paid, to the extent permitted by applicable statutes and regulations,
either (i) in cash at the time the Option is exercised or (ii) at the discretion
of the Board at the time of the grant of the Option (or subsequently in the case
of a Nonstatutory Stock Option) by delivery to the Company of other Common
Stock, according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other Common Stock)
with the Participant or in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be compounded
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
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(E) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(F) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. Except to the extent
permitted by law, a Nonstatutory Stock Option granted prior to the Listing Date
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. A Nonstatutory Stock Option granted on or after the
Listing Date shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing provisions of this subsection 6(f), the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(G) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(H) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), Options granted prior to the Listing Date shall
provide for vesting of the total number of shares at a rate of at least twenty
percent (20%) per year over five (5) years from the date the Option was granted,
subject to reasonable conditions such as continued employment. However, in the
case of such Options granted to Officers, Directors or Consultants, the Option
may become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company; for
example, the vesting provision of the Option may provide for vesting of less
than twenty percent (20%) per year of the total number of shares subject to the
Option.
(I) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service (or
such longer or shorter period specified in the Option Agreement, which, for
Options granted prior to the Listing Date, shall not be less than thirty (30)
days, unless such termination is for
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cause) or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(J) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.
(K) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement, which, for Options granted prior to the Listing Date, shall
not be less than six (6) months) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(L) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement, which, for Options granted prior to the Listing Date, shall not be
less than six (6) months) or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(M) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option.
Subject to the "Repurchase Limitation" in subsection 10(h), any unvested shares
so purchased may be subject to an unvested share repurchase option in favor of
the Company or to any other restriction the Board determines to be appropriate.
(N) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior
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to the Listing Date, to repurchase all or any part of the vested shares acquired
by the Optionholder pursuant to the exercise of the Option.
(O) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares exercised pursuant to the
Option. Except as expressly provided in this subsection 6(o), such right of
first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company.
(P) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board
to make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part. Any such Re-Load Option shall (i) provide for a
number of shares equal to the number of shares acquired upon exercise of such
Option; (ii) have an expiration date which is the same as the expiration date of
the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option
shall be subject to the same exercise price and term provisions heretofore
described for Options under the Plan, including the provisions of Section 5(b)
applicable to Ten Percent Stockholders.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(A) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(I) CONSIDERATION. A stock bonus shall be awarded in consideration for
past services actually rendered to the Company for its benefit.
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(II) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.
(III) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(IV) TRANSFERABILITY. Shares of Common Stock granted pursuant to a
stock bonus agreement shall not be transferable prior to the time they become
vested.
(B) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. The terms and conditions of the restricted stock purchase
agreements may change from time to time, and the terms and conditions of
separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(I) PURCHASE PRICE. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
one hundred percent (100%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated. For restricted stock
awards made on or after the Listing Date, the purchase price shall not be less
than eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated.
(II) CONSIDERATION. The purchase price of stock acquired pursuant to
the restricted stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment or other arrangement with the Participant; or (iii) in any other form of
legal consideration that may be acceptable to the Board in its discretion;
provided, however, that at any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall not be made by deferred payment.
(III) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
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(IV) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(V) TRANSFERABILITY. Except to the extent permitted by law, for a
restricted stock award made before the Listing Date, rights to acquire shares
under the restricted stock purchase agreement shall not be transferable except
by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Participant only by the Participant. For a restricted
stock award made on or after the Listing Date, rights to acquire shares under
the restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
stock awarded under the restricted stock purchase agreement remains subject to
the terms of the restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(A) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(A) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised
and/or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
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(B) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any shares subject to
an Option unless and until such Participant has satisfied all requirements for
exercise of the Option pursuant to its terms.
(C) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant or other holder of Stock Awards any right to continue to serve
the Company or an Affiliate in the capacity in effect at the time the Stock
Award was granted or shall affect the right of the Company or an Affiliate to
terminate (i) the employment of an Employee with or without notice and with or
without cause, for any reason, (ii) the service of a Consultant pursuant to the
terms of such Consultant's agreement with the Company or an Affiliate or (iii)
the service of a Director pursuant to the Bylaws of the Company or an Affiliate,
and any applicable provisions of the corporate law of the state in which the
Company or the Affiliate is incorporated, as the case may be.
(D) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(E) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(F) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a Stock
Award Agreement, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under a
Stock Award by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the
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<PAGE>
Participant by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the participant as a result of the
exercise or acquisition of stock under the Stock Award; or (iii) delivering to
the Company owned and unencumbered shares of the Common Stock.
(G) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
(H) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations, any repurchase option contained in a Stock Award
granted prior to the Listing Date to a person who is not an Officer, Director or
Consultant shall be upon the terms described below:
(I) FAIR MARKET VALUE. If the repurchase option gives the Company the
right to repurchase the shares upon termination of employment at not less than
the Fair Market Value of the shares to be purchased on the date of termination
of Continuous Service, then (i) the right to repurchase shall be exercised for
cash or cancellation of purchase money indebtedness for all but not less than
all of the shares within ninety (90) days of termination of Continuous Service
(or in the case of shares issued upon exercise of Stock Awards after such date
of termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Company and the Participant (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code regarding "qualified small business stock") and (ii) the right
terminates when the shares become publicly traded.
(II) ORIGINAL PURCHASE PRICE. If the repurchase option gives the
Company the right to repurchase the shares upon termination of Continuous
Service at the original purchase price, then (i) the right to repurchase at the
original purchase price shall lapse at the rate of at least twenty percent (20%)
of the shares per year over five (5) years from the date the Stock Award is
granted (without respect to the date the Stock Award was exercised or became
exercisable) and (ii) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for all but not less than all of the
shares within ninety (90) days of termination of Continuous Service (or in the
case of shares issued upon exercise of Options after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period as
may be agreed to by the Company and the Participant (for example, for purposes
of satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock").
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11. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) CAPITALIZATION ADJUSTMENTS TO STOCK SUBJECT TO THE PLAN. If any change
is made in the stock subject to the Plan due to a change in corporate
capitalization and without the receipt of consideration by the Company (through
reincorporation, stock dividend, stock split, reverse stock split, combination
or reclassification of shares), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 4(a). Such adjustments shall be made by the Board, the determination
of which shall be final, binding and conclusive.
(B) CAPITALIZATION AND TRANSACTION ADJUSTMENTS TO OUTSTANDING STOCK AWARDS.
If any change is made in the stock subject to any outstanding Stock Award
without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, separation,
stock dividend, dividend in property other than cash, stock split, reverse stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), such outstanding Stock Awards shall be
appropriately adjusted in the classes and number of securities and price per
share of stock subject to such outstanding Stock Awards. Such adjustments shall
be made by the Board, the determination of which shall be final, binding and
conclusive.
(C) CAPITALIZATION AND TRANSACTION ADJUSTMENTS (SECTION 162(M)). If any
change is made in the stock subject to the Plan, or subject to any Stock Award,
without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, separation,
stock dividend, dividend in property other than cash, stock split, reverse stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
maximum number of securities subject to award to any person pursuant to
subsection 5(c). (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration" by the
Company.) Such adjustments shall be made by the Board, the determination of
which shall be final, binding and conclusive.
(D) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
(E) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.
In the event of (1) a sale of all or substantially all of the assets of the
Company, (2) a merger or consolidation in which the Company is not the surviving
corporation or (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, then any surviving corporation or
acquiring corporation shall assume or continue any Stock Awards outstanding
under the Plan or shall substitute similar stock awards (including an award to
acquire the same consideration paid to the stockholders in the transaction
described in this subsection 11(e) for those outstanding under the
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Plan. In the event any surviving corporation or acquiring corporation refuses to
assume or continue such Stock Awards or to substitute similar stock awards for
those outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full prior to such event, and the Stock
Awards shall terminate if not exercised (if applicable) at or prior to such
event. With respect to any other Stock Awards outstanding under the Plan, such
Stock Awards shall terminate if not exercised (if applicable) prior to such
event.
(F) CHANGE IN CONTROL--SECURITIES ACQUISITION. After the Listing Date, in
the event of an acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the Company or the entity which is a
controlling affiliate of the Company within the meaning of Rule 144(a)(1) of the
Securities Act of 1933, as amended, shall assume or continue any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(d)) for those outstanding under the
Plan. In the event the Company or a controlling affiliate of the Company refuses
to assume or continue such Stock Awards or to substitute similar stock awards
for those outstanding under the Plan, then such Stock Awards shall terminate if
not exercised prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any NASDAQ or securities exchange listing requirements.
(B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(C) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
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(D) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(E) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(A) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
Notwithstanding the foregoing, all Incentive Stock Options shall be granted, if
at all, no later than the last day preceding the tenth (10th) anniversary of the
earlier of (i) the date on which the latest increase in the maximum number of
shares issuable under the Plan was approved by the stockholders of the Company
or (ii) the date such amendment was adopted by the Board.
(B) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Stock Award
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as of the date on which it is adopted by
the Board, but no Stock Award shall be exercised (or, in the case of a stock
bonus, shall be granted) unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
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CLARENT CORPORATION
1999 AMENDED AND RESTATED EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, Clarent Corporation (the "Company") has granted you an option
under its 1999 Equity Incentive Plan (the "Plan") to purchase the number of
shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(A) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(B) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(C) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred; and
(D) if your option is an incentive stock option, then, as provided in
the Plan, to the extent that the aggregate Fair Market Value (determined at the
time of grant) of the shares of Common Stock with respect to which your option
plus all other incentive stock options you hold
<PAGE>
are exercisable for the first time by you during any calendar year (under all
plans of the Company and its Affiliates) exceeds one hundred thousand dollars
($100,000), your option(s) or portions thereof that exceed such limit (according
to the order in which they were granted) shall be treated as nonstatutory stock
options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
-----------------
GRANT NOTICE, which may include one or more of the following:
- ------------
(A) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(B) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
(C) Pursuant to the following deferred payment alternative:
(I) Not less than one hundred percent (100%) of the aggregate
exercise price, plus accrued interest, shall be due four (4) years from date of
exercise or, at the Company's election, upon termination of your Continuous
Service.
(II) Interest shall be compounded at least annually and shall
be charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.
(III) At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall be made in cash and not by deferred payment.
<PAGE>
(IV) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the Company so requests, you must
tender to the Company a promissory note and a security agreement covering the
purchased shares of Common Stock, both in form and substance satisfactory to the
Company, or such other or additional documentation as the Company may request.
5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(A) immediately upon the termination of your Continuous Service for
Cause;
(B) three (3) months after the termination of your Continuous Service
for any reason other than Cause, Disability or death, provided that if during
any part of such three- (3-) month period you may not exercise your option
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(C) twelve (12) months after the termination of your Continuous
Service due to your Disability;
(D) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates for reason other than Cause;
(E) the Expiration Date indicated in your Grant Notice; or
(F) the tenth (10th) anniversary of the Date of Grant.
For purposes of your option, "Cause" means your misconduct, including but
not limited to: (i) your conviction of any felony or any crime involving moral
turpitude or dishonesty, (ii) your participation in a fraud or act of dishonesty
against the Company, (iii) your conduct that,
<PAGE>
based upon a good faith and reasonable factual investigation and determination
by the Board, demonstrates your gross unfitness to serve, or (iv) your
intentional, material violation of any contract between the Company and you or
any statutory duty of yours to the Company that you do not correct within thirty
(30) days after written notice to you thereof. Your physical or mental
disability shall not constitute "Cause."
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
terminates.
8. EXERCISE.
(A) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(B) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(C) If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
(D) By exercising your option you agree that the Company (or a
representative of the underwriter(s)) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and
<PAGE>
deliver such other agreements as may be reasonably requested by the Company
and/or the underwriter(s) that are consistent with the foregoing or that are
necessary to give further effect thereto. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to your
shares of Common Stock until the end of such period.
9. TRANSFERABILITY. Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon
exercise of your option are subject to any right of first refusal that may be
described in the Company's bylaws in effect at such time the Company elects to
exercise its right. The Company's right of first refusal shall expire on the
Listing Date.
11. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws as
amended from time to time, the Company shall have the right to repurchase all or
any part of the shares of Common Stock you acquire pursuant to the exercise of
your option.
12. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
13. WITHHOLDING OBLIGATIONS.
(A) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(B) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or restrictions
of law, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a Fair Market Value, determined by the Company as
of the date of exercise, not in excess of the minimum amount of tax required to
be withheld by law. If the date of determination of any tax withholding
obligation is deferred to a date later than the date of exercise of your option,
share withholding pursuant to the preceding sentence shall not be permitted
unless you make a proper and timely
<PAGE>
election under Section 83(b) of the Code, covering the aggregate number of
shares of Common Stock acquired upon such exercise with respect to which such
determination is otherwise deferred, to accelerate the determination of such tax
withholding obligation to the date of exercise of your option. Notwithstanding
the filing of such election, shares of Common Stock shall be withheld solely
from fully vested shares of Common Stock determined as of the date of exercise
of your option that are otherwise issuable to you upon such exercise. Any
adverse consequences to you arising in connection with such share withholding
procedure shall be your sole responsibility.
(C) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.
14. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
15. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.
<PAGE>
CLARENT CORPORATION
STOCK OPTION GRANT NOTICE
(1999 AMENDED AND RESTATED EQUITY INCENTIVE PLAN)
Clarent Corporation (the "Company"), pursuant to its 1999 Equity Incentive Plan
(the "Plan"), hereby grants to Optionholder an option to purchase the number of
shares of the Company's Common Stock set forth below. This option is subject to
all of the terms and conditions as set forth herein and in the Stock Option
Agreement, the Plan and the Notice of Exercise, all of which are attached hereto
and incorporated herein in their entirety.
Optionholder: ______________________________
Date of Grant: ______________________________
Vesting Commencement Date: ______________________________
Number of Shares Subject to Option: ______________________________
Exercise Price Per Share: ______________________________
Expiration Date: ______________________________
TYPE OF GRANT: [_] Incentive Stock Option [_] Nonstatutory Stock Option
EXERCISE SCHEDULE: [_] Same as Vesting Schedule [_] Early Exercise Permitted
VESTING SCHEDULE: 1/4/th/ of the shares vest one year after the Vesting
Commencement Date.
1/36/th/ of the shares vest monthly thereafter over the next
thirty six months./1/
PAYMENT: By one or a combination of the following items (described in
the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares are
publicly traded
By delivery of already-owned shares if the Shares are
publicly traded
[By deferred payment]
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS: __________________________________________________
__________________________________________________
CLARENT CORPORATION OPTIONHOLDER:
By: _________________________ ____________________________________________
Signature Signature
Title: ______________________ Date: ______________________________________
Date: _______________________
ATTACHMENTS: Stock Option Agreement, Clarent Corporation 1999 Equity Incentive
Plan and Notice of Exercise
___________________
/1/ Sample vesting schedule. Use vesting schedule approved by the Board. If this
is an incentive stock option, it (plus your other outstanding incentive stock
options) cannot be first exercisable for more than $100,000 in any
-----------
calendar year. Any excess over $100,000 is a nonstatutory stock option.
<PAGE>
ATTACHMENT I
STOCK OPTION AGREEMENT
<PAGE>
ATTACHMENT II
CLARENT CORPORATION
1999 AMENDED AND RESTATED EQUITY INCENTIVE PLAN
<PAGE>
ATTACHMENT III
NOTICE OF EXERCISE
<PAGE>
EXHIBIT 10.3
CLARENT CORPORATION
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS April 8, 1999
APPROVED BY STOCKHOLDERS _______________, 1999
EFFECTIVE DATE: APRIL 8, 1999
1. PURPOSES.
(A) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options are
the Non-Employee Directors of the Company.
(B) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit
from increases in value of the Common Stock through the granting of
Nonstatutory Stock Options.
(C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the
services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for
such persons to exert maximum efforts for the success of the Company
and its Affiliates.
2. DEFINITIONS.
(A) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f), respectively, of the Code.
(B) "ANNUAL MEETING" means the annual meeting of the stockholders of the
Company.
(C) "BOARD" means the Board of Directors of the Company.
(D) "CODE" means the Internal Revenue Code of 1986, as amended.
(E) "COMMON STOCK" means the common stock of the Company.
(F) "COMPANY" means Clarent Corporation, a Delaware corporation.
(G) "CONSULTANT" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and
who is compensated for such services or (ii) who is a member of the
Board of Directors of an Affiliate. However, the term "Consultant"
shall not include either Directors of the Company who are not
compensated by the Company for their services as
<PAGE>
Directors or Directors of the Company who are merely paid a director's
fee by the Company for their services as Directors.
(H) "CONTINUING GRANT" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 6(b) of the
Plan.
(I) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant,
is not interrupted or terminated. The Optionholder's Continuous Service
shall not be deemed to have terminated merely because of a change in the
capacity in which the Optionholder renders service to the Company or an
Affiliate as an Employee, Consultant or Director or a change in the
entity for which the Optionholder renders such service, provided that
there is no interruption or termination of the Optionholder's Continuous
Service. For example, a change in status from a Non-Employee Director of
the Company to a Consultant of an Affiliate or an Employee of the Company
will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole
discretion, may determine whether Continuous Service shall be considered
interrupted in the case of any leave of absence approved by that party,
including sick leave, military leave or any other personal leave.
(J) "DIRECTOR" means a member of the Board of Directors of the Company.
(K) "DISABILITY" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major
duties of that person's position with the Company or an Affiliate of the
Company because of the sickness or injury of the person.
(L) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company
or an Affiliate shall not be sufficient to constitute "employment" by the
Company or an Affiliate.
(M) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(N) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock
determined as follows:
(I) If the Common Stock is listed on any established stock exchange or
traded on the NASDAQ National Market System or the NASDAQ SmallCap
Market, the Fair Market Value of a share of Common Stock shall be
the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Common
Stock) on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable.
2.
<PAGE>
(II) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(O) "INITIAL GRANT" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to subsection 6(a) of the Plan.
(P) "IPO DATE" means the effective date of the initial public offering of
the Common Stock.
(Q) "NON-EMPLOYEE DIRECTOR" means a Director who is neither employed by
the Company or an Affiliate nor a representative of a five percent
(5%) or greater stockholder.
(R) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(S) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(T) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(U) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(V) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding
Option.
(W) "PLAN" means this Clarent Corporation 1999 Non-Employee Directors'
Stock Option Plan.
(X) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(Y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(A) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless and
until the Board delegates administration to a committee.
(B) POWERS OF BOARD. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
3.
<PAGE>
(I) To determine the provisions of each Option to the extent not
specified in the Plan.
(II) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations
for its administration. The Board, in the exercise of this
power, may correct any defect, omission or inconsistency in
the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan
fully effective.
(III) To amend the Plan or an Option as provided in Section 12.
(IV) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the
provisions of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(A) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued
pursuant to Options shall not exceed in the aggregate One Hundred
Fifty Thousand (150,000) shares of Common Stock.
(B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not acquired under
such Option shall revert to and again become available for issuance
under the Plan.
(C) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
Nondiscretionary Options as set forth in section 6 shall be granted under
the Plan to all Non-Employee Directors.
6. NON-DISCRETIONARY GRANTS.
(A) INITIAL GRANTS. Without any further action of the Board, each Non-
Employee Director shall be granted the following Options:
(I) On IPO Date, each person who is then a Non-Employee Director
automatically shall be granted an Initial Grant to purchase Two
Thousand Five Hundred (2,500) shares of Common Stock on the
terms and conditions set forth herein.
4.
<PAGE>
(ii) After the IPO Date, each person who is elected or appointed for
the first time to be a Non-Employee Director automatically
shall, upon the date of his or her initial election or
appointment to be a Non-Employee Director by the Board or
stockholders of the Company, be granted an Initial Grant to
purchase Two Thousand Five Hundred (2,500) shares of Common
Stock on the terms and conditions set forth herein.
(b) CONTINUING GRANTS. Beginning with the third regular meeting of the
Board subsequent to his/her receipt of the Initial Grant, each person
who continues to be a Non-Employee Director shall (during his/her
term as a Non-Employee Director) automatically be granted a
Continuing Grant to purchase One Thousand (1,000) shares of Common
Stock upon each regular meeting of the Board, on the terms and
conditions set forth herein.
7. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(A) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(B) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject
to the Option on the date the Option is granted. Notwithstanding the
foregoing, an Option may be granted with an exercise price lower than
that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the Code.
(C) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes
and regulations, in any combination of (i) cash or check, (ii)
delivery to the Company of other Common Stock, (iii) deferred
payment, (iv) pursuant to a Regulation T Program if the Shares are
publicly traded or (v) any other form of legal consideration that may
be acceptable to the Board and provided in the Option Agreement;
provided, however, that at any time that the Company is incorporated
in Delaware, payment of the Common Stock's "par value," as defined in
the Delaware General Corporation Law, shall not be made by deferred
payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
5.
<PAGE>
(D) TRANSFERABILITY. An Option shall not be transferable other than to
"family members" as defined by Rule 701 of the Securities Act of 1933, as
amended, and by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the Optionholder only by the
Optionholder or such "family members" who are also transferees.
Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(E) VESTING GENERALLY. Options shall vest and become exercisable immediately
upon grant.
(F) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death
or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date
of termination) but only within such period of time ending on the earlier
of (i) the date twelve (12) months following the termination of the
Optionholder's Continuous Service, or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination,
the Optionholder does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate. For
purposes of this Section 7(f), the limitations upon exercise discussed
herein shall also apply to permitted transferees under Section 7(d).
(G) EXTENSION OF TERMINATION DATE. If the exercise of the Option following
the termination of the Optionholder's Continuous Service (other than upon
the Optionholder's death) would be prohibited at any time solely because
the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i)
the expiration of the term of the Option set forth in subsection 7(a) or
(ii) the expiration of a period of three (3) months after the termination
of the Optionholder's Continuous Service during which the exercise of the
Option would not be in violation of such registration requirements.
(H) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of termination),
but only within such period of time ending on the earlier of (i) the date
twelve (12) months following such termination or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate. For purposes of
this Section 7(h), the limitations upon exercise discussed herein shall
also apply to permitted transferees under Section 7(d).
6.
<PAGE>
(I) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the three-month period after the
termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent
the Optionholder was entitled to exercise the Option as of the date
of death) by the Optionholder's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's
death, but only within the period ending on the earlier of (1) the
date eighteen (18) months following the date of death or (2) the
expiration of the term of such Option as set forth in the Option
Agreement. If, after death, the Option is not exercised within the
time specified herein, the Option shall terminate.
8. COVENANTS OF THE COMPANY.
(A) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common
Stock required to satisfy such Options.
(B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to grant Options and to issue
and sell shares of Common Stock upon exercise of the Options;
provided, however, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Option or
any stock issued or issuable pursuant to any such Option. If, after
reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock
under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless
and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(A) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any
shares subject to such Option unless and until such Optionholder has
satisfied all requirements for exercise of the Option pursuant to
its terms.
(B) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder
any right to continue to serve the Company as a Non-Employee
Director or shall affect the right of the
7.
<PAGE>
Company or an Affiliate to terminate (i) the employment of an Employee
with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with
the Company or an Affiliate or (iii) the service of a Director pursuant
to the Bylaws of the Company or an Affiliate, and any applicable
provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
(C) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to
give written assurances satisfactory to the Company as to the
Optionholder's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the
merits and risks of exercising the Option; and (ii) to give written
assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own
account and not with any present intention of selling or otherwise
distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (iii) the
issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective
registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances
under the then applicable securities laws. The Company may, upon advice
of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited
to, legends restricting the transfer of the stock.
(D) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in
addition to the Company's right to withhold from any compensation paid
to the Optionholder by the Company) or by a combination of such means:
(i) tendering a cash payment; (ii) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the
Optionholder as a result of the exercise or acquisition of stock under
the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend,
dividend in property other than cash, stock split,
8.
<PAGE>
liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in
the class(es) and maximum number of securities subject both to the Plan
pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and the outstanding Options will be appropriately adjusted
in the class(es) and number of securities and price per share of stock
subject to such outstanding Options. The Board shall make such
adjustments, and its determination shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(B) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Options
shall terminate immediately prior to such event.
(C) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.
In the event of (i) a sale of all or substantially all of the assets of
the Company, (ii) a merger or consolidation in which the Company is not
the surviving corporation or (iii) a reverse merger in which the Company
is the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall
assume or continue any Options outstanding under the Plan or shall
substitute similar Options (including an option to acquire the same
consideration paid to the stockholders in the transaction described in
this subsection 11(c) for those outstanding under the Plan. In the event
any surviving corporation or acquiring corporation refuses to assume or
continue such Options or to substitute similar Options for those
outstanding under the Plan, then such Options shall terminate if not
exercised prior to such event.
(D) CHANGE IN CONTROL--SECURITIES ACQUISITION. In the event of an
acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or an Affiliate) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of Directors, then with respect to
Options held by Optionholders whose Continuous Service has not
terminated, the Company, or a controlling affiliate of the Company as
defined by Rule 144(a)(1) of the Securities Act of 1933, as amended,
shall assume or continue any Options outstanding under the Plan or shall
substitute similar Options (including an option to acquire the same
consideration paid to the stockholders in the transaction described in
this subsection 11(d) for those outstanding under the Plan. In the
9.
<PAGE>
event the Company or a controlling affiliate of the Company refuses
to assume or continue such Options or to substitute similar Options
for those outstanding under the Plan, then such Options shall
terminate if not exercised prior to such event.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating
to adjustments upon changes in stock, no amendment shall be
effective unless approved by the stockholders of the Company to the
extent stockholder approval is necessary to satisfy the requirements
of Rule 16b-3 or any NASDAQ or securities exchange listing
requirements.
(B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(C) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Optionholder
and (ii) the Optionholder consents in writing.
(D) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however,
that the rights under any Option shall not be impaired by any such
amendment unless (i) the Company requests the consent of the
Optionholder and (ii) the Optionholder consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(A) PLAN TERM. The Board may suspend or terminate the Plan at any time.
No Options may be granted under the Plan while the Plan is suspended
or after it is terminated.
(B) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the
Plan is in effect except with the written consent of the
Optionholder.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
10.
<PAGE>
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
11.
<PAGE>
CLARENT CORPORATION
NONSTATUTORY STOCK OPTION
(1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)
[NAME] , Optionholder:
CLARENT CORPORATION (the "Company"), pursuant to its 1999 Non-Employee
Directors' Stock Option Plan (the "Plan") has on _____________, 1999 granted to
you, the optionholder named above, an option to purchase shares of the common
stock of the Company ("Common Stock"). This option is not intended to qualify
and will not be treated as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's Non-
Employee Directors (as defined in the Plan).
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
___________ (_____). Subject to the limitations contained herein, this option
shall be exercisable in accordance with the Plan.
2. The exercise price of this option is ______________ Dollars ($______)
per share, being the Fair Market Value (as defined in the Plan) of the Common
Stock on the date of grant of this option.
3. (A) This option may be exercised, to the extent specified in the
Plan, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to paragraph 6 of the Plan. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
(B) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax withholding obligation of the Company arising by reason of the
exercise of this option or the lapse of any substantial risk of forfeiture to
which the shares are subject at the time of exercise.
4. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed
<PAGE>
to you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.
5. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of paragraph 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the ___ day of__________, ____.
Very truly yours,
CLARENT CORPORATION
By:_____________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
1999 Non-Employee Directors' Stock Option Plan
<PAGE>
The undersigned:
(A) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;
(B) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionholder and the
Company and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock options plans of the Company, and (ii) the following agreements
only:
NONE___________________________________________
(Initial)
OTHER___________________________________________
___________________________________________
___________________________________________
___________________________________________
OPTIONHOLDER
___________________________________________
Address
___________________________________________
___________________________________________
<PAGE>
EXHIBIT 10.4
CLARENT CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED APRIL 8, 1999
APPROVED BY STOCKHOLDERS _______________, 1999
NO TERMINATION DATE
1. PURPOSE.
(A) The purpose of the 1999 Employee Stock Purchase Plan (the "Plan") is
to provide a means by which employees of Clarent Corporation, a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase common stock of the Company.
(B) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(C) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(D) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code
2. ADMINISTRATION.
(A) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(B) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(I) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(II) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(III) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
1.
<PAGE>
(IV) To amend the Plan as provided in paragraph 13.
(V) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company and its Affiliates and to carry out the intent that the Plan be treated
as an "employee stock purchase plan" within the meaning of Section 423 of the
Code.
(C) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee")
constituted in accordance with the requirements of Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate Three Hundred Thousand (300,000)
shares of the Company's common stock (the "Common Stock"). If any right granted
under the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for the
Plan.
(B) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(A) The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
(B) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
2.
<PAGE>
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(A) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(B) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(I) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(II) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(III) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.
(C) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(D) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's
3.
<PAGE>
rights to purchase stock of the Company or any Affiliate to accrue at a rate
which exceeds twenty five thousand dollars ($25,000) of fair market value of
such stock (determined at the time such rights are granted) for each calendar
year in which such rights are outstanding at any time.
(E) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(A) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding ten percent (10%) of such employee's
Earnings (as defined by the Board or the Committee in each Offering) during the
period which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(B) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(C) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(I) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(II) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
"Fair market value" means, as of any date, the value of the Common Stock
determined as follows:
(X) If the Common Stock is listed on any established stock exchange
or traded on the NASDAQ National Market System or the NASDAQ SmallCap
Market, the fair market value of a share of Common Stock shall be the
closing sales price for such stock
4.
<PAGE>
(or the closing bid, if no sales were reported) as quoted on such exchange
or market (or the exchange or market with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source
as the Board deems reliable;
(Y) In the absence of such markets for the Common Stock, the fair
market value shall be determined in good faith by the Board; and
(Z) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of
the California Code of Regulations.
For the Initial Offering, the fair market value of the Common Stock at the time
when the Offering commences shall be the price per share at which shares of
Common Stock are first sold to the public in the Company's initial public
offering as specified in the final prospectus with respect to that offering.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(A) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering (as defined by the Board or Committee in each Offering). The payroll
deductions made for each participant shall be credited to an account for such
participant under the Plan and shall be deposited with the general funds of the
Company. A participant may reduce (including to zero) or increase such payroll
deductions, and an eligible employee may begin such payroll deductions, after
the beginning of any Offering only as provided for in the Offering. A
participant may make additional payments into his or her account only if
specifically provided for in the Offering and only if the participant has not
had the maximum amount withheld during the Offering.
(B) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the Committee in the Offering. Upon such withdrawal
from the Offering by a participant, the Company shall distribute to such
participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(C) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and
5.
<PAGE>
any designated Affiliate, for any reason, and the Company shall distribute to
such terminated employee all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire stock
for the terminated employee) under the Offering, without interest.
(D) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
8. EXERCISE.
(A) On each Purchase Date specified therefor in the relevant Offering,
each participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
(B) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
6.
<PAGE>
9. COVENANTS OF THE COMPANY.
(A) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(B) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan and
outstanding rights will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the class(es) and number of shares and
price per share of stock subject to outstanding rights. Such adjustments shall
be made by the Board or the Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(B) In the event of: (1) a dissolution or liquidation of the Company; (2)
a sale of all or substantially all of the Company's assets; (3) a merger or
consolidation in which the Company is not the surviving corporation; (4) a
reverse merger in which the Company is the surviving corporation but the shares
of the Company's Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (5) the acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3
7.
<PAGE>
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then, as determined by the
Board in its sole discretion (i) any surviving or acquiring corporation may
assume outstanding rights or substitute similar rights for those under the Plan,
(ii) such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(A) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 423 of the Code, Rule 16b-3 or any NASDAQ or
securities exchange listing requirements.
(B) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval.
(C) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(D) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(A) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(B) The participant may change such designation of beneficiary at any time
by written notice. In the event of the death of a participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its sole discretion, may deliver such shares and/or cash to the
spouse
8.
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or to any one or more dependents or relatives of the participant, or if no
spouse, dependent or relative is known to the Company, then to such other person
as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the shares subject to the Plan's share reserve, as increased and/or adjusted
from time to time, have been issued under the terms of the Plan. No rights may
be granted under the Plan while the Plan is suspended or after it is terminated.
(B) Rights and obligations under any rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
rights granted under the Plan comply with the requirements of Section 423 of the
Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the same day that the Company's initial
public offering of shares of common stock becomes effective (the "Effective
Date"), but no rights granted under the Plan shall be exercised unless and until
the Plan has been approved by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted by the Board or the
Committee, which date may be prior to the Effective Date.
9.
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CLARENT CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED BY BOARD OF DIRECTORS APRIL 8, 1999
1. GRANT; OFFERING DATE.
(A) The Board of Directors of Clarent Corporation, a Delaware corporation
(the "Company"), pursuant to the Company's 1999 Employee Stock Purchase Plan
(the "Plan"), hereby authorizes the grant of rights to purchase shares of the
common stock of the Company ("Common Stock") to all Eligible Employees (an
"Offering"). The first day of an Offering is that Offering's "Offering Date." An
Offering may consist of one (1) or more consecutive "Purchase Periods." The last
day of each Purchase Period during an Offering shall be a "Purchase Date" for
that Offering. If an Offering Date or Purchase Date does not fall on a day
during which the Company's Common Stock is actively traded, then the Offering
Date or Purchase Date, as the case may be, shall be the next subsequent day
during which the Company's Common Stock is actively traded.
(B) Unless otherwise specifically provided herein, an Offering shall begin
on each May 1 and November 1 and shall end six (6) months thereafter on October
31 or April 30, as the case may be.
(C) The first Offering shall begin on the effective date of the initial
public offering of the Company's Common Stock and end on April 30, 2000, unless
terminated sooner as herein provided (the "Initial Offering"). The Initial
Offering shall consist of one (1) Purchase Period of approximately one (1) year
in duration. Such Purchase Period shall begin on the Offering Date and shall end
on April 30, 2000. Participants eligible to enter the Plan on November 1, 1999,
but not on the effective date of the initial public offering of the Company's
Common Stock, may begin participation in the Initial Offering on November 1,
1999.
(D) Prior to the commencement of any Offering, the Board of Directors (or
the Committee described in subparagraph 2(c) of the Plan, if any) may change any
or all terms of such Offering and any subsequent Offerings. The granting of
rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (a) the Board of Directors (or such
Committee) determines that such Offering shall not occur, or (b) no shares
remain available for issuance under the Plan in connection with the Offering.
(E) Notwithstanding any other provisions of an Offering, if the terms of
an Offering as previously established by the Board of Directors of the Company
would, as a result of a change to applicable accounting standards, generate a
charge to earnings, such Offering shall terminate effective as of the day prior
to the date such change of accounting standards would otherwise first apply to
the Offering (the "Offering Termination Date"), and such Offering Termination
Date shall be the final Purchase Date of such Offering. A subsequent Offering
shall commence on such date and on such terms as shall be provided by the Board
of Directors of the Company.
10.
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2. ELIGIBLE EMPLOYEES.
All employees of the Company and each of its Affiliates (as defined in the
Plan) incorporated in the United States, shall be granted rights to purchase
Common Stock under each Offering on the Offering Date (an "Eligible Employee").
Notwithstanding the foregoing, the following employees shall not be Eligible
Employees or be granted rights under an Offering: (i) part-time or seasonal
employees whose customary employment is less than 20 hours per week or five
months per calendar year or (ii) 5% stockholders (including ownership through
unexercised options) described in subparagraph 5(c) of the Plan.
3. RIGHTS.
(A) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the right to purchase the
number of shares of Common Stock purchasable with up to ten percent (10%) of
such Eligible Employee's Earnings paid during such Offering; provided, however,
that no employee may purchase Common Stock on a particular Purchase Date that
would result in more than ten percent (10%) of such employee's Earnings in the
period from the Offering Date to such Purchase Date having been applied to
purchase shares under all ongoing Offerings under the Plan and all other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Internal Revenue Code of 1986, as amended (the "Code").
(B) For purposes of this Offering, "Earnings" means the total compensation
paid to an employee, including all salary, wages (including amounts elected to
be deferred by the employee, that would otherwise have been paid, under any cash
or deferred arrangement established by the Company), overtime pay, commissions,
bonuses, and other remuneration paid directly to the employee, but excluding
profit sharing, the cost of employee benefits paid for by the Company, education
or tuition reimbursements, imputed income arising under any Company group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company under any employee benefit plan, and similar items of
compensation.
(C) Subject to the limitations contained herein and in the Plan, each
employee who was not eligible on the Offering Date for the Initial Offering but
who first becomes an Eligible Employee during the Initial Offering and prior to
October 23 during the Initial Offering shall (upon delivery of the designated
enrollment form, at least ten days before November 1, to the Company or
designated Affiliate) on November 1 during that Offering, be granted the right
to purchase the number of shares of Common Stock purchasable with up to ten
percent (10%) of such employee's Earnings paid during his or her participation
in such Offering, which right shall be deemed to be a part of the Offering. Such
right shall have the same characteristics as any rights originally granted under
the Offering, except that (i) the date on which such a right is granted shall be
the "Offering Date" of such right for all purposes, including determination of
the exercise price of such right; and (ii) the Offering for such right shall
begin on its Offering Date and end coincident with the end of the ongoing
Offering.
11.
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(D) The maximum number of shares of Common Stock an Eligible Employee may
purchase on any Purchase Date in an Offering shall be such number of shares as
has a fair market value (determined as of the Offering Date for such Offering)
equal to (x) $25,000 multiplied by the number of calendar years in which the
right under such Offering has been outstanding at any time, minus (y) the fair
market value of any other shares of Common Stock (determined as of the relevant
Offering Date with respect to such shares) which, for purposes of the limitation
of Section 423(b)(8) of the Code, are attributed to any of such calendar years
in which the right is outstanding. The amount in clause (y) of the previous
sentence shall be determined in accordance with regulations applicable under
Section 423(b)(8) of the Code based on (i) the number of shares previously
purchased with respect to such calendar years pursuant to such Offering or any
other Offering under the Plan, or pursuant to any other Company plans intended
to qualify as "employee stock purchase plans" under Section 423 of the Code, and
(ii) the number of shares subject to other rights outstanding on the Offering
Date for such Offering pursuant to the Plan or any other such Company plan.
(E) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of shares available, the Board shall make a
pro rata allocation of the shares available in a uniform and equitable manner.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common Stock
on the Offering Date or eighty-five percent (85%) of the fair market value of
the Common Stock on the Purchase Date, in each case rounded up to the nearest
whole cent per share. For the Initial Offering, the fair market value of the
Common Stock at the time when the Offering commences shall be the price per
share at which shares of Common Stock are first sold to the public in the
Company's initial public offering as specified in the final prospectus with
respect to that offering.
5. PARTICIPATION.
(A) An Eligible Employee may elect to participate in an Offering only at
the beginning of the Offering, or such later date specified in subparagraph
3(c). An Eligible Employee shall become a participant in an Offering by
delivering an agreement authorizing payroll deductions. Such deductions must be
in whole dollars or whole percentages, with a maximum percentage of ten percent
(10%) of Earnings. A participant may not make additional payments into his or
her account. The agreement shall be made on such enrollment form as the Company
or a designated Affiliate provides, and must be delivered to the Company or
designated Affiliate at least ten (10) days before the Offering Date, or before
such later date specified in subparagraph 3(c), to be effective, unless a later
time for filing the enrollment form is set by the Board for all Eligible
Employees with respect to a given Offering Date. For the Initial Offering, the
time for filing an enrollment form and commencing participation for individuals
who are Eligible Employees on the Offering Date for the Initial Offering may be
12.
<PAGE>
after the Offering Date, as determined by the Company and communicated to such
Eligible Employees. (If the agreement authorizing payroll deductions is
required to be delivered to the Company or designated Affiliate a specified
number of days before the Offering Date to be effective, then an employee who
becomes eligible during the required delivery period shall not be considered to
be an Eligible Employee at the beginning of the Offering but may elect to
participate during the Offering as provided in subparagraph 3(c).)
(B) A participant may increase or reduce (including to zero) his or her
participation level effective as of the November 1 during the course of the
Initial Offering (other than the first Offering). Any such change in
participation shall be made by delivering a notice to the Company or a
designated Affiliate in such form and at such time as the Company provides. In
addition, a participant may increase or decrease his or her deductions prior to
the beginning of a new Offering to be effective at the beginning of such new
Offering. Except as otherwise specifically provided herein, a participant may
not increase or decrease his or her participation level during the course of an
Offering.
(C) A participant may withdraw from an Offering and receive his or her
accumulated payroll deductions from the Offering (reduced to the extent, if any,
such deductions have been used to acquire Common Stock for the participant on
any prior Purchase Dates), without interest, at any time prior to the end of the
Offering, excluding only each ten (10) day period immediately preceding a
Purchase Date (or such shorter period of time determined by the Company and
communicated to participants) by delivering a withdrawal notice to the Company
in such form as the Company provides. A participant who has withdrawn from an
Offering shall not again participate in such Offering but may participate in
subsequent Offerings under the Plan by submitting a new participation agreement
in accordance with the terms thereof.
(D) A participant shall automatically participate in the Offering
commencing immediately after the final Purchase Date of each Offering in which
the participant participates until such time as such participant (i) ceases to
be an Eligible Employee, (ii) withdraws from the Offering or (iii) terminates
employment. A participant who automatically participates in a subsequent
Offering is not required to file any additional enrollment form for such
subsequent Offering in order to continue participation in the Plan. However, a
participant may file an enrollment form with respect to such subsequent Offering
if the participant desires to change any of the participant's elections
contained in the participant's then effective enrollment form.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date, each
participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole shares of Common Stock, up to the
maximum number of shares permitted under the Plan and the Offering.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall be
given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or
13.
<PAGE>
this Offering shall be deemed effectively given upon receipt or, in the case of
notices and agreements delivered by the Company, five (5) days after deposit in
the United States mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the stockholders as required for the Plan to obtain treatment as a tax-
qualified employee stock purchase plan under Section 423 of the Code.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations that may from time to time be
promulgated and adopted pursuant to the Plan), the provisions of the Plan shall
control.
14.
<PAGE>
EXHIBIT 10.5
Mr. Richard Heaps
30 Evans Court
Alameda, California 94501
RE: EMPLOYMENT TERMS
Dear Mr. Heaps:
Clarent Corporation (hereinafter, the "Company" or "Clarent") is pleased to
offer you the position of Chief Operating Officer and General Counsel, on the
following terms, effective as of August 1, 1998.
You will report to the President and Chief Executive Officer of the Company and
shall have responsibility for finance, accounting, legal, marketing,
operations/controls, manufacturing and distribution, management of information
systems, human resources and administration of the Company. You shall also be
appointed and serve as the Company's Chief Financial Officer and Secretary. In
addition, you will assist the President and Chief Executive Officer in setting
long term business direction, developing financial plans and measurements,
developing products, positioning and pricing products, establishing strategic
alliances, investigating acquisitions and other duties as may be mutually agreed
upon from time to time. As an executive officer of the Company, you will be
invited to attend meetings of the Company's Board of Directors as appropriate,
subject to the Board's discretion. You will work at our facility located at 850
Chesapeake Drive, Redwood City, California.
Subject to the reasonable prior approval of the President and Chief Executive
Officer, you may act as a director of any profit or nonprofit corporation and
engage in other business activities, so long as such activities are not
competitive with the Company, do not materially detract from the performance of
your duties or present a conflict with your fiduciary duties to the Company. The
Company acknowledges that your activities related to your previous employer,
Centura Software Corporation and its related litigative activities are expressly
included within the scope of such permitted activities, subject to the foregoing
limitations.
SALARY AND BENEFITS: Your compensation will be $180,000 per year, less payroll
deductions and all required withholdings. You will be paid semi-monthly and you
will be eligible for the following standard Company benefits: medical insurance,
vacation, sick leave, holidays. Details about these benefit plans are available
for your review. The Company may modify compensation and benefits from time to
time as it deems necessary, but may not reduce your compensation or benefits
without your prior written approval. You will also be reimbursed for expenses in
accordance with the Company's standard expense reimbursement policy.
BONUS: You will be eligible for a performance based bonus to be paid quarterly.
The target amount for such bonus shall be $40,000 in the aggregate during the
first year. This target amount shall be reviewed and reset by you and the
Company's management, for subsequent years.
INCENTIVE STOCK OPTION: You will receive an incentive stock option to purchase
Two Hundred Thousand (200,000) shares of the Company's Common Stock (the
"Shares"), subject to vesting as follows (assuming your continued employment by
the Company): Twenty-five percent (25%)
1.
<PAGE>
of the Shares shall vest on August 1, 1999, with the balance of the Shares
vesting ratably on a monthly basis for the next thirty-six (36) months. The
exercise price for the option will be the fair market value of the Company's
Common Stock on the date the board approves your stock option grant. In the
event of termination of your employment, the period during which you must
exercise any vested options shall be ninety (90) days following the date of
termination.
ACCELERATION OF OPTION VESTING UPON CHANGE IN CONTROL: In the event that your
employment is terminated without Cause (as defined herein) or Constructively
Terminated (as defined herein) within eighteen (18) months following a Change in
Control (as defined herein), vesting of all outstanding options held by you
shall be accelerated so that (i) if such termination without Cause or
Constructive Termination occurs on or prior to August 1, 1999, Fifty Percent
(50%) of such options will be immediately vested in full and the balance of such
options shall vest according to the schedule set forth in the relevant option
grant document(s); (ii) if such termination without Cause or Constructive
Termination occurs after August 1, 1999 and on or prior to August 1, 2000,
Seventy-five Percent (75%) of such options will be immediately vested in full
and the balance of such options shall vest according to the schedule set forth
in the relevant option grant document(s); and (iii) if such termination without
Cause or Constructive Termination occurs after August 1, 2000, all such options
will be immediately vested in full.
For the purposes of this letter, the occurrence of any of the following events
shall constitute a "Change in Control":
(A) there shall be consummated (X) any consolidation or merger of the
Company with another corporation or entity and as a result of such consolidation
or merger less than fifty percent (50%) of the outstanding voting securities of
the surviving or resulting corporation or entity shall be owned in the aggregate
by the shareholders of the Company, other than affiliates (within the meaning of
the Securities Exchange Act of 1934, as amended) or any party to such
consolidation or merger, as the same shall have existed immediately prior to
such consolidation or merger; or (Y) any sale, lease, exchange or other transfer
(or in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; or
(B) the shareholders of the Company shall have approved any plan or
proposal for the liquidation or dissolution of the Company; or
(C) any "person" (as such term is used in the Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934 (the "Exchange Act"), other than any
person affiliated with any current director or officer, shall have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
fifty percent (50%) or more of the Company's outstanding common stock, without
the prior approval of the Board; or
(D) a change of control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended, shall have occurred.
PERIODIC REVIEW: The Company shall review your base salary, bonus, stock options
and additional benefits then being provided to you not less frequently than
every twelve (12) months. Following such review, the Company may, in its
discretion, increase your base salary, bonus,
2.
<PAGE>
stock options and additional benefits.
SEVERANCE: If your employment is terminated (or Constructively Terminated) by
the Company without Cause (as defined herein), you shall be entitled to receive
severance compensation as follows. If such termination occurs on or prior to
August 1, 1999, you shall be entitled to receive the cash equivalent of three
months' salary. If such termination occurs after August 1, 1999 and on or prior
to August 1, 2000, you shall be entitled to receive the cash equivalent of six
months' salary. If such termination occurs after August 1, 2000, you shall be
entitled to receive the cash equivalent of twelve (12) months' salary. All such
severance payments shall be made by the Company either in one or more lump sum
payments or in installments, in the Company's sole discretion.
TERMINATION FOR CAUSE: For the purposes of this offer letter, "Cause" shall mean
the determination of the Company, based upon its objective reasonable belief,
that you have committed one or more of the following: (i) conviction of any
felony or any crime involving moral turpitude or dishonesty; (ii) participation
in a fraud or act of dishonesty against the Company; (iii) willful material
breach of the Company's policies; (iv) intentional damage to the Company's
property; and (v) material breach of the terms of any agreement between you and
the Company. Notwithstanding the foregoing, you shall not be terminated for
cause pursuant to the clauses above, unless and until you have received notice
of the proposed termination for cause including details on the basis for such
termination and have had an opportunity to be heard before at least a majority
of members of the board of directors of the Company. You shall be deemed to have
had such an opportunity if written or telephone notice is given at least thirty
(30) days in advance of a meeting of the board of directors.
CONSTRUCTIVE TERMINATION: For the purposes of this offer letter, "Constructive
Termination" shall mean that you voluntarily terminate your employment after any
of the following are undertaken without your express written consent: (i) the
assignment to you of any duties or responsibilities which result in any
diminution or adverse change of your position, status or circumstances of
employment; or any removal of you from or any failure to re-elect you to any of
such positions, including, but not limited to, your membership on the Company's
Board of Directors (if applicable), except in connection with the termination of
your employment for Cause, death, disability, retirement, or any other voluntary
termination of your employment other than a Constructive Termination; (ii) a
material reduction by the Company of your annual base salary, bonus and/or
additional benefits as reasonably determined by you; (iii) the Company's
relocation of you, or the Company's principal executive offices, to a location
more than twenty-five (25) miles from the location at which you are then
performing your duties, except for an opportunity to relocate which is accepted
by you in writing; or (iv) any material breach by the Company of any employment
agreement with you.
AT-WILL EMPLOYMENT: You may terminate your employment with the Company at any
time and for any reason whatsoever simply by notifying the Company. Likewise,
the Company may terminate your employment at any time and for any reason
whatsoever, with or without cause or advance notice.
COMPANY POLICIES; PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT: As a Clarent
employee, you will be expected to abide by Company rules and regulations,
acknowledge in
3.
<PAGE>
writing that you have read the Company's Employee Handbook, and sign and comply
with the attached Proprietary Information and Inventions Agreement which
prohibits unauthorized use or disclosure of the Company's proprietary
information.
In your work for the Company, you will be expected not to use or disclose any
confidential information, including trade secrets, of any former employer or
other person to whom you have an obligation of confidentiality. You agree that
you will not bring onto Company premises any unpublished documents or property
belonging to any former employer or other person to whom you have an obligation
of confidentiality. In the performance of your duties for the Company, you will
be expected to use only that information which is generally known and used by
persons with training and experience comparable to your own, which is common
knowledge in the industry or otherwise legally in the public domain, or which is
otherwise provided or developed by the Company.
In addition, we have discussed in detail the job duties which you will be
required to perform for the Company. You have provided assurances that in
performing these duties, you will not be required to either use or disclose
proprietary information belonging to any former employer. Please let your
manager know immediately if you ever are asked to perform any duties which you
believe would require you to use or disclose any such information.
ARBITRATION: Any dispute, controversy or claim arising out of or in respect of
this letter agreement (or its validity, interpretation or enforcement), the
employment relationship or the subject matter hereof shall, at the request of
either party, be settled by binding arbitration in the State of California in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. The parties shall have rights
to discovery as provided in section 1283.05 of the California Code of Civil
Procedure. The prevailing party in any such matter shall recover all of its
costs and expenses, including reasonable attorney's fees.
NO THIRD-PARTY BENEFICIARIES: This letter agreement shall not confer any rights
or remedies upon any person other than the parties and their respective
successors and permitted assigns.
CITIZENSHIP: As required by law, this offer is subject to satisfactory proof of
your right to work in the United States.
SUCCESSION AND ASSIGNMENT: This letter agreement shall be binding upon and inure
to the benefit of the parties named herein and their respective successors and
permitted assigns. No party may assign either this letter agreement or any of
his or its rights, interests, or obligations hereunder without the prior written
approval of the other party.
COUNTERPARTS: This letter agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
NOTICES: All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given upon receipt
if given by facsimile, courier, or personal delivery, or, if (and then two
business days after) it is sent by registered or certified
4.
<PAGE>
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient at the address set forth in this letter agreement. Any party may send
any notice, request, demand, claim, or other communication hereunder to the
intended recipient using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic mail),
but no such notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is received by the
intended recipient. Any party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving notice in the manner herein set forth.
GOVERNING LAW: This letter agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California as applied to
California residents, without giving effect to any choice or conflict of law
provision or rule (whether of the State of California or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of California.
AMENDMENTS AND WAIVERS: No amendment of any provision of this letter agreement
shall be valid unless the same shall be in writing and signed by you and the
Company. No waiver by any party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
SEVERABILITY: Any term or provision of this letter agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
ENTIRE AGREEMENT: This letter, together with your Proprietary Information and
Inventions Agreement, forms the complete and exclusive statement of your
employment agreement with the Company. The employment terms in this letter
supersede any other agreements or promises made to you by anyone, whether oral
or written.
Please sign and date this letter, and return it to me at your earliest
convenience prior to September 1, 1998, if you wish to accept employment at the
Company under the terms described above. If you accept our offer, we would like
you to commence working full-time on site on September 9, 1998, with an
effective date of this Agreement (for the purposes of salary and benefits
accrual) set at August 1, 1998.
We look forward to your favorable reply and to a productive and enjoyable work
relationship.
Sincerely,
/s/ Jerry Chang
- ---------------
Jerry Chang
President and Chief Executive Officer
5.
<PAGE>
ACCEPTED:
/s/ Richard Heaps
- -----------------
Richard Heaps
Date: August 28, 1998
6.
<PAGE>
EXHIBIT 10.6
June 9, 1997
Mr. Mark McIIvane
Chicago, Illinois
Re: Employment With Clarent Corporation
-----------------------------------
Dear Mark:
Clarent Corporation (the "Company") is pleased to offer you a position as
Vice President, Worldwide Sales, on the terms set forth in this letter
agreement, effective as of June 6, 1997 upon your acceptance by execution of a
counterpart copy of this letter where indicated below.
1. Reporting; Duties and Responsibilities; Employment At Will; Employee
--------------------------------------------------------------------
Invention Assignment and Confidentiality Agreement. In this position you will
- --------------------------------------------------
report to Jerry Chang, President. This offer is for a full time position,
headquartered in Chicago, except as travel to other locations may be necessary
to fulfill you responsibilities. Your employment with the Company is on an "at
will" basis, and either you or the Company may terminate your employment with
the Company at any time, for any reason.
2. Salary; Commission; Benefits and Vacation. Your base salary will be
-----------------------------------------
$150,000 per year, payable in accordance with the Company's customary payroll
practice as in effect from time to time. In addition, you are also entitled to
receive sales commission based on the 1997 Sales Plan for your territories.
This Sales Plan is a draft and may need to be approved by Clarent's Board of
Directors. The general parameters of this plan are as follows:
. You will have a July through December 1997 sales quota of US$8,000,000
revenue. The revenue will be based on all revenues from any customers
whose headquarters are based anywhere except in the Asia Pacific
------
region. Sales made to AT&T Jens, whose headquarters is in Tokyo, are
specifically excluded from this territory.
. The quota will be spread over the remaining months in 1997 by Heidi
Bersin, Vice President, Marketing. This spread will be made with your
direct input, via a forecast that you provide to Heidi within 1 week
after your initial day of employment.
You will have the opportunity to earn sales commission as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEAR TO DATE INCREMENTAL % OF REVENUE PAID TO YOU IN
------------------------ ---------------------------
QUOTA ATTAINMENT IN YOUR SALES COMMISSION
------------------------ ----------------
TERRITORY
---------
---------------------------------- ----------------------------------
<S> <C>
0 0%
----------------------------------------------------------------------
1-30% .25%
----------------------------------------------------------------------
31-100% 1.5%
----------------------------------------------------------------------
101% -120% 2.0%
----------------------------------------------------------------------
121%+ 2.5%
----------------------------------------------------------------------
</TABLE>
1.
<PAGE>
. Sales commissions will be calculated and paid monthly, if
applicable. They will be paid within 6 weeks following the close
of business for a given month.
For example, commissions for January sales will be paid to you no
later than March 15.
. The percentage will be calculated based on year to date
attainment. The actual commission to be paid will be based on
that month's booked revenues in your territory. For example, if
revenues in a given month are $400,000 in your territory, and if
you are at 65% of year to date attainment, you will be paid
$400,000 times 1.5%, or $6,000 that month.
. Quota will be retired on revenue earned through direct system or
service sale and system lease. If you sign up third party
channels to sell in your territory, you will retire quota based
on the revenue that is booked to Clarent from the 3rd party.
. If any customers disconnect our systems and request refunds, any
customer refunds in your territory will be debited against your
revenue attainment.
. Sales will count as sales based on when generally accepted
accounting practices allow Clarent Corporation to book the sale
as revenue to the Corporation.
. Any disputes that you have regarding sales territory or quota
attainment will be resolved by Jerry Chang, President, within 1
month from when you submit the dispute in writing.
Clarent Corporation will use its best efforts to make quota or other
compensation plan changes on an annual basis. However, if there are significant
and material changes in the market that will affect Clarent's position, Clarent
reserves to right to modify the compensation plan at the beginning of any
quarter. If this happens, a quarterly (not annual change) will not affect the
current or the next quarter's commissions unless it falls at the same time as
the annual quota adjustment.
You will be eligible to take vacation under the terms of the Clarent Corporation
vacation policy. If you need extra vacation beyond what is stated in the
company policy, please make your request to Jerry Chang.
You will be eligible to receive health, dental, vision and life insurance
through the company's plan. You will be eligible for any other applicable
employee benefits if and when they become available. Also, because you are
interested in maintaining your current medical coverage, Clarent will pay for
COBRA coverage on your current health plan for a period of 18 months after you
join Clarent Corporation by reimbursing you for your out-of-pocket COBRA
expenses.
Also, Clarent Corporation will pay up to $2,000 per year for your supplemental
life insurance.
2.
<PAGE>
3. Stock Option. Effective at the next Company Board of Directors
------------
meeting after the date of this letter, the President/CEO of the Company will
recommend that the Board grant you an incentive stock option, effective upon the
date of your commencement of employment pursuant to this letter agreement, to
purchase up to 125,000 shares of the Company Common Stock pursuant to the
Company's Stock Option Plan. The exercise price for this option will be the
then-current fair market value of the Company Common Stock at the date of the
grant. The option will become exercisable according to the Company's standard
4-year exercise schedule, which calls for an initial vesting of 25% of the total
(i.e. 31,250 shares) after the first I year of continuous service to the
Company, and thereafter an additional 1/48th of the initial grant (2604 per
month) will become exercisable, at the close of each month during which you
remain employed with the Company, over the remainder of the exercise term.
Additionally, over the next two years, you have the option to earn up to an
additional 125,000 shares under the following formula:
<TABLE>
<CAPTION>
TIME PERIOD QUOTA ATTAINMENT SHARES EARNED
----------- ---------------- -------------
<S> <C> <C>
First 12 months with 101%+ 62,500 shares
Clarent 81-100% 40,000 shares
0-80% 0 additional shares
Second 12 months with 101%+ 62,500 shares
Clarent 81-100% 40,000 shares
0-80% 0 additional shares
</TABLE>
These additional stock options will be priced at the price the board sets at
your initial grant of 125,000 shares, and, if earned, will vest on the same
dates that your initial 125,000 shares vest.
If Clarent Corporation is acquired by another company the terms and conditions
of outstanding vested and unvested Clarent stock options will be negotiated as
part of the acquisition. Clarent Corporation will include in any acquisition
the fact that we have committed to you that, unless 100% of your Clarent options
are vested, if the acquiring company lets you go at will (without cause), that
they will pay you $250,000.
4. Confidential Information. As an employee of the Company, you will
------------------------
have access to certain Company confidential information and you may, during the
course of your employment, develop certain information or inventions which will
be the property of the Company. To protect the interest of the Company, you
will need to sign the Company's standard "Employee Inventions and
Confidentiality Agreement" as a condition of your employment.
5. At-Will Employment. While we look forward to a long and profitable
------------------
relationship, should you decide to accept our offer, you will be an at-will
employee of the Company, which means the employment relationship can be
terminated by either of us for any reason at any time. Any statements or
representations to the contrary (and, indeed, any statements contradicting any
provision in this letter) should be regarded by you as ineffective. Further,
your participation in any stock option or benefit program is not to be regarded
as assuring you of continuing employment for any particular period of time.
However, if Clarent
3.
<PAGE>
Corporation terminates the relationship without cause, Clarent Corporation will
pay you a severance of 100% of your annual salary.
6. Authorization to Work. Because of Federal regulations adopted in
---------------------
Immigration Reform and Control Act of 1986, you will need to present
documentation demonstrating that you have authorization to work in the United
States. If you have any questions about this requirement, which applies to U.S.
citizens and non-U.S, citizens alike, please contact our human resources
department.
7. Term of Offer. This offer will remain open until June 11, 1997. If
-------------
you decide to accept our offer, please sign the enclosed copy of this letter in
the space indicated and return it to me. Upon your signature below, this will
become our binding agreement with respect to the subject matter of this letter,
superseding in their entirety all other or prior agreements by you with the
Company as to the specific subjects of this letter, will be binding upon and
inure to the benefit of our respective successors and assigns, and your heirs,
administrators, and executors, will be governed by California law, and may only
be amended in a writing signed by you and the Company.
8. Other. You will receive a monthly car allowance of $650. Clarent
-----
will also pay for nationwide paging service and for a cellular telephone and
cellular service, to be used judiciously. You will be responsible for paying
for your personal cellular calls.
We are excited to have you join us and look forward to working with you.
Very Truly Yours,
/s/ Heid: H. Bersin
Heidi Hams Bersin
Vice President, Sales and Marketing
Clarent Corporation
Acknowledged, Accepted and Agreed
By: /s/ Mark McIlvane Date: June 10, 1997
--------------------------
Mark McIlvane
4.
<PAGE>
June 1, 1998
Mark McIlvane
Vice President, WW Sales
Clarent Corporation
Naperville, IL. 60563
Dear Mark:
As you know, on June 9, 1997, Clarent entered into a letter agreement with
you, which defined certain terms and conditions of your employment. We have
agreed to amend the June 9 letter agreement in certain respects as follows.
WE HAVE AGREED to modify the penultimate paragraph of Section 3 of the June
9 letter agreement to read as follows:
"Additionally, at the end of the second year of your employment with
Clarent, you have the option to earn up to an additional 45,000 shares
under the following formula:
<TABLE>
<CAPTION>
TIME PERIOD QUOTA ATTAINMENT SHARES EARNED
-------------------------------------------------------------------------
<S> <C> <C>
Second 12 months 101% 45,000 shares
With Clarent 81-100% 30,000 shares
0-80% 0 additional shares
</TABLE>
These additional stock options will be priced at the fair market value of
the Company's Common Stock on the date the Board approved this grant and
will vest on the same dates That your initial 125,00 shares vest."
WE HAVE AGREED that after you sign this amendment, the Company will grant
you an additional incentive stock option to purchase up to 80,000 shares of the
Company Common Stock pursuant to the Company's Stock Option Plan. These
additional stock options will be priced at the fair market value of the
Company's Common Stock on the date the board approves this grant and will vest
on the same dates that your initial 125,000 shares vest, except as to the
initial vesting of 25% of shares, which shall be accelerated to occur effective
upon the signing of this Amendment.
WE HAVE AGREED to delete the last paragraph of Section 3 of the June 9
letter agreement in its entirety. This is because this paragraph presents
certain accounting issues that have been brought to Clarent's attention, which
we have discussed with you and we reached the above agreement after our
discussion.
WE HAVE AGREED that the following definition of "cause" should be added to
the end of Section 5 of the June 9 letter agreement:
"For purposes of this letter agreement, "cause" will be determined in the
sole discretion of Clarent Corporation, based upon its objective reasonable
belief that you have committed one or more of the following:
1.
<PAGE>
1. Failure to achieve the mutual agreed-upon Measured Business Objects
(MBO) between you and the Company. The MBO will be determined
quarterly between you and the Company. There will be a time schedule
associated with each MBO, which will be used to measure the success or
failure for the achievement. The MBO will include the annual sales
quota.
2. Conviction of any felony or crime involving moral turpitude or
dishonesty.
3. Participation in a fraud or material act of dishonesty against Clarent
--------
Corporation.
4. Willful breach of Clarent Corporation's policies which is materially
injurious to Clarent Corporation.
5. Intentional damage to Clarent Corporation's property which is
materially injurious to Clarent Corporation..
6. Material breach of this letter agreement, provided that Clarent
Corporation has given you written notice and (30) days' opportunity
to cure the breach. If Clarent Corporation terminates your
employment for any of the reasons set forth in this Section 5 and you
do not consent to such termination, such termination shall be
considered effective and your right under this agreement shall
continue until the existence of such cause has been determined by an
independent arbitrator appointed by the American Arbitration
Association and either party's rights to petition a court of law for a
decision in the matter have been exhausted. In connection with the
appointment of an arbitrator, both parties agree to submit the
question first to arbitration by an appointee of the American
Arbitration Association and to cooperate with the arbitrator, with all
costs of arbitration paid by Clarent Corporation.
WE HAVE AGREED that the agreement will be effective upon execution.
Please review the above listed items entirely. Should any description
raise your concern, please contact me at your earliest convenience so we can
have further discussion. Otherwise, please sign to acknowledge this agreement.
Thanks.
Regards,
Jerry Chang
President & CEO
Acknowledged and agreed: /s/ Mark McIlvane Date: June 1, 1998
---------------------
Mark McIlvane
2.
<PAGE>
EXHIBIT 10.7
============================================
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. (S)(S) 200.80(B)(4)
200.83 AND 240.406
============================================
OEM PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is entered into and made effective as of
December 1, 1998, by and between AUDIOCODES, LTD., a corporation organized under
the laws of the State of Israel and having its principal place of business at 4
HaHoresh Road, Yehud, 56470, Israel (hereinafter referred to as "Seller"), and
CLARENT CORPORATION, a corporation organized under the laws of the State of
California, USA and having its principal place of business at 700 Chesapeake
Drive, Redwood City, CA 94063, USA (hereinafter referred to as "Buyer").
1. BACKGROUND AND SUMMARY OF AGREEMENT. Buyer is in the business of producing
and marketing Computer systems and software designed to digitize and packetize
voice and to transport such packets to a destination over an Internet Protocol
(IP network). Seller manufactures and sells products related to the business of
Buyer, and Buyer desires to purchase certain products from Seller for resale.
Seller agrees to grant, and hereby grants, to Buyer the right to sell the
products identified herein during the term of this Agreement, subject to the
terms and conditions set forth in this agreement. Seller will sell such
products to Buyer, subject to the terms and conditions set forth in this
Agreement, to which the parties hereby agree.
2. DEFINITIONS. The following terms, in singular and/or plural form of the
same term as and wherever used herein, shall have the meanings set forth in this
Article.
2.1 "PRODUCTS" The list of products, software, service and supplies
identified and described in the Specifications, including any and all
modifications, changes and improvements made to such Products during the term of
this Agreement.
2.2 "NEW PRODUCTS" Those products, software and supplies which are added
to this Agreement by mutual agreement of the two parties following its
execution. When such New Products are added to this Agreement (e.g., as a
result of a Purchase Order placed in compliance hereto) then for purpose of this
Agreement, such New Products shall be considered "Products".
2.3 "PART" Any component, subassembly or other module of the Products.
2.4 "PURCHASE ORDER" OR "ORDER" Any purchase order issued by Buyer and
confirmed by Seller for the purpose of ordering Products or Parts pursuant to
this Agreement.
2.5 "SELLER INTELLECTUAL PROPERTY RIGHTS" All United States and foreign
patents, applications for patents, copyrights, mask works, trade secrets and
other intellectual property rights relating to the design and manufacture of
Products and Parts, and which are now or
1.
<PAGE>
hereafter owned, controlled or possessed by Seller, including any such rights
licensed to Seller by any third party.
2.6 "3RD PARTIES INTELLECTUAL PROPERTY RIGHTS" All United States and
foreign patents, applications for patents, copyrights, mask works, trade secrets
and other intellectual property rights relating to the design and manufacture of
Products and Parts, and which are NOT now or hereafter owned, controlled or
possessed by Seller.
2.7 "SELLER KNOW-HOW" All information and data of Seller (whether
confidential or not) which is necessary and sufficient to manufacture, assemble,
test, operate, maintain and repair Products and Parts, and which is now or
hereafter owned, controlled or possessed by Seller, including all drawings,
specifications, test information, software (including source and object code
listings and supporting documentation), manuals, basic process steps and vendor
lists.
2.8 "SELLER TECHNICAL ASSISTANCE" Assistance provided to Buyer by Seller
in making use of the Seller Know-How in the manufacture, assembly, testing,
operation, application, maintenance and repair of Products and Parts.
2.9 "SPECIFICATIONS" This OEM Agreement covers AudioCodes' TP-100B, TP-
200B VOIP compression board as more fully described in Exhibit A of this
Agreement, the AudioCodes AVP-04 VOIP compression board and other products
supplied by Seller to Buyer hereunder.
2.10 "SUBSIDIARY" (a) Any corporation, associated company or other sales
or manufacturing entity in which Buyer owns or controls the majority of the
outstanding capital or has the right to appoint the majority of the members of
the board of directors, and (b) any authorized distributor of Buyer products.
Unless the context otherwise requires, "Buyer" as and whenever used herein shall
refer to either or both Buyer or any subsidiary of Buyer.
3. PURCHASE ORDERS
3.1 PLACEMENT OF PURCHASE ORDERS, FORECASTS. Seller agrees to sell
Products to Buyer in accordance with the terms and conditions of this Agreement.
Specific quantities of Products shall be ordered by Buyer for purchase by the
placement of Purchase Orders that shall be confirmed by Seller. Buyer shall, no
later than 30 days prior the end of each calendar quarter, use commercially
reasonable efforts to provide to Seller a six (6) month rolling forecast of
specific quantities of Products that Buyer intends to order during each month
during the forecast period. No such forecast shall be binding on Buyer, such
binding obligations only to be in the form of confirmed Purchase Orders
submitted by Buyer to Seller. In the event of any discrepancy between the terms
of any confirmed Purchase Order and this Agreement, the terms of the confirmed
order shall govern.
2.
<PAGE>
3.2 ACCEPTANCE OR REJECTION OF PURCHASE ORDERS. Seller agrees to accept
or reject in writing (such writings to include faxes and messages transmitted by
electronic mail), within [***] business days of receipt by Seller Purchase
Orders placed by Buyer in conformance with the terms of this Agreement. If no
such written confirmation or rejection is received by Buyer during such [***]
day period, it shall be deemed as if not accepted by Seller. All Purchase
Orders shall specify as a minimum the following information: (i) the Product
name (ii) the software revision number (iii) number of Product units (iv)
targeted delivery date.
3.3 CANCELLATION OF PURCHASE ORDERS. Buyer may cancel confirmed Purchase
Order or portion thereof up to a total of [***] of the Product units, on all
outstanding Purchase Orders, (i) without charge or penalty [***] or more days
prior to the scheduled delivery date of that Purchase Order, or (ii) upon
payment of a charge equal to [***] of the invoice price of the canceled Products
if more than [***] days and less then [***] days prior to the scheduled delivery
date of that Purchase Order. Buyer may not cancel any Purchase Order or portion
thereof less than [***] days prior to the scheduled delivery date of that Order,
except as may be specifically set forth elsewhere. Buyer may terminate any
Purchase Order in whole or in part upon written notice to Seller, without
incurring any liability or cost, in the event that any Product (including
software or peripherals for such Product) covered by such Purchase Order is
delayed as to delivery for thirty (30) days or more beyond the scheduled
delivery timetable at the time the Purchase Order is placed except if such delay
is caused by conditions that are beyond the control of Seller and in such event
the thirty day period shall be extended by an additional period not to exceed 30
additional days, or in the event the scheduled release of software or upgrades
for such product, as published by Seller, is delayed by ninety (90) days or
more.
3.4 RESCHEDULING OF PRODUCTS. Buyer may increase the quantity of Products
ordered under any Purchase Order by [***], provided notice of such increase is
given to Seller at least [***] days prior to the scheduled delivery date. Buyer
may defer all or part of the Products ordered under any Purchase Order for as
long as [***] days beyond the scheduled delivery date, provided notice of such
deferral is given to Seller at least [***] days prior to the scheduled delivery
date and provided that the total number of Product units on all outstanding
Purchase Orders, requested for reschedule is less than [***] of the total umber
of units. If Products rescheduled under this Paragraph 3.4 are subsequently
canceled, cancellation charges provided for in Paragraph 3.3 above shall be
based on the original scheduled delivery date.
3.5 LIMITED SUPPLY; OTHER SOURCES. If Seller is unable to completely fill
-
Buyer's Purchase Order due to limited supply of Products, or for any other
reason, Seller shall give Buyer's Purchase Order "most-favored customer status"
(i.e., provide Buyer with a percentage of its Purchase Order no lower than that
provided any other customer of Seller).
4. PRICES
4.1 PRODUCT AND PART PRICES. The price for Products purchased hereunder
shall be as agreed to by the parties in writing and specified in a given
Purchase Order or other document.
______________
* [***] CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE>
Guidelines for such prices are contained in Exhibit B hereto. Seller further
confirms that the prices to be provided for products purchased hereunder shall
be at least as favorable as those offered to any other customer of Seller
purchasing the same products according to similar terms and equivalent or lesser
quantities. In the event that Seller makes more favorable prices available to
another customer as aforesaid, Seller agrees to (i) promptly notify Buyer of
such offer and (ii) at Buyer's request, apply such prices to any and all
outstanding but undelivered Purchase Orders for Products.
5. LEAD TIME, SHIPMENT AND PAYMENT
5.1 LEAD TIME FOR PRODUCTS. Buyer will use commercially reasonable efforts
to place Purchase Orders for Products of quantities not exceeding [***] units
and not less than [***] units in any calendar month, thirty (30) days in advance
of the required delivery date thereof, unless a shorter Lead Time is mutually
agreed to as to Products covered under specific Purchase Orders. Purchase Orders
for Products of quantities exceeding [***] units shall be placed by Buyer sixty
(60) days in advance of the required delivery date.
5.2 SHIPMENT. All Products purchased and shipped under this Agreement
shall be FOB Seller's factory (EX Works). The products will be shipped, at
Buyer's expense, to Buyer's customer's destination or to a Buyer location, each
as specified by Buyer, so as to be received, allowing for normal transit times,
in accordance with the delivery schedule specified on the corresponding Purchase
Order. It is agreed that Seller shall not be responsible for any delays in
shipping the Products and its only obligations shall be to provide the Products
for shipment on the agreed upon date. If Shipment is late due to Seller's fault
(more than 10 days) , Seller shall ship by air freight or other mode specified
by Buyer, at Seller's expense. Seller shall provide all documentation necessary
to accomplish shipment to such designated locations. Buyer shall be responsible
for all shipping expenses and fees, including import fees, duties or taxes
incurred in obtaining Products from Seller and shipping the same and the parties
shall provide reasonable documentation and assistance to each other in order to
accomplish shipment and receipt of Products. Buyer shall utilize its export
licenses for purposes of exporting the Products outside the United States.
Buyer agrees to acquire and comply with all necessary export licenses from the
United States Department of Commerce.
5.3 MODE OF SHIPMENT. The mode of shipment shall in each instance be by
surface transportation unless otherwise specified by Buyer on the Purchase
Order. In the absence of specific instructions, Seller will select the surface
carrier for shipment.
5.4 RISK OF LOSS. Risk of loss and damage shall pass from Seller to Buyer
upon delivery by Seller to the common carrier or to Buyer's representative at
the FOB point described in Paragraph 5.2 above, and all claims for damage
thereafter shall be filed by Buyer directly with the carrier.
______________
* [***] CONFIDENTIAL TREATMENT REQUESTED
4.
<PAGE>
5.5 PACKAGING. All Products shall be packed by Seller in accordance with
Seller's packaging procedure, as well as other requirements set forth in the
Specifications. Each box shall contain Products ordered under a single Purchase
Order, but multiple boxes may be placed in a larger container.
5.6 INSURANCE. Buyer shall have the responsibility to pay for insurance
against all risks as of the date of delivery of the Products or the date of the
shipment of the Products, as the case may be. However, at the request of Buyer,
Seller shall make arrangements for purchase of insurance or supply required
information, as Buyer may direct, to either Buyer or to Buyer's insurance
carrier so as to ensure that Buyer will have timely information to effect
insurance coverage.
5.7 PAYMENT. It is understood and agreed that the terms of payment for all
Products purchased under this Agreement shall, be net [***] days from the date
of invoice, or as otherwise agreed to by the parties for a given Purchase Order
5.8 TITLE. Title of any of the Products not transferred to Buyer's
customers under a bonafide purchase order issued by such customer to Buyer shall
be retained by Seller until full payment of any order is completed and only upon
full payment as aforesaid shall the title to the Products be transferred to the
Buyer.
6. TAXES
6.1 TAXES NOT INCLUDED. Product and Part prices as provided for in this
Agreement are exclusive of all applicable federal, state or local sales, use,
property, excise or similar taxes that may be levied upon Seller as a result of
sale or delivery of any Product sold under this Agreement. All such taxes shall
be assumed and paid by Buyer. If a resale certificate or other such document of
exemption is required in order to exempt the sale of Products from any such
taxes, Buyer shall furnish Seller, at Seller's request, with such a certificate
or document prior to shipment by Seller.
7. PROGRAM MANAGERS, PRODUCT QUALIFICATION AND ACCEPTANCE PROCEDURE AND
QUALITY ASSURANCE
7.1 APPOINTMENT OF PROGRAM MANAGERS. Each party shall designate a Program
Manager who shall be responsible for all communications with the other party,
including those relating to product qualification under Article 8 and
inspection, testing and quality control procedures under Article 9.
7.2 ESTABLISHING PRODUCT VERIFICATION TEST (PVT) PROCEDURE. At least
sixty (60) days prior (or other such date as may be mutually agreed) to the
first scheduled shipment to Buyer of any New Products, Seller and Buyer shall
confer, through their respective Program Managers, and agree on a Product
Verification Test (PVT) Procedure. Such PVT Procedure
______________
* [***] CONFIDENTIAL TREATMENT REQUESTED
5.
<PAGE>
shall establish the procedures for qualification testing (Paragraph 8.1),
ongoing inspection and testing (Paragraph 9.1), acceptance, inspection and
testing (Paragraph 9.2) and facility surveys (Paragraph 9.3). Buyer and Seller
agree that the PVT procedure may be accomplished pursuant to the Development
Agreement entered into by them.
7.3 QUALITY ASSURANCE. Seller shall implement and maintain such quality
assurance standards as are reasonably feasible to produce and deliver to Buyer
Products that are defect-free, as well as to meet any other quality and
reliability standards agreed to between the parties.
8. PRODUCT QUALIFICATION
8.1 QUALIFICATION TESTING. Qualification testing of any New Products
manufactured by Seller for sale to Buyer shall be conducted and completed prior
to the first scheduled shipment of New Products to Buyer. Seller shall make
available 3-5 units of such New Products to Buyer for such testing at no
additional charge to Buyer. Such testing shall occur, at the option of Buyer,
either at Seller's facility or on the premises of Buyer and shall be at the
expense of the party on whose premises the testing is conducted. Qualification
testing shall determine the acceptability of the New Product in accordance with
the Specifications, and shall be conducted in accordance with the PVT Procedure.
Upon written agreement of Seller and Buyer that the qualification tests have
been successfully completed, the initial deliveries of production units of the
New Product shall commence in accordance with the scheduled shipment established
by issued Purchase Orders.
8.2 QUALIFICATION TESTING OF NEW SOFTWARE RELEASES. Seller shall provide
to Buyer any new releases of software produced by Seller no later than
immediately following the first customer availability of such software (FCA).
9. INSPECTION, ACCEPTANCE TESTING AND QUALITY CONTROL STANDARDS
9.1 ONGOING INSPECTION AND TESTING. Notwithstanding the successful
completion of qualification testing under Article 8, all Products shall be
subject, at either Seller's facility or at Buyer's premises, to further
inspection, acceptance testing and review for conformance to ongoing quality
control standards as may be established in the Specifications, PVT Procedure and
other standard industry practices and procedures.
9.2 ACCEPTANCE INSPECTION AND ACCEPTANCE TESTING. All Products shall be
subject to acceptance inspection and testing by Buyer, at Buyer's election, on
Buyer's premises, or at a location selected by Buyer (including the premises of
any customer of Buyer). The inspection and testing shall be in accordance with
the PVT Procedure and other quality control procedures and tests agreed upon by
the parties at such times as Buyer shall determine. Any of the Products
delivered to Buyer shall be deemed accepted if not rejected by Seller during a
15 day period, due to non conformity with the ongoing quality control standards
as may be established in the Specifications or PVT Procedure.
6.
<PAGE>
9.3 FACILITY SURVEYS. Buyer reserves the right to review, during regular
business hours and following reasonable notice to Seller, Seller's physical
facilities and Seller's quality control procedures, both prior to first Product
deliveries and periodically thereafter (but no more than twice a year), in order
to assure compliance with the Specifications, PVT Procedure and other standard
industry practices and procedures. Seller shall maintain quality control
procedures mutually agreed upon by Buyer and Seller as a result of such facility
survey.
9.4 ACCEPTANCE TESTING RESULTS. Buyer shall provide notification to
Seller upon completion of acceptance testing setting forth the specific date of
acceptance or rejection of each Product included in the notification and the
reason for non conformity. If any Product is rejected, Seller shall thereafter
proceed forthwith to correct the defects indicated by Buyer, either by repairing
the defective Product at the point of delivery or within Seller's facility, if
possible, or by supplying a new Product. The cost associated with any such
repair or replacement, including transportation charges for return to Seller and
subsequent return to Buyer, shall be borne by Seller unless it shall be
determined that Buyer returned a Product which did meet the acceptance test
criteria, in which case such costs will be borne by Buyer. In the event any
Product is rejected, Buyer may request the manufacturer of such product to
conduct a failure mode analysis at Seller's expense.
9.5 FAILURE TO MEET MINIMUM STANDARDS. If, during either qualification or
acceptance testing, Buyer reasonably determines that the Products cannot comply
with minimum quality standards of the PVT Procedure or as otherwise established
between the parties' respective Program Managers, Seller and Buyer shall
cooperate to make such Products comply as soon as practicable.
9.6 SELLER PERSONNEL. Seller shall provide, after coordinating the same
with Buyer, at Buyer's request and expense, and at locations selected by Buyer,
technically competent personnel of Seller to assist in the identification and
resolution of any performance problems which may jeopardize the progress of the
installation or maintenance of the Product, on terms and conditions to be then
agreed between Seller and Buyer.
9.7 NO WAIVER OF WARRANTY. In no event shall the inspection,
qualification and acceptance of any Product pursuant to Article 8 or this
Article 9, or the payment for any such Product by Buyer, in any way impair or
reduce Buyer's rights under the warranty of Article 11 of this Agreement or
Buyer's rights to further inspection or testing.
10. SPECIFICATION, ENGINEERING AND OTHER CHANGES
10.1 CHANGES IN SPECIFICATION. Upon one hundred twenty (120) days written
notice from Seller to Buyer, the Specifications may be amended or otherwise
changed from time-to-time by written agreement of Buyer and Seller. Seller
shall consult with Buyer prior to making any material changes in the
Specifications. Prior to any such change becoming effective, all Products on
order from Seller by Buyer shall conform to the existing Specifications, unless
the parties otherwise agree. After the parties agree on the effective date of
any change, all Products shipped by Seller shall materially conform to such
changed Specifications. Drawing corrections
7.
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and minor changes which have no effect on interchangeability shall not be deemed
to be a change in the Specifications.
10.2 BUYER CHANGES. Buyer may propose changes to the Specifications and,
in such event, Seller shall consider the feasibility of any such proposal. With
respect to material changes proposed by Buyer, Seller shall, within a reasonable
period of time, not to exceed thirty (30) days after receipt of the Buyer
proposal, furnish to Buyer in writing its comments regarding such proposed
changes, including its willingness to implement the same, the price change, if
any, and the time schedule required for implementation. In order to avoid doubt
it is expressly declared that Seller shall be under no obligations to perform
any changes. With respect to immaterial changes proposed by Buyer, Seller shall
notify Buyer within a reasonable period of time of its approval or rejection of
such change and if any costs are involved in connection with the said change.
10.3 CHANGE IN SOURCE OF PARTS. Seller shall notify Buyer at least one
hundred twenty (120) days (or as soon as practicable) in advance of any change
in the source (including addition of new vendors) of purchased Parts which
affect form, fit, function, field maintenance or safety agency approval of the
Products. Buyer shall have the right to approve or, if practicable, reject such
source change if such change would have a material adverse effect upon the
maintenance and serviceability of a Product.
10.4 CHANGE INDUCED PROBLEMS. In the event Buyer determines, after any
engineering or any other change by Seller, that Products do not operate in
accordance with the Specifications or fail to meet the acceptance test
procedures of Article 9, and upon Buyer's request, Seller shall promptly
evaluate any defective Product and shall notify Buyer of the result of its
evaluation and its corrective action plan, if needed, within thirty (30) days
after receipt of such request from Buyer.
11. WARRANTY AND PRODUCT LIABILITY
11.1 GENERAL WARRANTY. Seller warrants that all Products will conform to
the Specifications and will be free from defects in material workmanship and
programming. Claims for Products not complying with this warranty shall be
submitted by Buyer no later 15 months from delivery date to Buyer. Seller
shall promptly repair or replace, at its option and expense, non-complying
Products. The shipment of non-complying Products by Buyer to Seller, and the
return shipment of repaired or replacement Products by Seller to Buyer under
this Paragraph 11.1 shall be at Seller's expense, unless it shall be determined
that Buyer returned a Product that was in compliance, in which case such cost
shall be borne by Buyer and, if paid by Seller, these expenses shall be
reimbursed by Buyer within thirty (30) days of notice by Seller. Buyer shall
receive a credit for any non-complying Products returned for repair or
replacement. All non complying Products shall be returned to Seller (at its
offices or as otherwise instructed) no later then 45 days as of the date the non
compliance of any such Product has been discovered.
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11.2 SAFETY AND REGULATORY AGENCY REQUIREMENTS. Seller further warrants
that all Products and Parts will comply with all applicable federal, state and
other governmental safety regulations in effect at the time of manufacture to
the same degree as they complied at the time of execution hereof. In the event
Buyer decides to sell the Products or Parts in a country that require
regulations other than those of the United States, Seller and Buyer shall agree
in advance on the changes required in the Products and the party to bear the
costs in connection with the said changes.
11.3 FCC COMPLIANCE. Seller and Buyer shall cooperate to ensure that all
Products and Parts will comply with current rules and regulations of the Federal
Communications Commission (FCC) concerning Electromagnetic Interference,
including, without limitation, equipment labeling and instruction manual
information requirements.
11.4 EPIDEMIC FAILURES. Seller further warrants that Products will comply
with the failure rate and/or reliability requirements set forth in the
Specifications. Claims for non-compliance will be established from Buyer's
service records for the Product and by showing that the average failure rate of
the monitored Products is not in conformance with the Specifications. In the
event of such non-compliance, Seller shall (a) correct the cause on all Products
to be shipped thereafter and (b) repair or replace all Products shipped
following the execution of this Agreement.
11.5 YEAR 2000 WARRANTY. Seller warrants that Products will record, store,
process and present calendar dates falling on or after January 1, 2000, in the
same manner and with the same functionality as it performed before January 1,
2000. Seller further warrants that the functionality of the Products will be
identical after January 1, 2000 to that found before January 1, 2000.
11.6 WARRANTY WITHSTANDING ACCEPTANCE. Seller shall have the warranty
obligations provided in this Article 11 as to all Products and Parts, accepted
by Buyer.
11.7 PRODUCT LIABILITY INDEMNIFICATION. Seller agrees to protect,
indemnify and hold Buyer harmless from and against liability, expenses and
damages based upon a claim that the Products are defective in any way or were
negligently manufactured, or fail to comply with any applicable law, to the
extent not caused by misuse, abuse or other fault attributable to Buyer or its
customer or any third party using the Products, and provided that Seller is
notified by Buyer of all such claims within a reasonable period of time
following Buyer's initial notification of such claims, and provided further that
Seller is given full control over any negotiation, arbitration or litigation
concerning such claims. In no event shall Seller's liability according to this
section 11.6 exceed the greater of one million dollars ($1,000,000) or the sum
of the payments received by Seller from Buyer at the date any such claim is
initiated. Notwithstanding the above, Seller shall have no liability to
indemnify Buyer for any special, incidental or consequential damages that Buyer
shall claim that have been caused by the Products and/or the use of the
Products, either to the Buyer nor to any third party.
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11.8 PRODUCT LIABILITY INSURANCE. For as long as Buyer purchases
Products from Seller for no less than a minimum of [***] US Dollars per annum,
Seller shall maintain at its expense the product liability insurance listed
below with respect to claims resulting from Products or Parts sold pursuant to
this Agreement, other than product liability claims relating to Products and
Parts sold and delivered by Buyer prior to the closing date of the Purchase
Agreement, amended on the date hereof, to the extent that such claims are not
attributable to the actions or omissions of Seller and/or any third party that
shall use the Products. Such insurance shall:
(A) provide limits of at least $1,000,000 for each person,
$3,000,000 for each occurrence of bodily injury, including death, and $1,000,000
for each occurrence of property and consequential damage;
(B) be maintained during the term of this Agreement, provided Buyer
purchases Products from Seller for no less than a minimum of [***] USD per annum
plus one (1) year thereafter; and
11.9 DISCLAIMER. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES UNDER THIS AGREEMENT. BUYER
AND SELLER DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, EXCEPT AS MAY BE
SPECIFICALLY SET FORTH IN THIS AGREEMENT OR OTHER SIGNED WRITING BETWEEN THE
PARTIES, AND WITHOUT LIMITATION. BUYER AND SELLER SPECIFICALLY DISCLAIM ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND ANY
IMPLIED WARRANTIES ARISING FROM A COURSE OF PERFORMANCE, A COURSE OF DEALING OR
TRADE USAGE.
11.10 SURVIVAL. The provisions of this Article 11 shall survive the term
and any termination of this Agreement.
12. BUYER'S LIABILITY. Buyer agrees to promptly investigate and defend,
indemnify and hold harmless Seller and directors, officers and employees from
and against all claims, damages, liabilities, awards, judgments, decrees and
settlements against them of whatever nature arising out of and to the extent
occasioned by the negligence or intentional acts of Buyer in connection with its
performance pursuant to this Agreement and/or in the use and/or maintenance of
the Products. If Buyer fails to defend Seller in accordance with this Article
12, Buyer shall reimburse Seller for its reasonable costs and expenses
(including attorneys' fees) of doing so, in addition to any amounts to which
Seller may be entitled under this Article 12.
13. PRODUCT INFORMATION AND TRAINING
13.1 DOCUMENTATION. With respect to all New Products, Seller shall
promptly furnish, at its expense, the following documentation:
______________
* [***] CONFIDENTIAL TREATMENT REQUESTED
10.
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(A) engineering drawings of all assemblies and schematics, and logic
and timing diagrams;
(B) complete adjustment, operational and installation specifications;
(C) service test procedures and a list of any special tools and
service test equipment designed by Seller;
(D) service, parts identification, service training, maintenance and
operator's manuals;
(E) All documentation necessary to effect an interface or for hardware
and software maintenance and support purposes;
(F) engineering drawings, logic diagrams and documentation necessary
for interfacing the Product to the remainder of the system in which it has been
designed for use; and
(G) Any other documentation concerning the operation and maintenance
of the Product which will permit Buyer to develop a complete set of operator and
service manuals.
Such documentation shall be of the type which is generally made available
to Seller's customers and/or used by Seller's personnel, shall be in a form
capable of reproduction and shall be updated by new documentation from time-to-
time as it becomes available. Buyer shall have the right to copy, modify and
use, and have copied, modified and used, the documentation provided by Seller
which is appropriate and/or necessary for the purpose of providing desired
manuals or the like concerning the Product, provided that any Seller copyrights
therein are appropriately safeguarded, and Buyer shall have the right to
copyright any such manuals developed by Buyer. Provided that Buyer copyrights
are appropriately safeguarded, Seller may use, with Buyer's written permission
which shall not be unreasonably withheld, any Buyer produced manuals or the like
regarding the Product.
13.2 PUBLISHED DOCUMENTATION. Seller shall include with each Product unit
purchased by Buyer hereunder a complete set of documentation relating to the
operation and/or maintenance thereof as is customarily supplied to end users.
Other documentation may be purchased from Seller at a reasonable price per copy.
13.3 TECHNICAL SUPPORT AND TRAINING. Seller shall provide, adequate
training and information to Buyer with respect to installation and service of
the Product, including training on any special tools or test equipment. Such
training shall take place upon the request of Buyer and shall be conducted by
technically competent Seller personnel for the benefit of Buyer instructors,
field service personnel and other Buyer personnel involved with the Product.
Training shall take place at a mutually agreed upon time and location.
Additional training at Buyer's site by a Seller R&D engineer may be purchased by
Buyer at the rate of five hundred dollars ($500) per day, plus reasonable and
actual travel and living expenses. Training at Seller's premises shall be at a
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rate of two hundred dollars ($200) per day. Appropriate notice and minimum days
to be agreed upon by the parties.
13.4 SALES TRAINING. Seller shall provide training and information at
Buyer's expense to Buyer's salespersons at Seller's Premises.
13.5 SALES AND MARKETING INFORMATION. Seller agrees to provide Buyer, as
far as such are available, with copies of sales publications concerning the
Products and Parts for Buyer to duplicate and translate and use without
restriction or charge.
14. CONFIDENTIALITY
14.1 As used in this Section 14, the term "Confidential Information" means
information in which a party claims a proprietary interest and the confidential
nature of which that party has taken reasonable steps to protect; the term
"Owner" means the owner of an item of Confidential Information; and the term
"Recipient" means the party to which Owner discloses an item of Confidential
Information.
14.2 Except as provided in Section 14.5 for a period of five (5) years
from the date of disclosure of an item of Confidential Information that is fixed
in a tangible media, Recipient shall use reasonable efforts to prevent the
disclosure thereof to any other person, firm or corporation, and shall use at
least the same degree of care to avoid disclosure of such information as
Recipient employs with respect to its own Confidential Information of like
importance.
14.3 Any reports or other documents derived from an item of Confidential
Information shall be subject to Section 14.2 to the same extent as is the item
of Confidential Information.
14.4 All written data delivered by one party hereto to the other party
pursuant to this Agreement shall be and remain the property of such one party,
and all such written data, and any copies thereof, less a single archival copy,
shall be promptly returned to such one party upon written request or destroyed
at such one party's option.
14.5 Notwithstanding the foregoing, Recipient shall have no obligation
under this Paragraph 14 with respect to any Confidential Information of Owner
which:
(A) is already known to Recipient and can be properly evidenced as
so; or
(B) is or becomes publicly known, through publication, inspection or
otherwise, and through no wrongful act of Recipient; or
(C) is received from a third party without similar restriction and
without breach of any obligation owed to Owner; or
(D) is independently developed by Recipient and can be properly
evidenced as so; or
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(E) is furnished to a third party by Owner without a similar
restriction on the third party's rights; or
(F) is approved for release by written authorization of Owner; or
(G) is disclosed pursuant to the lawful requirement or request of a
Governmental agency or disclosure is permitted by operation of law.
(H) Disclosure of Confidential Information shall not be construed as
granting or conferring to Recipient any rights by license or otherwise,
expressly, implied or otherwise, for any invention, discovery or improvement
made, conceived, or acquired prior to or after the date of disclosure.
14.6 Nothing contained in this Agreement shall constitute a commitment by
either party to restrict its efforts to improve its existing products and
systems and to conceive and develop new products and systems.
14.7 THIRD PARTY CONTRACTORS. Notwithstanding the restrictions of
Paragraph 14, Buyer shall be entitled to provide Confidential Information of
Seller to third party contractors of Buyer who have executed a written
obligation of confidentiality towards the Seller, in a form approved by the
Seller, conforming to that of this Article 14.
15. INDEMNIFICATION FOR INFRINGEMENT
15.1 INDEMNIFICATION. Seller undertakes and agrees that, provided it has
been notified promptly and given authority, information and offered assistance,
Seller will promptly investigate and defend, at its own expense, all claims,
allegations, suits, actions or proceedings in which Buyer or its subsidiaries,
are made defendants or claimed potential defendants for any infringement,
claimed infringement or alleged inducement of infringement, or unauthorized or
unlawful use of any patent, copyright, trademark, trade secret, mask work,
proprietary data or other information, resulting from the sale, use, lease or
other disposition of any Product or Part purchased from Seller under this
Agreement. Seller further agrees to pay and discharge any and all judgments or
decrees which may be rendered in any such suits or proceedings against any such
defendants up to a total not exceeding the payments received by Seller from
Buyer at the date any such claim is initiated. Seller shall have the right to
settle any such suits, actions or proceedings on terms and conditions of
Seller's own selection, provided they are not in conflict with the terms and
conditions provided herein. This indemnity does not extend to any suit or
proceeding which is based upon a patent claim covering a combination of which
the Product purchased under this Agreement is merely an element of the claim
combined with other devices or elements not provided by Seller, unless Seller is
a contributory infringer, nor does it extend to any Product whose infringement
is a direct result of Seller being required to adhere to a specific design
provided by Buyer and not originating with Seller.
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15.2 NON-LICENSED TECHNOLOGY. Buyer acknowledges that the foregoing
indemnity does not apply to any patents pertaining to the ITU-T standards as
listed in Exhibit C, except for such patent rights relating to Seller, DSP
Group, Inc., France Telecom and the University of Sherbrook relating to the ITU-
T G.723.1 standard. At its option, Buyer may enable G.729A,B on a per port card
basis in its product. If G.729A,B is not enabled then no G.729A,B royalty/set
off will be due. However, if G.729A,B is enabled by Buyer, then Seller agrees to
indemnify Buyer for royalty payments on the G.729A Voice Compression if Buyer
pays to Seller the following per port fees:
per port of G.729A sold [***] per port
(Note: the per port fee for G.729A is re-evaluated these days with the
G.729A consortium)
The parties further agree that above per port fees related to the G.729A
will be adjusted upward or downward to equal the sum of royalties to be paid to
third party IP holders.
15.3 SURVIVAL. The provisions of this Article 16 shall survive the term
and any termination of this Agreement.
16. ABSENCE OF RESTRICTIONS
16.1 ABSENCE OF RESTRICTIONS. Buyer is not restricted as to its sale of
Products purchased hereunder to any end user or remarketer worldwide, or
purchased for internal use by Buyer worldwide. Further, this Agreement shall not
be construed as preventing Buyer from acquiring at any time products similar or
related to the Products from any other source, including, without limitation,
purchase from any third party vendors or manufacture by Buyer.
17. TERM AND TERMINATION
17.1 TERM. This Agreement shall continue for an initial term of five (5)
years from its effective date and shall be automatically renewed for successive
one (1) year period thereafter, unless notice of termination is given by one
party to the other at least one hundred and eighty (180) days prior to the
termination date of the initial term or of any yearly renewal term, or unless
earlier terminated under any other provision of this Agreement. The parties
agree that in the event either party gives the other party at least thirty (30)
days notice prior to the end of the initial term (and only the initial term),
the parties shall negotiate in good faith to reach agreement on terms and
conditions for the extension of the Agreement. In the event the parties do not
reach such agreement prior to thirty (30) days after the initial renewal date,
either party can notify the other party at such time of its intent to terminate
the Agreement and the Agreement shall terminate one hundred and eighty (180)
days following receipt of such notice.
________________________________
* [***] Confidential Treatment Requested
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17.2 TERMINATION FOR DEFAULT. Either party may terminate this Agreement
upon thirty (30) days prior written notice to the other party for failure of
such other party to fulfill any of its material obligations hereunder provided,
however, if during the period of such notice the other party shall have remedied
such failure, this Agreement shall continue in full force and effect as it would
have had such failure not occurred. In the event of termination under this
paragraph, the terminating party shall be entitled to return of any amounts paid
in anticipation of performance not rendered by the other party.
17.3 TERMINATION FOR OTHER REASONS. This Agreement shall terminate
forthwith, at the option of either party, by notice in writing to the other
party, upon the other party ceasing to carry on its business or in the event the
other party becomes the subject of any proceedings under state or federal law
for the relief of debtors or otherwise becomes insolvent, bankrupt or makes an
assignment for the benefit of creditors, or upon the appointment of a receiver
for the other party or its reorganization for the benefit of creditors.
18. RIGHTS AFTER TERMINATION
18.1 OTHER REMEDIES. Termination of this Agreement by either party shall
not prejudice it or the other party to recover any money amounts or require
performance of any obligations due at the time of such termination, nor shall it
prejudice any confidentiality undertaking by either party.
18.2 COMPLETED PRODUCTS. In the event of termination of this Agreement by
Buyer under Paragraph 18.2, Seller shall, at Buyer's option, pass title and
deliver to Buyer completed Products in its possession meeting the
Specifications, provided Buyer pays the agreed upon price as if Seller had
delivered those Products according to the terms of purchase hereunder.
18.3 PURCHASE ORDERS CANCELED. In the event of any termination of this
Agreement under Paragraph 17.2, all outstanding Purchase Orders for Products
previously issued by Buyer under this Agreement shall be automatically and
immediately canceled without penalty, notwithstanding any firm order period,
cancellation penalty or maximum cancellation requirement stated under this
Agreement.
18.4 MANUFACTURING LICENSE NOT AFFECTED. Termination of this Agreement by
either Seller or Buyer under Paragraph 17.2 or by Buyer under Paragraph 17.3
shall not prejudice or otherwise affect any Manufacturing License to which Buyer
may become entitled.
19. ASSIGNMENT
19.1 NO ASSIGNMENT. Neither this Agreement nor any right or obligation
hereunder may be assigned or delegated by either party without the prior written
consent of the other party, and any attempted assignment or delegation not in
conformity with this Article 19 shall be null and void. This provision shall not
apply to an assignment or delegation by either party resulting from (i) a change
its state or country of incorporation or (ii) a modification of the relevant
party's
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corporate structure that does not materially alter ownership or control or that
does not materially alter the rights of the other party according to this
Agreement.
19.2 SUCCESSOR. Notwithstanding anything in this Agreement to the
contrary, this Agreement with all rights and obligations hereunder shall be
binding upon and inure to the benefit of any successor to which either party
directly or indirectly transfers all or a substantial part of its business and
assets pertaining to the Product, whether by merger, sale of assets, sale of
stock or otherwise. The party making such a transfer shall assign this Agreement
and the rights and obligations hereunder and obtain from the assignee, in a form
satisfactory to counsel for the other party, an acceptance of such assignment
and an assumption of all of the assignor party's obligations under this
Agreement.
20. NOTICES AND COMMUNICATIONS. For international communications, notice shall
be deemed given upon successful transmission by Telefax or Telex to the
telephone numbers and addresses listed below or, if by mail, upon receipt by the
addressee. Except as otherwise specifically provided herein, notices and other
communications given and received under this Agreement shall be deemed given
fourteen (14) business days after the date when deposited, registered mail
postage prepaid, addressed as follows or as from time to time otherwise directed
in writing by either party:
To Seller: AudioCodes, Ltd.
4 Hohoresh Road
Yehud, Israel, 56470
ATTN: Chief Financial Officer_________________
To Buyer: Clarent Corporation
700 Chesapeake Dr
Redwood City, CA 94063
ATTN: Contracts Administration
21. NEW TECHNOLOGY OR PRODUCT AND DISCONTINUATION OF PRODUCTION
21.1 SUBSTITUTION OF NEW PRODUCT. Should Seller develop a type of product
which is like any Product, or performs a similar function, or would obsolete any
Product due to new technology, Seller shall give Buyer notice as soon as
practicable and in no event later than six (6) months prior to the initial
shipping date for such new product and furnish to Buyer the specifications and
other pertinent description thereof and, at the request of Buyer, arrange an
engineering evaluation of such product immediately upon a working model of it
becoming available. At its option, Buyer may elect to substitute such new
product for such Product under this Agreement at a price mutually agreeable
between the parties. Such New Product shall thereafter be considered a Product
under the terms and conditions of this Agreement as if initially
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included hereunder. For purposes of this Paragraph only "New Product" shall not
include any Product which is scheduled to be introduced within six (6) months of
the date hereof.
21.2 DISCONTINUATION OF PRODUCTION. In addition to any other notices that
may be required in connection with termination of this Agreement by Seller,
Seller shall provide notice at least one hundred and eighty (180) days prior to
the discontinuation of production of a Product.
22. MISCELLANEOUS
22.1 EXCUSED PERFORMANCE. Neither party shall be liable for damages
because of delays in or failure of performance required under this Agreement
when such delay or failure is due to acts of God, acts of civil or military
authority, fire, flood, strikes, war, epidemics, shortage of power or other
cause beyond such party's reasonable control and without its fault or
negligence, provided that such party (a) uses its best efforts to promptly
notify the other in advance of conditions which will result in any such delay in
or failure of performance, (b) uses its best efforts to avoid or remove such
conditions, and (c) immediately continues performance whenever such conditions
are removed.
22.2 CURTAILED PRODUCTION. In the event that Seller's overall production
of Products is curtailed for any reason, Seller will ship Buyer a percentage of
its Orders for Products and Parts at least equivalent to that shipped for
similar products to any other customer. Acceptance by Buyer of such percentage
of its Orders shall not operate as a waiver of any rights or remedies which
Buyer shall have as a result of Seller's failure to ship all Products and Parts
under such Orders.
22.3 INTEGRATION. This Agreement is intended to be the sole and complete
statement of the obligations of the parties with regard to purchasing of
Products by Buyer from Seller. It supersedes any other agreement or
understanding, whether written or oral, that may have been made or entered into
with regard to the subject matter hereof by Seller or Buyer, as well as any
terms stated on any Purchase Order, acknowledgment, acceptance form, or other
printed document used by either party in the course of dealing under this
Agreement.
22.4 ENTIRE AGREEMENT. This Agreement and Exhibits A, B, C, D annexed
hereto contain the entire Agreement between the parties and may not be altered,
amended or modified, except by formal agreement in writing signed by duly
authorized representatives of both parties. Purchase Orders, Purchase Order
acknowledgments, acceptance forms and other printed documents shall not
constitute an alteration, amendment or modification, even if acknowledged by the
party sought to be bound.
22.5 WAIVER OR DELAY. Any waiver or delay in the exercise by either party
hereto of its right to terminate hereunder or to enforce any provision of this
Agreement for any breach by the other party shall not prejudice such party's
right of termination or enforcement for any further, continuing or other breach
by the other party.
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22.6 SEVERABILITY. In the event that any provision contained in his
Agreement should, for any reason, be held to be invalid or unenforceable in any
respect under the laws of any jurisdiction where enforcement is sought, such
invalidity or unenforceability shall not affect any other provision of this
Agreement and this Agreement shall be construed as if such invalid or
unenforceable provision had not been contained herein.
22.7 GOVERNING LAW. This Agreement shall be interpreted and construed,
and the legal relations created herein shall be determined, in accordance with
the laws of Israel.
22.8 HEADINGS. The Article and Paragraph headings within this Agreement
are for convenience only and shall neither be considered a part of, nor affect
the construction or interpretation of, any provision of this Agreement.
22.9 WARRANTIES. Seller and Buyer represent and warrant to each other
that each has the right and power to enter into this Agreement.
22.10 RELATIONSHIP OF PARTIES. The relationship of Seller and Buyer as
established under this Agreement shall be and at all times remain one of
independent contractors, and neither party shall at any time or in any way
represent itself as being a dealer, agent or other representative of the other
party or as having authority to assume or create obligations or otherwise act in
any manner on behalf of the other party.
22.11 PERIODS OF TIME. In computing any period of time under this
Agreement where a specified number of days are required or permitted for notice,
response or other action on the part of either party, Saturdays, Sundays and
holidays shall be included in such period of time.
22.12 ARBITRATION. Seller and Buyer shall settle by arbitration any
controversy or claim, including any claim of misrepresentation, arising out of
or related to this Agreement. Failure to file a notice of arbitration within two
(2) years after the occurrences supporting the claim constitutes an irrevocable
waiver of that claim. Before the institution of arbitration under this Section,
the party claiming that arbitration is necessary shall first send written notice
of such controversy, claim or breach to the affected party, demanding that the
matter be cured within sixty (60) days. If within sixty (60) days from the
sending of that notice either no response is received or the party sending the
notice deems the response to be insufficient, it may then institute arbitration
in accordance with this Section. The sixty (60) day period provided for in this
Section shall run concurrently with any other cure period provided in this
Agreement. Arbitration shall take place in San Jose, California, according to
the rules of the American Arbitration Association by an arbitrator nominated by
the mutual consent of the parties and if no such consent is reached upon the
elapse of the said 60 day period, by the California branch of the American
Arbitration Association.
22.13 ESCROW
Within thirty (30) days after execution of this Agreement, Seller shall
submit an escrow agreement to Buyer in a form reasonably acceptable to Buyer
providing that the design
18.
<PAGE>
specifications and architecture for the Products and the software code (to be
further defined in the Escrow agreement) for any and all included software
technology necessary to ensure full operation of such products along with any
other information required to permit Buyer to manufacture the Products (the
"Information") shall be released to Seller in the event that (i); (i) Seller is
a party in a voluntary or involuntary proceeding in liquidation or bankruptcy;
or (ii) ownership or control of Seller or substantially all the assets of Seller
is transferred to a third party who's products are competitive with those of
Buyer. In the event that such Products are manufactured and distributed by
Buyer, a fee equal to the best price for such Products (at arms length basis)
obtained from Seller less Seller's costs of production shall be due to Buyer on
a quarterly basis. The Information deposited in escrow shall be kept current by
Seller by making updates to the Information at least two (2) times per year as
long as such Products are in production (if such updates are required) and
adding the required material related to New Products within thirty (30) days
after first commercial shipment of such New Products by Seller to Buyer.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in duplicate by their respective authorized representatives.
SELLER: BUYER:
AUDIOCODES, LTD., CLARENT CORPORATION
By: /s/ Michael Lilo By: /s/ Richard Heaps
---------------- -----------------
Title: CFO Title: COO
------------- --------------
Date: April 5, 1999 Date: March 24, 1999
-------------- --------------
19.
<PAGE>
EXHIBIT A
PRODUCT SPECIFICATIONS
<PAGE>
EXHIBIT B
PRODUCT PRICE
To be supplied by Seller within thirty (30) days of the execution of this
Agreement.
<PAGE>
EXHIBIT C
STANDARDS
VOICE & AUDIO COMPRESSION STANDARDS
G.723.1
G.729
<PAGE>
EXHIBIT 10.8
MASTER MAINTENANCE AND
SUPPORT SERVICES AGREEMENT
BETWEEN
EQUANT INTEGRATION SERVICES, INC.
A NEW YORK CORPORATION WITH A PRINCIPAL PLACE OF BUSINESS AT
45 ORVILLE DRIVE
BOHEMIA, NEW YORK 11716
(HEREINAFTER "EQUANT")
AND
CLARENT CORPORATION
A CALIFORNIA CORPORATION WITH A PRINCIPAL PLACE OF BUSINESS AT
850 CHESAPEAKE DRIVE
REDWOOD CITY, CALIFORNIA 95063
(HEREINAFTER "CUSTOMER")
EQUANT CONTRACT NUMBER TM-3651
DATED: DECEMBER 29, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PREAMBLE................................................................. 1
ARTICLE 1 - DEFINITIONS................................................. 1
ARTICLE 2 - TERM........................................................ 2
2.1 Term of Agreement......................................... 2
ARTICLE 3 - SERVICES.................................................... 3
3.1 Placement of Service Requests............................. 3
3.2 Provision of Services and Pricing......................... 3
3.3 New Services.............................................. 4
3.4 Special Bid Process....................................... 4
3.5 Forecasting............................................... 4
ARTICLE 4 - INVOICES AND PAYMENTS....................................... 5
4.1 Commencement of Invoicing................................. 5
4.2 Invoicing................................................. 5
4.3 Payment................................................... 5
4.4 Travel Expenses........................................... 6
4.5 Adjustments to Charges.................................... 6
4.6 Taxes..................................................... 6
4.7 Disputed Charges.......................................... 7
4.8 Relocation of a Service Center............................ 7
4.9 Discontinuance of Maintenance Invoicing................... 7
ARTICLE 5 - CONFIDENTIAL INFORMATION; PROPRIETARY RIGHTS................ 8
5.1 Confidential Information.................................. 8
5.2 Confidentiality of Agreement.............................. 8
5.3 Third Party Information................................... 9
5.4 Return or Destruction of Confidential Information......... 9
5.5 Waivers................................................... 9
5.6 Required Disclosure....................................... 9
5.7 Equitable Relief.......................................... 9
5.8 Infringement.............................................. 9
5.9 Unauthorized Use.......................................... 10
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES.............................. 10
6.1 General................................................... 10
6.2 Service Warranties........................................ 11
6.3 Limitation of Warranties.................................. 11
</TABLE>
i
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 7 - OBLIGATIONS AND COVENANTS OF THE PARTIES................... 11
7.1 Program Managers......................................... 11
7.2 Foreign Corrupt Practices Act............................ 12
7.3 Access................................................... 12
7.4 Right of Entry........................................... 12
7.5 Conduct of Equant Personnel.............................. 12
7.6 Cooperation with Other Vendors........................... 12
7.7 Manner of Provision of Services.......................... 12
7.8 Unauthorized Access...................................... 13
7.9 Protection of Data by Customer........................... 13
ARTICLE 8 - IMPORT AND EXPORT OF EQUIPMENT............................. 13
8.1 Import/Export of Equipment and Permits................... 13
8.2 Risk of Loss............................................. 14
8.3 Compliance with Laws..................................... 14
8.4 Export Control Regulations............................... 14
8.5 Import and Export Limitations............................ 14
ARTICLE 9 - INDEMNIFICATION AND LIMITATIONS OF LIABILITY AND REMEDIES.. 15
9.1 Indemnification.......................................... 15
9.2 Consequential Damages.................................... 16
9.3 Limitations of Liability................................. 17
9.4 Exclusive Remedies....................................... 17
ARTICLE 10 - INSURANCE.................................................. 17
10.1 Insurance Provided by Equant............................. 17
10.2 Certificates of Insurance................................ 18
ARTICLE 11 - FORCE MAJEURE; OTHER EXCUSES............................... 18
ARTICLE 12 - TERMINATION................................................ 18
12.1 Grounds for Termination and Remedies..................... 18
12.2 Rights upon Termination.................................. 20
12.3 Costs of Termination..................................... 20
12.4 Termination for Convenience.............................. 20
12.5 Survival................................................. 21
12.6 Termination Assistance................................... 21
ARTICLE 13 - GENERAL.................................................... 21
13.1 Notices.................................................. 21
13.2 Disputes................................................. 22
</TABLE>
ii
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
13.3 Choice of Law............................................. 23
13.4 Jurisdiction.............................................. 23
13.5 Change Control............................................ 23
13.6 Assignment................................................ 23
13.7 Non-Solicitation.......................................... 24
13.8 Waiver.................................................... 24
13.9 Counterparts.............................................. 24
13.10 Headings.................................................. 24
13.11 Severability.............................................. 24
13.12 Entire Agreement.......................................... 24
13.13 Independent Contractor; Subcontractors.................... 24
13.14 Third Party Beneficiaries................................. 25
13.15 Consents, Approvals and Requests.......................... 25
13.16 Good Faith and Fair Dealing............................... 25
13.17 Covenant of Further Assurances............................ 25
13.18 Publicity................................................. 25
STATEMENT OF WORK........................................................ 27
EQUANT NORMAL BUSINESS HOURS............................................. 28
SERVICE REQUEST PROCESS AND SPECIAL BID PROCESS.......................... 31
</TABLE>
iii
<PAGE>
This MASTER MAINTENANCE AND SUPPORT SERVICES AGREEMENT is executed by and
between Equant Integration Services, Inc., (hereinafter, "EQUANT"), a New York
Corporation with a principal place of business at 45 Orville Drive, Bohemia, New
York 11716 and Clarent Corporation (hereinafter "CUSTOMER"), a California
corporation with a principal place of business at 850 Chesapeake Drive, Redwood
City, California 94063.
WHEREAS, Equant provides a variety of services to the computer and
telecommunications business sector,
WHEREAS, Customer wishes to obtain the services particularly described in this
Agreement and each fully executed Statement of Work (as hereinafter defined),
and Equant is willing to provide such services in accordance with the terms of
this Agreement;
WHEREAS, Customer and Equant agree that Equant shall be Customer's non-exclusive
provider of the Services (as hereinafter defined) described in each Statement of
Work; and
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained and of other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Parties agree as follows:
Article 1 - DEFINITIONS
In addition to capitalized terms defined elsewhere herein, the following
capitalized words and phrases listed below will have the meanings given
below.
AFFILIATE of a Party means any entity that directly or indirectly
---------
controls, is controlled by or is under common control
with that Party. Control shall be deemed to refer to
the direct or indirect power (i) to vote 51% or more of
the securities having ordinary voting power for the
election of directors of such entity or (ii) to direct
or cause the direction of the management or policies of
such entity, whether by contract or otherwise.
AGREEMENT means this Master Maintenance and Support Services
---------
Agreement and any and all Attachments (as hereinafter
defined), schedules and exhibits thereto and all
amendments hereto and thereto.
ATTACHMENT means any of the following attachments referenced in
----------
and appended to this Agreement and made a part hereof.
BUSINESS DAYS means the locally recognized working days in the
-------------
countries where the Services are to be provided, as
outlined in an exhibit to each Service Request,
excluding locally recognized Equant holidays.
BUSINESS HOURS means the Equant normal working hours for each day in
--------------
each country within the territory where the Services
are to be provided, (except local Bank holidays in such
country), as set forth in Exhibit 1 hereto.
CHARGES means the prices for Services, as set forth in an
-------
exhibit to a Service Request.
COMPONENT means a part, module or portion of any whole unit of
---------
Equipment, including without limitation, cards, drives
and subassemblies.
EFFECTIVE DATE means the date upon which the terms and conditions of
--------------
this Agreement come into full force and effect, as set
forth herein.
END USER means Customer's customer, for whom Services are to be
--------
provided under this Agreement, pursuant to an accepted
Service Request.
EQUIPMENT means a whole unit or item of hardware installed at the
---------
End User Sites for which Equant is providing the
Services. Equipment is comprised of various Components.
1
<PAGE>
MAINTENANCE CHARGES means the fees for Maintenance Services (as
-------------------
hereinafter defined) invoiced by Equant to
Customer and paid by Customer to Equant.
Maintenance Charges may also be referred to as
Recurring Charges
MAINTENANCE SERVICES means the services as described in a Statement of
--------------------
Work and may be ordered in a Service Request,
which is provided for the Equipment, to restore
the Equipment to proper operational condition in
the event of a Fault.
MANUFACTURER AND/OR means the actual manufacturers and/or suppliers of
-------------------
SUPPLIER the Equipment, including their subcontractors and
--------
agents.
NEW SERVICES means any type of service not currently described
------------
in any executed Statement of Work, or any services
in a country where Equant is not currently
providing Services on behalf of Customer.
NON-RECURRING SERVICES means Services which are not provided to an End
----------------------
User on a regular basis, including but not limited
to site surveys and installations.
PARTIES means collectively Customer and Equant. The
-------
Parties may be individually referred to as a
Party.
SERVICE CENTER means the location from which the Services for a
--------------
given Site are performed.
SERVICE REQUEST means the request made by Customer to Equant, for
---------------
the provision of any Services specified in a
Statement of Work for an End User.
SERVICES means the services being provided by Equant to
--------
Customer under this Agreement and described herein
and in a Statement of Work.
SITE means a Customer location and is included in the
----
Site List provided in a Service Request (as
amended from time to time) where Equant is to
provide Services to Customer under this Agreement.
SITE FORM means the sample forms attached to a Statement of
---------
Work, and any original forms signed by the duly
authorized representatives of the Parties,
describing the Equipment to be maintained, the
Site address, the charges for the Services, the
responsibility for spare parts, the invoicing
address and the Service Center and any other
pertinent information.
SPECIAL BID PROCESS means the process by which the Parties obtain
-------------------
pricing for New Services.
STATEMENT OF WORK means the Statement of Work provided as Attachment
-----------------
A (Maintenance and Support of Customer
Technologies Inc. and Multi-Vendor Equipment)
hereto, and any other Statement of Work that may
be executed between the Parties.
Article 2 - TERM
2.1 TERM OF AGREEMENT.
(a) The term of this Agreement shall be effective on December 14,
1998 and continue in effect until December 14, 2001 (hereinafter,
the "Initial Term"), unless early terminated as provided
hereunder (including, without limitation, as provided in Article
2.1 (c) or Article 12 below), except that any provisions relating
to liquidated damages shall continue in effect.
(b) Following the expiration of the Initial Term, this Agreement may
be renewed for successive one (1) year periods (the "Extended
Terms") by Customer sending written notice of renewal to Equant
at least sixty (60) days prior to the expiration of the Initial
Term or any Extended Term (together referred to as the "Term").
Not withstanding the foregoing, the rights and obligations
2
<PAGE>
of the Parties shall continue in full force and effect for all
Service Requests which terminate after the expiration date of the
Term of this Agreement.
(c) Either party may terminate this Agreement, without recourse or
liability, at any time upon ninety (90) days written notice to
the other Party.
Article 3 - SERVICES
3.1 PLACEMENT OF SERVICE REQUESTS.
(a) Unless otherwise advised by Equant, Customer's contact for the
placement of all Service Requests shall be the Equant Program
Manager, and all Service Requests shall be delivered to the
attention of the Equant Program Management Office, located at 45
Orville Drive, Bohemia, New York 11 716.
(b) Each Service Request shall refer to and indicate it is submitted
subject to the terms and conditions of this Agreement; however,
the Parties hereby agree that the terms and conditions contained
in this Agreement shall apply, whether referenced or not, to any
Service Request issued to Equant. No provision which is in
addition to or inconsistent with the provisions of this Agreement
appearing on any form originated by Equant, including but not
limited to, Equant's acknowledgment of a Service Request, will be
applicable unless such provisions is expressly accepted in
writing by the Parties. in the event of any conflicts or
ambiguities appearing between the terms of this Agreement, any
Statement of Work and any fully executed Service Request, the
Service Request shall govern and control both the Statement of
Work and this Agreement, and the Statement of Work shall govern
and control as to this Agreement.
(c) Customer will place all Services Requests to Equant to provide
specific Services as described in the Statement of Work, using
the ordering process set forth in the Statement of Work and the
attachments thereto, and Equant may accept such Service Requests
and shall acknowledge via facsimile transmission to the Customer
Program Manager. Except as set forth in 3.1(e), Equant shall
accept all Service Requests which are in compliance with a fully
executed Statement of Work. In the event a Service Request is
issued with incorrect information or is otherwise not in
accordance with the requirements of this Agreement, Equant shall
immediately contact the Customer Program Manager, and the Parties
shall cooperate in good faith and use diligent efforts to correct
such incorrect information so that the Service Request may be
timely processed. Notwithstanding the foregoing, Equant shall
have no liability for any damages or delays caused by the
incorrect Service information contained therein provided however,
the Service Request, as received was correctly processed and the
Services, as stated in the Service Request were properly provided
by Equant.
(d) Customer may order changes within the scope of a previously
executed Statement of Work or to previously submitted and
executed Service Requests, provided that the process set forth
under Section 13.5 has been complied with.
(e) The Parties understand that in individual instances, despite the
exercise of reasonable commercial efforts, it may not be possible
to negotiate agreements with End Users containing terms and
conditions which are in conformance with the terms and conditions
of this Agreement. In such instances, Customer's Service
Requests may contain terms and conditions which differ from those
set forth herein. Equant agrees to consider such Service
Requests in good faith and shall use commercially reasonable
efforts to accommodate the changed terms and conditions with an
appropriate price adjustment. Prior to the provision of Services
for any such Service Requests, the acceptance of such Service
Requests shall require the approval in writing by the appropriate
parties within Equant.
3.2 PROVISION OF SERVICES AND PRICING.
(a) Subject to the terms of this Agreement and commencing as of the
Effective Date, upon request by Customer made by submission to
Equant of a Service Request in accordance with Section
3
<PAGE>
3.1(c), Equant will provide to Customer the Services described in
each Statement of Work executed by the Parties at the Sites for
the Charges set forth in the relevant Statement of Work or as
such Services and Charges may be modified by an accepted Service
Request. At the request of Customer, Equant may also provide
services not then described in the Statement of Work, as set
forth in Section 3.3 below.
(b) Customer may at any time add additional Sites, and the price for
Services at any Site added to this Agreement shall be determined
in accordance with the pricing exhibit attached to each fully
executed Statement of Work, or as such Charges may be modified by
an accepted Service Request. In the event that Charges are
modified by an accepted Service Request, the Parties shall
execute an amendment to the relevant Statement of Work to
incorporate such modified Charges.
3.3 NEW SERVICES.
Customer may request Equant to provide services not described in any
previously executed Statement of Work, or Services in countries which
are not listed in the pricing exhibit in a previously executed
Statement of Work ("NEW SERVICES"); provided, however, that such a
request shall not require Customer to procure any such New Services
from Equant. Customer may request pricing on a per project basis
whereby Equant shall provide a Price Quote (as hereinafter defined) in
accordance with the Special Bid Process.
3.4 SPECIAL BID PROCESS.
(a) Upon receipt of a request for New Services, Equant will promptly
(but in no event more than ten (10) Business Days) thereafter,
complete the Special Bid Process and advise Customer accordingly.
(b) As part of the Special Bid Process, Equant shall investigate and
advise Customer of the feasibility and availability of the
proposed New Service, and to the extent possible, whether Equant
is legally permitted to provide the New Service in a particular
country. If Equant determines that it is feasible to provide the
New Services, and the New Service can legally be provided in a
country requested by Customer, Equant shall provide Customer with
a Price Quote for the provision of such New Services similar or
more favorable to those at or under which any comparable or
similar Services are then being provided and agree to provide the
New Services in such geographic locality if the Parties mutually
agree upon such terms. Thereafter, Customer will have ten (10)
Business Days to accept or reject such price, terms and
conditions. If Customer accepts the Price Quote, the Parties
will execute a new Statement of Work (if required), amend the
relevant pricing exhibit and/or any other exhibits as
appropriate, to reflect such price, terms and conditions. Such
New Services will be deemed Services under this Agreement, and
Equant will commence provision of such Services, based upon
receipt of a Service Request. A detailed diagram of the Services
Request process and the Special Bid Process has been attached
hereto as Exhibit 2.
3.5 FORECASTING.
Customer shall, on a quarterly basis, provide Equant with a rolling
forecast that estimates the Service Requests and/or any New Services
which Customer plans to issue to Equant for the following quarter, on
a regional basis. This forecast is provided as a planning document
and is not binding upon Customer or Equant. Failure by Customer to
provide such forecasting information shall not be deemed a material
breach of this Agreement.
4
<PAGE>
Article 4 - INVOICES AND PAYMENTS
4.1 COMMENCEMENT OF INVOICING.
(a) Maintenance Charges for Equipment shall commence on the date set
forth in the relevant Service Request. All Maintenance Charges
shall be pro-rated to the last calendar day of the calendar
quarter. Thereafter, Customer shall be invoiced quarterly in
advance.
(b) Non-Recurrent Charges shall be invoiced upon completion.
(c) All other Charges invoiced by Equant shall be invoiced on a
current basis.
4.2 INVOICING.
All invoices shall be rendered in U.S. Dollars, by Equant from its
headquarters at 45 Orville Drive, Bohemia, New York to Customer at 850
Chesapeake Drive, Redwood City, California 94063.
4.3 PAYMENT.
(a) GENERAL.
(i) Charges for Services will be as set forth in the Services
List and Pricing exhibit in each Statement of Work or as
such may be modified by an accepted Service Request.
(ii) Except as set forth in Sections 4.7 and 13.2, Customer will
pay Equant in U.S. Dollars, within thirty (30) calendar
days after receipt of a proper invoice from Equant, and
will remit payments to Equant either by bank transfer or
will mail all payments to Equant at its principal place of
business, without reduction or deferment on account of any
claim, counterclaim or set off.
(b) FORM OF INVOICES.
All invoices will be reasonably detailed in a form to be mutually
agreed upon and will, in any event, clearly identify all taxes,
and charges. Other categories may be specified by Customer and
agreed to by Equant. In the event that laws, regulations or
customs dictate a different invoice format or invoicing
practices, Equant will endeavor to comply with such laws or
customs while remaining as close as possible to the Parties'
agreement and intent.
(c) LATE PAYMENT.
In the event that Customer fails to pay any undisputed charges
due to Equant under this Agreement within thirty (30) after
receipt of any Equant invoice, upon expiration of the thirty (30)
day period, Equant shall send written notification of such
overdue invoice(s) in accordance with Article 13.1, specifying
the nature of such charges, with a copy to the Customer Program
Manager. In the event that such overdue undisputed amounts
remain unpaid for thirty (30) days after the date of the
aforementioned notice, Equant shall sent a second notice,
advising Customer that (i) interest shall accrue on all such
amounts at the rate of one and one half percent (1.5%) per month
commencing on thirty (30) days after receipt of a proper
invoice., and (ii) Equant reserves the right to suspend all
Service at the Site where the overdue undisputed amount has
accrued if payment has not been received in full by the tenth
(10/th) /calendar day after the date of the second notice. Prior
to Equant initiating any action in accordance with Section
12.1(a), the Parties shall work together to resolve any disputed
accounts in accordance with Section 13.2(a).
5
<PAGE>
4.4 TRAVEL EXPENSES.
In the event on site intervention is provided for any End User Site
located further than (i) fifty (50) kilometers of a Service Center
outside of the United States or (ii) fifty (50) miles from a Service
Center inside of the United States, all reasonable incurred travel
expenses shall be invoiced by Equant and paid by Customer, provided
that Customer's travel and expense policies (which have been provided
upon execution of this Agreement) have been complied with. Customer
shall pre-approve all such expenses when international travel is
required, or any estimated domestic travel and expenses exceed One
Thousand Five Hundred ($1,500.00) Dollars. However, Equant shall not
be responsible for any delays in the provision of Services in the
event that such pre-approval is not timely provided. Equant shall
attach all related documentation for such expenses to the relevant
invoice. All locations for which travel and living expenses will be
incurred shall be identified in each Statement of Work.
4.5 ADJUSTMENTS TO CHARGES.
The charges for Services provided by Equant under this Agreement are
set forth in Exhibit 1 of each Statement of Work; provided however,
that such charges may be adjusted in accordance with Sections 3.3,
4.5(a) and 4.5(b).
(a) CURRENCY PROTECTION.
The charges as set forth in Exhibit 1 are in U.S. Dollars, shall
be converted into foreign currencies at the exchange rate as
published in the United States Wall Street Journal, ("Journal")
prevailing at the time of execution of this Agreement; the
Contract Exchange Rate ("CER"). In order to offset risks of
negative currency fluctuations for Equant, and to allow Customer
to benefit from positive fluctuations, the global effect of
currency deviations from the CER will be calculated monthly, and,
any resulting currency loss will be reimbursed to Equant and any
currency gains will be credited to Customer. Each local Equant
Affiliate or subcontractor will issue their monthly invoices in
their respective local currency to Equant. Such invoices shall
be converted at the prevailing exchange rate, as published in the
Journal, at the end of the given month to determine the Current
Rate Monthly Charge ("CRMC"). The CRMC will then be compared to
the monthly Charges based on the CER. The difference, that being
the CRMC, less the CER, shall equal the Monthly Exchange
Adjustment CMEA"). The cumulative MEA for all Equant countries
will be either added or subtracted to the following monthly
invoice to Customer.
(b) PERIODIC REVISIONS.
Charges for all Services shall be reviewed and revised in
accordance with the following (each, a "Periodic Revision"):
(i) Six (6) months after the effective date of each Statement
of Work, the Parties shall review the charges contained
therein, and within ten (10) business days from the six
(6) month anniversary date, the Parties shall mutually
agree to the revised charges, which shall be incorporated
into the relevant Statement of Work as an amendment
thereto.
(ii) Thereafter, every January 1, the Parties shall review the
charges contained therein, and by January 15/'h, /the
Parties shall mutually agree to the revised charges, which
shall be incorporated into the relevant Statement of Work
as an amendment thereto.
(iii) No Periodic Revisions shall be applied to any Service
Request which has a term of one (1) year, or has been in
effect for less than twelve (12) calendar months.
4.6 TAXES.
(a) Equant will invoice Customer for all sales, use, federal excise
or value-added taxes on the Services provided to Customer, except
where Customer timely provides Equant with an
6
<PAGE>
exemption certificate, and Customer will be obligated to
reimburse and/or pay, as applicable, any such taxes, but only to
the extent and in the amounts that such taxes are lawfully and
properly imposed and assessed, and correctly calculated. However,
Customer shall not pay or be responsible for any taxes: (i)
imposed on or with respect to Equant's net or gross income,
capital or franchise taxes; (ii) in the nature of employee
withholding taxes, FICA, Medicare taxes, unemployment insurance
or other taxes relating to Equant personnel performing services
hereunder; (iii) imposed on, with respect to, or in connection
with Equant's purchase of any supplies, materials, equipment,
software for use in providing the Services; (iv) based on or in
respect of property or equipment used in providing the Services;
or (v) in the nature of licenses or permits required to provide
the Services.
(b) Each Party will provide and promptly make available to the other
any tax exemption certificates or other tax-related information
reasonably requested by the other Party as it relates to the
provision of Services under this Agreement.
(c) Customer agrees that at no time during the Term of this Agreement
or any extension thereof, will Customer be able to recover or
reclaim Value Added Taxes (hereinafter "VAT") imposed by the
local taxation authorities, nor shall Customer attempt to do so.
In the event that Equant is fined as a result of that action,
Customer will fully indemnify Equant for all such fines and
penalties. Notwithstanding any of the foregoing, any attempt by
Customer to reclaim or recover VAT shall be considered null and
void.
(d) However, in the event that Equant and Customer agree to a
different invoicing structure than set forth above, which would
lawfully permit Customer to reclaim VAT, then the Parties agree
to amend this Agreement accordingly.
4.7 DISPUTED CHARGES.
(a) If Customer in good faith believes there is a Dispute (as defined
in Section 13.2) concerning the accuracy or applicability of any
Charge or other invoiced amount, it will notify Equant of the
nature of such Dispute not later than thirty (30) calendar Days
after receipt of invoice and will provide detailed support for
such Dispute together with such notice of Disputed Charges. In
such an event, Customer may withhold payment of such disputed
Charges or other invoiced amounts but will continue to pay all
undisputed Charges and amounts. Failure by Customer to identify
a disputed Charge or other invoiced amount prior to payment of
such Charge or amount will not limit or waive any of its rights
or remedies with respect thereto, including its right to withhold
such disputed Charges or amounts from payments on subsequent
invoices. The withholding of disputed Charges and other invoiced
amounts in accordance with this Section 4.7 will not be
considered a basis for monetary or other default or grounds for
termination under this Agreement.
(b) Except as set forth in subsection (a) above regarding the time
for notification of a Dispute, all Disputes concerning the
accuracy or applicability of any Charge or other invoiced amount
shall be resolved as set forth in Section 13.2. Equant will use
diligent efforts to provide any supporting documentation required
by Customer to resolve any such Disputes.
4.8 RELOCATION OF A SERVICE CENTER.
If Equant, for business purposes, closes or relocates a Service
Center, Equant shall provide sixty (60) days advance written notice in
connection with any relocation or closure. Equant will use
commercially reasonable efforts to reduce any disruptions to Customer
and shall, at no additional cost to Customer, retain the contracted
Response Times. Failure by Equant to provide such information shall
not be deemed a material breach of this Agreement.
4.9 DISCONTINUANCE OF MAINTENANCE INVOICING.
Invoicing for Maintenance Charges will cease as of the expiration date
stated on the Service Request, unless otherwise terminated in
accordance with Section 12.
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Article 5 - CONFIDENTIAL INFORMATION; PROPRIETARY RIGHTS
5.1 CONFIDENTIAL INFORMATION.
"Confidential Information" of a Party means: (a) the terms of this
Agreement and (b) all confidential or proprietary information or
materials (in any medium) of either Party (including information
entrusted to it by a third Party) or any Affiliate thereof.. Any
information or material shall be considered confidential or
proprietary if it relates to either party's business records or plans,
and in general each party shall treat as confidential or proprietary
any data or information obtained from the other if such party would
treat its own corresponding material as such.
(a) During the term of this Agreement and following for a period of
five (5) years after its expiration or termination, the Party
receiving any Confidential Information of the other Party shall
affirmatively agree not to disclose any Confidential Information,
not to use any Confidential Information for purposes other than
the provision of Equipment and Services under this Agreement, and
to take reasonable steps to maintain the security and
confidentiality of such Confidential Information. Each Party,
when receiving Confidential Information from the other Party,
further agrees as follows:
(i) to take reasonable steps, no less rigorous than those
taken to protect its own Confidential Information of a
similar nature, to prevent any disclosure of the
disclosing Party's Confidential Information; and
(ii) to use and reproduce the disclosing Party's Confidential
Information only to the extent necessary to permit the
receiving Party to meet its obligations or exercise its
rights under this Agreement; and
(iii) to use reasonable effort to limit disclosure of the
disclosing Party's Confidential Information to those of
the receiving Party's Affiliates, directors, officers,
employees, third Party service providers, consultants,
subcontractors and contractors who have a "need to know"
such information in connection with the receiving Party's
performance of its obligations or exercise of its rights
under this; provided, however, that any such person or
entity who is not one of the receiving Party's Affiliates,
directors, officers, or employees shall have first
executed a nondisclosure agreement which contains terms
which mirror the nondisclosure requirements set forth in
this Article.
(b) Information of a Party will not be considered Confidential
Information under this Agreement if such information:
(i) was already rightfully known by the receiving Party at the
time it was obtained thereby, free from any obligation to
keep such information confidential;
(ii) is or falls into the public domain through no wrongful
act, fault or omission by the receiving Party;
(iii) is rightfully received by the receiving Party from a third
Party without restriction and without breach of this
Agreement; or
(iv) is developed by the receiving Party independently of and
without access to or use or benefit of any Confidential
Information of the disclosing Party.
5.2 CONFIDENTIALITY OF AGREEMENT.
Without limiting the generality of Section 5.1, and subject to Section
5.1, neither Party shall publicly disclose the terms of this Agreement
without the prior written consent of the other. Neither Party will
disclose or discuss the terms of this Agreement with any third
Parties, except to the extent necessary for that Party to meet its
obligations or exercise its rights under this Agreement.
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5.3 THIRD PARTY INFORMATION.
Each Party will use and treat any information belonging or relating to
any third-Party subcontractors, vendors or suppliers of the other
Party, as well as End Users in accordance with the requirements of
this Article 5.
5.4 RETURN OR DESTRUCTION OF CONFIDENTIAL INFORMATION.
Upon the expiration or termination of this Agreement, or upon the
request of the disclosing Party requesting return of any tangible
embodiments of all or any portion of its Confidential Information
(which the receiving Party does not then require to perform its
obligations hereunder), the receiving Party shall promptly return such
Confidential Information (whether in hard copy, diskette, or any other
electronic form, and including any copies, extracts, descriptions, and
summaries thereof) or, with the disclosing Party's written consent,
will promptly use all reasonable efforts to destroy it (any copies,
extracts, descriptions, and summaries thereof) and will further
provide the disclosing Party with written certification of
destruction.
5.5 WAIVERS.
Either Party may request in writing that the other Party waive all, or
any portion, of the requesting Party's responsibilities relative to
the other Party's Confidential Information. Such waiver request shall
identify the affected information and the nature of the proposed
waiver. The recipient of the request shall respond within a
reasonable time, and if, in its sole discretion, it determines to
grant the requested waiver, it shall do so in writing over the
signature of an employee authorized to grant such request. Any waiver
granted pursuant to this Section shall not be deemed a waiver to
disclose any other Confidential Information, and shall apply only to
the disclosure of the Confidential Information specified in the
request for a waiver.
5.6 REQUIRED DISCLOSURE.
Notwithstanding anything to the contrary in this Article 5, if the
receiving Party of any Confidential Information learns that it is or
may be required by applicable court order, law or regulation to
disclose any Confidential Information, then such receiving Party
shall: (i) as promptly as possible after learning of a possible
disclosure requirement, and in any case prior to making disclosure,
notify the disclosing Party of the disclosure requirement so that the
disclosing Party may seek a protective order or other appropriate
relief; (ii) provide such cooperation and assistance as the disclosing
Party may reasonably request in any effort by the disclosing Party to
obtain such relief; and (iii) take reasonable steps to limit the
amount of Confidential Information so disclosed and to protect its
confidentiality.
5.7 EQUITABLE RELIEF.
The Parties acknowledge that any disclosure or misappropriation of
Confidential Information in violation of this Agreement may cause
irreparable harm, the amount of which may be extremely difficult to
determine, thus potentially making any remedy at law or for damages
inadequate. Each Party therefore agrees that the other Party shall
have the right to apply to any court of competent jurisdiction for an
order restraining any breach or threatened breach of this Article 5
and for any other equitable relief as such other Party deems
appropriate. As set forth in Section 13.2, this right shall be in
addition to any other remedy available in law or at equity.
5.8 INFRINGEMENT.
In the event that the Services, any other materials or services
provided under this Agreement by Equant are alleged or determined to
infringe upon the proprietary rights of a third Party, Equant will, in
addition to its obligations, if any, under Section 9.1(c) at its own
expense: (a) obtain the right for Customer and its End User to use the
infringing Services, materials or services as contemplated by this
Agreement; (b) modify the Services, materials or services so that they
are no longer infringing but still satisfy the requirements contained
in this Agreement; or (c) obtain and substitute functionally similar
Services, materials or services that are not infringing.
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5.9 UNAUTHORIZED USE.
Each Party will notify the other Party promptly of any actual or
attempted use or possession of any Confidential Information by any
unauthorized person or entity which may become known to it and will
cooperate with the other Party in any investigation or action against
any such persons or entities.
Article 6 - REPRESENTATIONS AND WARRANTIES
6.1 GENERAL.
(a) BY EQUANT. Equant represents and warrants that, as of the
Effective Date:
(i) EQUANT INTEGRATION SERVICES, Inc. is a corporation validly
existing and in good standing under the laws of the State
of New York;
(ii) Equant has all requisite corporate power and authority to
execute, deliver and perform its obligations under this
Agreement;
(iii) the execution, delivery and performance of this Agreement
has been duly authorized by Equant, and no additional
corporate authorization or action on its part is required
in connection with the execution, delivery or performance
by Equant of this Agreement or the consummation by Equant
of the transactions contemplated hereby;
(iv) this Agreement has been duly and validly executed and
delivered by Equant and constitutes a legal, valid and
binding obligation of Equant enforceable against Equant in
accordance with its terms;
(v) no approval, authorization or consent of any governmental
or regulatory authority is required to be obtained or made
by it in order for it to enter into and perform its
obligations under this Agreement (or any such approval,
authorization or consent will be promptly obtained after
the Effective Date);
(vi) in connection with providing the Equipment and Services, it
will comply with all applicable Federal, state and local
laws and regulations and has obtained all applicable
permits, rights and licenses;
(vii) except as permitted under this Agreement, it has not
disclosed any Confidential Information of Customer; and
(b) BY CUSTOMER. Customer represents and warrants that, as of the
Effective Date:
(i) it is a corporation validly existing and in good standing
under the laws of the state of California;
(ii) it has all requisite corporate power and authority to
execute, deliver and perform its obligations under this
Agreement;
(iii) the execution, delivery and performance of this Agreement
has been duly authorized by Customer, and no additional
corporate authorization or action on its part is required
in connection with the execution, delivery or performance
by Customer of this Agreement or the consummation by
Customer of the transactions contemplated hereby;
(iv) this Agreement has been duly and validly executed and
delivered by Customer and constitutes a legal, valid and
binding obligation of Customer enforceable against Customer
in accordance with its terms;
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(v) no approval, authorization or consent of any governmental
or regulatory authority is required to be obtained or made
by it in order for it to enter into and perform its
obligations under this Agreement (or any such approval,
authorization or consent will be promptly obtained after
the Effective Date);
(vi) it will comply with all applicable Federal, state and local
laws and regulations and has obtained all applicable
permits, rights and licenses; and
(vii) except as permitted under this Agreement, it has not
disclosed any Confidential Information of Equant.
6.2 SERVICE WARRANTIES.
Equant shall use good quality materials, techniques and standards to
provide the Services with the care, skill and diligence as required in
each Service Request. Equant shall ensure that technicians responding
to a Customer Fault Call are qualified, trained, and conversant with
the Equipment. All service will be performed in a workmanlike manner
and timely in accordance with each Service Request.
6.3 LIMITATION OF WARRANTIES.
EXCEPT AS EXPRESSLY PROVIDED HEREIN, EQUANT, NOT BEING THE
MANUFACTURER AND/OR SUPPLIER OF THE EQUIPMENT, NOR THE MANUFACTURER'S
AND/OR SUPPLIER'S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER
EXPRESS OR IMPLIED, AS TO THE QUALITY, DESIGN, CONDITION, CAPACITY,
suitability, MERCHANTABILITY OR PERFORMANCE OF THE EQUIPMENT, OR
FITNESS FOR A PARTICULAR PURPOSE, OR OF THE MATERIAL OR WORKMANSHIP OF
THE EQUIPMENT, OR THE EXISTENCE OF ANY LATENT OR PATENT DEFECTS, AND
EQUANT HEREBY DISCLAIMS ALL SUCH WARRANTIES, IT BEING AGREED THAT, AS
BETWEEN EQUANT AND CUSTOMER, THE EQUIPMENT IS SUPPLIED "AS-IS" AND
THAT CUSTOMER SHALL HAVE ONLY SUCH WARRANTIES, EXPRESS OR IMPLIED, IF
ANY, AS PROVIDED BY THE MANUFACTURER AND/OR EQUANT, OR THIRD PARTY
LICENSOR OF SUCH EQUIPMENT. EQUANT SHALL NOT HAVE ANY RESPONSIBILITY
OR LIABILITY IN CONNECTION WITH THE ENTRY OR USE, INCLUDING OUTPUT, OF
CUSTOMER'S DATA. EQUANT DOES NOT WARRANT, GUARANTEE OR MAKE ANY
REPRESENTATIONS CONCERNING THE USE, THE RESULTS OF USE OF THE
EQUIPMENT, OR THE CORRECTNESS, ACCURACY, RELIABILITY, CAPACITY OR
LIMITATIONS RELATED TO THE EQUIPMENT. EQUANT DOES NOT WARRANT THAT
THE FUNCTIONS CONTAINED IN THE EQUIPMENT WILL MEET CUSTOMER'S
REQUIREMENTS OR EXPECTATION OR THAT THE OPERATION OF THE EQUIPMENT
WILL BE UNINTERRUPTED OR ERROR FREE. CUSTOMER UNDERSTANDS THAT SUCH
LIMITATIONS MAY RESTRICT OR LIMIT THE CAPABILITIES OR PERFORMANCE
CHARACTERISTICS OF THE EQUIPMENT. CUSTOMER ACKNOWLEDGES THAT IT HAS
SELECTED THE PRODUCTS ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY
DISCLAIMS ANY RELIANCE UPON ANY STATEMENTS MADE BY EQUANT.
The Parties acknowledge that Equant is not a Hardware or Software
manufacturer. Therefore, the Parties expressly stipulate and agree
that Equant shall have no responsibility for either the date
calculations and other processing for the years 2000 and beyond or for
any problems relating to date changes. Equant shall have no
obligation under this Agreement to correct any date change problems or
Year 2000 problems. The Parties may conclude a separate arrangement
to correct such problems on such terms and conditions as the Parties
may mutually agree.
Article 7 - OBLIGATIONS AND COVENANTS OF THE PARTIES
7.1 PROGRAM MANAGERS.
The Parties will use all reasonable efforts to focus communications
with each other through their respective Program Managers. Each Party
may change its Program Manager upon notice to the other. Each Party's
Program Manager may delegate his or her authority wholly or in part to
other employees of that Party, but must give the other Party
reasonable description of the delegation, the goal being to facilitate
efficient and authorized communication.
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7.2 FOREIGN CORRUPT PRACTICES ACT.
Each Party will fully comply with all applicable statutes and
regulations under the Foreign Corrupt Practices Act, as it may be
amended from time to time, in connection with all matters relating to
this Agreement.
7.3 ACCESS.
Subject to Section 7.5, Customer will provide or cause Equant to be
provided with access to Sites at all times during which it may be
required to perform Services as well as use of customary utilities and
building services (including heat, light, ventilation, electric
current and outlets, and use of a telephone and facsimile machine) at
such Sites reasonably sufficient and necessary for Equant to perform
the Services. Customer acknowledges and agrees that access to the
Sites is critical to Equant's ability to provide the Services
described in any Statement of Work and as requested in a duly accepted
Service Request. Customer will provide or cause Equant to be provided
with such access to employees of Customer or the End User, including a
contact (by name and telephone number) at each Site at which Services
are to be performed, as is necessary and reasonable in connection with
performance of the Services. To the extent Equant is denied access
to, or unsafe or hazardous conditions exist at, any Sites at which it
is to perform Services under this Agreement, Equant shall be relieved
of its obligation hereunder to provide such Services; provided, that
Equant observes any procedures applicable to such situations specified
in this Agreement and promptly notifies Customer of same.
7.4 RIGHT OF ENTRY.
Customer shall have the right upon ten (10) days prior written request
to the Equant Program Manager, which request shall not be unreasonably
withheld, to enter Equant's premises where Customer-owned Equipment or
Spares are located, for the purpose of inspecting such inventory and
the security measures taken with respect thereto. Notwithstanding the
foregoing, no request for inspection shall be made for the first and
last calendar week of any calendar quarter. Such inspections shall be
limited to two (2) per year, per Equant premise.
7.5 CONDUCT OF EQUANT PERSONNEL.
(a) While at any Site, Equant agrees to comply (and to cause its
personnel and the personnel of its Affiliates and subcontractors
to comply) with all reasonable safety and security procedures and
rules and regulations regarding personal and professional
conduct, as such are readily available and/or obtainable from the
Site in writing prior to the commencement of Services (including,
without limitation, the wearing of identification badges and
observance of dress codes and smoking policies) which are in
effect at such Site, and otherwise to conduct itself and
themselves in a businesslike manner.
(b) Equant will direct its employees to cooperate and comply with all
reasonable background checks and drug testing requirements,
provided that such background checks and drug testing
requirements are consistent with local law.
7.6 COOPERATION WITH OTHER VENDORS.
Customer will or will cause its End User to inform Equant of any
activities of its other subcontractors or vendors at any Sites which
are reasonably likely to affect Equant's performance of Services
hereunder. Equant will cooperate with Customer, the End User and such
other subcontractors and vendors to coordinate their activities.
7.7 MANNER OF PROVISION OF SERVICES.
(a) Equant will provide (and cause its subcontractors to provide) all
Services at each Site in a manner designed not to: (i) create any
unsafe or hazardous condition at the Site; (ii) materially
interfere with or impair the operation of the heating,
ventilation, air conditioning, plumbing, electrical, fire
protection, safety, security, public utilities or other systems
or facilities at the Site;
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(iii) materially interfere with the use, occupancy or operation
of the Site; or (iv) impose any expense upon Customer, in
connection with its use, occupancy or operation of, such Site.
Notwithstanding the foregoing, Equant will take all necessary
steps to protect the safety of its employees.
(b) To the extent that Equant has been made aware of any of the
following situations, Equant will immediately notify Customer of
any: (i) destruction or damage to any real or personal property
or destruction, compromise or disclosure of software, data or
other intangible or intellectual property of Customer, as well as
(ii) any injury to any person, resulting from or arising in
connection with the performance of Services by Equant, or its
subcontractors, or their respective personnel.
7.8 UNAUTHORIZED ACCESS.
In the event Equant discovers or is notified of: (i) a material breach
or potential material breach of security involving the Equipment,
Services or any system or network which does or may contain, process
or transmit Confidential Information of Customer or an End User or
(ii) actual or potential unauthorized or illegal activities by
personnel of Equant or its subcontractors to obtain money or
information from or through Customer or any customer or supplier
thereof, or in any way damage (or expose to damage) Customer, or any
customer or supplier thereof, Equant will immediately notify Customer
and will cooperate fully with Customer and its designees in any
investigation or action relating to such breach or potential breach.
The requirements of subsection (i) of this Section 7.8 shall not be
construed to create an affirmative duty on behalf of Equant to seek
out any such breaches of security, nor shall Equant be held liable for
any damages to Customer or End User caused by Equant's failure to
discover a breach of security.
7.9 PROTECTION OF DATA BY CUSTOMER.
Throughout the Term of this Agreement, and any Service Request,
Customer agrees or shall advise the End User to maintain a procedure
external to the Equipment for the reconstruction of lost or altered
files, data or programs (hereinafter, "Data"). Notwithstanding the
foregoing, Equant shall assist Customer in the reconstruction of any
lost Data at no charge, to the extent such losses are attributable to
Equant's negligent performance of the Services.
Article 8 - IMPORT AND EXPORT OF EQUIPMENT
8.1 IMPORT/EXPORT OF EQUIPMENT AND PERMITS.
(a) Where requested by Customer, and where permitted by the local
laws of the country of destination, Equant will serve as importer
of record for, and will pay all applicable duties on, Equipment
shipped into countries outside the United States. Equant shall
be responsible for performing all services in connection with the
shipping, export and import of Equipment under the Agreement to
the Sites. All applicable duties paid by Equant for the
importation of any Equipment, except as stated in the Statement
of Work, sub-section 7.3(2) shall re-invoiced by Equant to
Customer on a current basis, plus a five (5%) percent handling
charge.
(b) Where permitted by law, Equant will be responsible, as part of
the Services described in a Service Request, for securing all
permits, licenses, regulatory approvals and authorizations,
whether domestic or international, and including all U.S. export
control licenses (collectively "Permits") required for Equant to
provide the Services to Customer and will take all lawful steps
necessary to maintain such Permits during the term of this
Agreement. Equant will have financial responsibility for, and
will pay, all fees and taxes associated with obtaining such
Permits. Customer will cooperate with Equant in securing such
Permits. If Equant is not able to secure the Permits in its own
name, Customer will undertake to secure such Permits at the
reasonable direction of Equant and at Equant's expense.
(c) Customer will be responsible for securing, at Customer' expense,
all permits other than Permits Equant is required to secure under
subsection (b) above. Customer will take all lawful steps to
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maintain such other Permits during the term of this Agreement.
Equant will cooperate with Customer in securing such other
Permits as may be necessary.
8.2 RISK OF LOSS.
Unless otherwise agreed to in writing between the Parties, as between
Equant and Customer, (1) Customer will bear the risk of loss for the
Equipment until it shifts to Equant upon delivery of the Equipment to
a Service Center; thereafter (2) Equant will bear all risk of loss
while such Equipment remain at a Service Center; and (3) Equant shall
continue to bear the risk of loss, until (4) the risk of loss shifts
from Equant to Customer upon delivery at the applicable Site and
control of such Equipment is transferred to Customer or the End User.
8.3 COMPLIANCE WITH LAWS.
Each of the Parties will comply in all material respects with all
laws, rules and regulations, now in effect or hereinafter enacted or
adopted, of any jurisdiction, related to all matters of this Agreement
and any executed Statement of Work, including the U.S. export
regulations referred to in Section 8.4, (collectively, "APPLICABLE
LAW").
8.4 EXPORT CONTROL REGULATIONS.
The Parties acknowledge that any products, software and technical
information (including, but not limited to, services and training)
provided under the Agreement may be subject to applicable U.S. export
laws and regulations and that any use or transfer of such products,
software and technical information must be authorized under those laws
and regulations. Equant shall be responsible for notifying Customer
in the event any of the products, software and technical information
are subject to any U.S. export laws and regulations. Customer will
not (and will cause all Customer's End Users not to) use, distribute,
transfer, or transmit any such products, software or technical
information (even if incorporated into other products or services)
except in compliance with such laws and regulations. Equant shall be
responsible at its own expense for filing the appropriate export-
related documents as may be required for Equant to comply with U.S.
export laws and regulations for any products, software and technical
information provided hereunder and, if requested by Equant, Each Party
will sign (and will cause their respective Affiliates, subcontractors
and End Users to sign) such written assurances and other export-
related documents as may be requested by the other Party.
8.5 IMPORT AND EXPORT LIMITATIONS.
(a) Equant may not export Products to a destination which is
prohibited under local or U.S. Law;
(b) Equant may not act as the importer of record in countries where
Equant or its subcontractor does not have a legal presence;
(c) Equant may not act as the importer of record in countries where
Equant's charter or Equant's subcontractor's charter prohibits
the provision of such Services;
(d) Equant may decline to act as importer of record in such cases as
it reasonably determines that such Services would create an
unreasonable fiscal burden upon Equant, however, in such cases,
Equant will provide reasonable assistance to Customer in the
importation process.
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Article 9 - INDEMNIFICATION AND LIMITATIONS OF LIABILITY AND REMEDIES
9.1 INDEMNIFICATION.
(a) LOSSES DEFINED.
For purposes of this Agreement, "LOSSES" means all losses,
liabilities, damages and costs (including Taxes) and all related
costs and expenses (including reasonable attorney's fees and
disbursements and reasonable costs of investigation, litigation
and settlement).
(b) BY CUSTOMER.
Customer will indemnify, defend and hold Equant and its officers,
directors, employees, agents, successors and permitted assigns
(each, a 'EQUANT INDEMNITEE") harmless from and against any and
all Losses arising out of or relating to:
(i) any claim by a third party (other than an Equant
Indemnitee) that any equipment, software, materials or
services provided to Equant by Customer in connection with
Equant's performance of the Services infringe upon the
proprietary rights of such third Party; or
(ii) any claim by a third party (other than an Equant
Indemnitee) relating to the failure by Customer to comply
in any material respect with any Applicable Law.
(iii) any violation of Federal, State, local or other laws or
regulations or a failure by Customer to obtain any required
permits, rights or licenses required in its performance of
services under this Agreement;
(iv) any claim alleging the inaccuracy or untruthfulness of any
representation or warranty made by Customer pursuant to the
Services provided by Equant under this Agreement;
(v) any violation or failure to comply with any copyright,
license or other third party proprietary right concerning
the use, distribution, duplication or transfer of any
software.
(c) BY EQUANT.
Equant will indemnify, defend and hold Customer, its affiliates
and their respective officers, directors, employees, agents,
successors and assigns (each, an "CUSTOMER INDEMNITEE") harmless
from and against any and all Losses arising out of or relating to
any claim by a third Party (other than an Customer Indemnitee):
(i) that the Equipment, materials or other services provided to
Customer by Equant or its Affiliates or subcontractors
infringe upon the proprietary rights of such third Party;
(ii) alleging a violation of Federal, state, local or other laws
or regulations or a failure by Equant to obtain required
permits, rights or licenses required in its performance of
services under this Agreement;
(iii) the inaccuracy or untruthfulness of any representation or
warranty made by Equant in this Agreement;
(iv) a breach by Equant or its Affiliates of any subcontracting
arrangements; or
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(v) a breach by Equant or its employees, Affiliates or
subcontractors of the safety or security procedures in
effect at any Site, for which Equant has received written
notification of such safety or security procedures.
(d) CROSS INDEMNITY.
Each Party agrees to indemnify, defend and hold harmless the
other Party and its Affiliates, officers, directors, employees,
agents, successors and permitted assigns from and against any and
all Losses arising out of or in connection with the injury of or
damage to any person or real or tangible personal property to the
extent such injury or damage: (i) is proximately caused by the
negligence or willful misconduct of any person (other than an
indemnitee) for whose conduct the indemnitor is liable and (ii)
arises or occurs in connection with this Agreement or the
provision or receipt of the Equipment or Services.
(e) INDEMNIFICATION PROCEDURES.
(i) If any claim in respect of a Loss (including personal
injury or property damages) is asserted or any civil,
criminal, administrative or investigative action or
proceeding (any such claim, action or proceeding, a
"Claim") is threatened or commenced, in each case against
any person seeking indemnification hereunder (an
"INDEMNIFIED Party"), the Party which is (or whose
Affiliate, officer, director, employee, agent, successor or
assign is) the indemnified Party will promptly notify the
other Party (the "INDEMNIFYING PARTY") in writing thereof.
Any failure or delay by the Indemnified Party in giving
such written notice shall not constitute a breach of this
Agreement and shall not excuse the Indemnifying Party's
obligation under this Section 9.1, except to the extent (if
any) that the Indemnifying Party is prejudiced by such
failure or delay. If the Indemnifying Party acknowledges in
writing an indemnification obligation under this Section
9.1, it will be entitled to elect, within fifteen (1 5)
calendar days after its receipt of such notice, to assume
sole control over the investigation, defense and settlement
of such Claim at its own cost, risk and expense. However,
the indemnified Party shall be entitled to participate in ,
but not control, the investigation, defense and settlement
of such Claim at its own cost and expense The Indemnifying
Party shall enter into no settlement of a Claim without the
prior written consent of the indemnified Party, which
consent shall not be unreasonably withheld. The indemnified
Party shall enter into no settlement of a Claim without the
prior written consent of the indemnifying Party.
(ii) After notice of a Claim by the indemnified Party, if the
Indemnifying Party does not elect to assume sole control of
the defense of such Claim, the indemnified Party will have
the right to defend such Claim in such reasonable manner as
it may deem appropriate, at the cost, risk and expense of
the Indemnifying Party. The Indemnifying Party will have
the right to participate in such defense at its own cost
and expense.
(iii) Each Party, at its own cost and expense, agrees to provide
reasonable cooperation and assistance to the other Party in
the investigation, defense and settlement of any Claim,
including but not limited to providing access to relevant
information and employees.
(f) SUBROGATION.
The Indemnifying Party will, upon payment of an indemnity in full
under this Agreement, be subrogated to all rights of the
Indemnified Party with respect to the claims and defenses to
which such indemnification relates.
9.2 CONSEQUENTIAL DAMAGES.
(a) In no event will either Party have any liability for any loss of
income, profit, interest or savings by the other Party or for any
indirect, incidental, consequential, punitive or special damages
suffered by the other Party, arising from or related to this
Agreement, regardless of the form of
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action, and whether in contract, indemnity, warranty, strict
liability or tort (including, without limitation, negligence), or
any other legal or equitable grounds, even if such Party has been
advised of the possibility of such losses or damages. This
limitation will not apply to: (a) losses by either Party for
bodily injury or damage to real property or tangible personal
property; (b) indemnification obligations pursuant to Section
9.1; (c) liability resulting from the gross negligence or willful
misconduct of a Party; or (d) any breach of confidentiality
obligations contained in this Agreement.
(b) Except as expressly stated in this Agreement, neither Party will
be responsible or liable for any delay, loss or damage
attributable to the action or non-action of any person other than
that Party, its Affiliates, directors, officers, employees,
subcontractors and agents.
9.3 LIMITATIONS OF LIABILITY.
(a) The liability of either Party for actual, direct damages
resulting from performance or nonperformance under this
Agreement, regardless of the form of action, and whether in
contract, tort (including, without limitation, negligence),
warranty or other legal or equitable grounds, will be limited in
the aggregate to the Net Limitation Amount. The "Net Limitation
Amount" at any date of determination will be equal to the lesser
of:
(i) the amounts paid under this Agreement; or
(ii) One Million ($1,000,000) Dollars for the first twelve (12)
months of this Agreement. At such time as the total amount
paid under this Agreement exceeds Three Million ($3,000,000)
Dollars, the aforementioned amount shall be increased to an
amount mutually acceptable to the Parties, and thereafter
shall be periodically increased at such time as the total
amount paid under this Agreement increases by an additional
two ($2,000,000) Million Dollars,
(b) minus, in each case under (i) or (ii) above, the aggregate amount
paid by the liable Party to the other Party in respect of events
giving rise to liability arising from or in connection with this
Agreement from the Effective Date through such date of
determination. This limitation will not apply to: (i) losses by
either Party for bodily injury or damage; (ii) liability
resulting from the gross negligence or willful misconduct of a
Party; or (iii) any breach of confidentiality obligations
contained in this Agreement.
9.4 EXCLUSIVE REMEDIES.
The obligation of Equant and the rights and remedies of Customer set
forth in this Agreement are exclusive and in substitution for all
other remedies, obligations and liabilities of Equant, and all rights,
claims and remedies ("Claims") of Customer against Equant, express or
implied, arising by law or otherwise, including, but not limited to,
any implied warranty of merchantability or fitness for a particular
purpose, any implied warranty arising from course of performance,
course of dealing or usage of trade, and any obligation, liability,
right, claim, or remedy for any tort, or breach of contract. The
remedies of the Parties with respect to any matter under this
Agreement shall be limited to the remedies set forth herein; provided,
that neither Party shall receive duplicative recoveries.
Article 10 - INSURANCE
10.1 INSURANCE PROVIDED BY EQUANT.
(a) Without limitation of any of Customer' other rights or remedies
set forth in this Agreement, during the Term and any extension
thereof, Equant will maintain at Equant's own expense, insurance
of the type and in the amounts specified below:
(i) statutory workers compensation (or local equivalent) in
accordance with all applicable laws;
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(ii) employers' liability insurance (or the local equivalent)
(which may include coverage under an umbrella liability
policy) in an amount not less than the amount required by
the applicable local law;
(iii) commercial general liability insurance (which may include
coverage under an umbrella liability policy) in an amount
not less than three million ($3,000,000.00) dollars per
occurrence;
(iv) comprehensive automobile liability covering all vehicles
that Equant owns, hires or leases in an amount not less
than one million ($1,000,000.00) dollars per occurrence
(combined single limit for bodily injury and property
damages); and
(v) all risk property insurance for the replacement cost of
Equant's equipment and other property on Customer Sites,
and containing a waiver of subrogation in favor of
Customer.
10.2 CERTIFICATES OF INSURANCE.
Equant will furnish to Customer certificates of insurance (including
evidence of renewal of insurance) evidencing coverage in accordance
with this Article 10. Such certificates will include a provision
whereby fifteen (15) Business Days notice must be received by Customer
prior to coverage cancellation or material alteration of the coverage
by either Equant or the insurer; provided, however, that such
cancellation or alteration will not relieve Equant of its continuing
obligation to maintain insurance coverage in accordance with this
Article 10. In the event that Equant is required to pay any excess
costs for adding Customer as an additional insured, Customer will
reimburse Equant for all such excess costs.
Article 11 - FORCE MAJEURE; OTHER EXCUSES
Neither party shall be held responsible for any delay or failure in
performance of any part of this Agreement to the extent such delay or
failure is caused by fire, flood, strike, civil, governmental or military
authority, act of God, or other similar causes beyond its control and
without the fault or negligence of the delayed or non-performing party or
its subcontractors. Equant's liability for loss or damage to Customer's
material in Equant's possession or control shall not be modified by this
clause. When a party's delay or nonperformance continues for a period of
at least fifteen (15) days, the other party may terminate, at no charge,
Service for the Site affected by the Force Majeure event.
Article 12 - TERMINATION
12.1 GROUNDS FOR TERMINATION AND REMEDIES.
(a) PAYMENT DEFAULT.
Upon exhaustion of the notice periods set forth in Section
4.3(c), Equant may terminate, upon ten (10) days advance written
notice, all Services under any Service Request in the event that
Customer fails to remit payment for any undisputed invoice eighty
(80) days after such invoice is issued, unless Customer cures
such payment default by paying in full, prior to the expiration
of such ten-day notice period, all outstanding amounts listed on
such written notice as due and payable to Equant; provided,
however, that if Customer fails to pay any amount that is the
subject of a good faith Dispute as described in Sections 4.7 or
13.2, no default shall be deemed to have occurred pursuant to
this Section 12.1(a) until the dispute resolution processes
described in Sections 4.7 and 13.2 have been exhausted.
(b) BREACH OF CONTRACT.
Other than any failure by Customer to make any payment to which
subsection (a) above applies, either Party may terminate this
Agreement as to such Sites or Services (or portions thereof) upon
ninety (90) calendar days' written notice for any material breach
or default (or any series of breaches or defaults which in the
aggregate constitute a material breach or default) of
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<PAGE>
any terms and conditions of this Agreement relating to such Sites
or Services by the other Party (the "BREACHING PARTY"), unless
within such ninety (90) day notice period, the Breaching Party:
(i) has cured such breach or default or (ii) if such breach or
default by its nature cannot be cured within ninety (90) days,
has commenced to cure such default or breach and diligently
pursues such cure until accomplished and such cure is
accomplished within one hundred twenty (120) calendar days of
such notice of termination. No notice of termination pursuant to
this Section 12.1(b) may be given prior to the completion of the
internal dispute resolution process described in Section 13.2.
(c) VIOLATION OF APPLICABLE LAW.
Either Party may, upon reasonable notice to the other Party,
suspend or terminate the provision of Services (or portion
thereof) if and to the extent that such Party determines in good
faith that its provision of such Services (or portion thereof)
constitutes or causes a violation of any Applicable Law.
Customer will pay for any portion of any such suspended or
terminated Services provided prior to such notice. Equant will
use its reasonable efforts to offer functionally equivalent
substitute products or services that do not violate any
Applicable Law on terms and pricing comparable to the suspended
or terminated Services, which Equant will provide if Customer and
Equant are able to agree, through good faith negotiation, on
terms for such Services.
(d) INSOLVENCY EVENT.
This Agreement will terminate automatically and immediately
without requirement of notice upon the occurrence of an
Insolvency Event. An "INSOLVENCY EVENT" has occurred with
respect to a Party if:
(i) a receiver, liquidator or trustee of such Party is
appointed by court order and such order remains in effect
for more than ninety (90) calendar days, or a receivership,
insolvency or bankruptcy proceeding is commenced or a
petition is filed against such Party under any applicable
liquidation, conservatorship, bankruptcy, moratorium,
insolvency, reorganization or similar law for the relief of
debtors (collectively, "BANKRUPTCY LAWS") from time to time
in effect and generally affecting the rights of creditors,
and such proceeding or such petition has not been dismissed
or stayed within ninety (90) calendar days of the
commencement or filing thereof;
(ii) such Party commences a voluntary case under any Bankruptcy
Law or voluntarily seeks, consents to or acquiesces in the
benefit or benefits of any provision of any Bankruptcy Law,
consents to the filing of any petition against it under any
Bankruptcy Law, makes an assignment for the benefit of its
creditors, admits in writing its inability to pay its debts
generally as they become due or consents to the appointment
of a receiver, trustee, liquidator or conservator for it or
any part of its property; or
(iii) Notwithstanding anything to the contrary in this Section
12(d) which would automatically terminate this Agreement,
this Agreement shall not so terminate if, and for so long
as: (i) neither Customer or Equant is in material breach of
its obligations (including payment obligations) under this
Agreement and (ii) if Customer is the bankrupt, Customer
prepays in full, on a monthly basis, for any Equipment and
Services hereunder.
(e) CORPORATE DISSOLUTION OR LIQUIDATION.
This Agreement will terminate automatically and immediately
without any requirement of notice if proceedings are commenced
for the dissolution, winding-up or liquidation of either Party.
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(f) TERMINATION UPON CHANGE OF CONTROL.
In the event all or a substantial portion of the assets of Equant
relating to the Services, or stock or assets of Equant or any
entity which owns more than fifty percent (50%) of the stock of
Equant (a "parent entity"), are acquired by an unaffiliated third
party, in a single transaction or a series of transactions, such
that such third party thereby owns more than fifty percent (50%)
of stock or assets of Equant or such parent entity, whether by
merger, reorganization, sale, transfer or other similar
transaction (a "Change in Control"), then at any time within six
(6) months after the last to occur of such events, upon a
reasonable determination by Customer that such entity poses a
competitive threat to or creates an undesirable business
environment for Customer, Customer may then decide in its sole
discretion to terminate this Agreement by giving Equant at least
sixty (60) days prior written notice and designating a date upon
which such termination shall be effective.
12.2 RIGHTS UPON TERMINATION.
(a) In case of termination for default by Customer, Equant may
accelerate and declare all obligations of Customer created under
this Agreement to be immediately due and payable by Customer as a
liquidated sum and not as a penalty and proceed against Customer
in any lawful way for satisfaction of such sum and/or
repossession of any of Spares or other Equant property in
Customer's possession.
(b) Unless specifically terminated as set forth above, any Service
Request which requires performance or extent beyond the term of
this Agreement, shall, at Customer's option be so performed and
extended and shall continue to be subject to this Agreement.
12.3 COSTS OF TERMINATION.
On termination for default, howsoever or whenever occurring, the
defaulting Party shall pay to the other Party all costs and expenses
including legal and other fees incurred, interest and all arrears of
charges or other payments arising in respect of the Equipment or
otherwise in addition to any other rights and remedies either Party
may have under this Agreement, in Law or in Equity. The terms of this
Section shall not apply to termination for convenience, as set forth
in Section 12.4.
12.4 TERMINATION FOR CONVENIENCE.
(a) TERMINATION BY UNIT OF EQUIPMENT.
Customer may elect to delete a unit of Equipment covered under
this Agreement by providing at least six (6) months prior written
notice of such deletion (hereinafter, the "Termination Notice
Period"). During any Termination Notice Period, Equant shall
continue to provide Services and Customer shall continue to pay
for such Services at the agreed upon rates.
(i) In the event that Customer elects to delete a unit of
Equipment during the term of any Service Request for
Maintenance Services, the Parties recognize that upon such
deletion, Equant shall be damaged in an amount which can not
be readily determined. Accordingly, simultaneously with any
such notice, Customer shall pay to Equant, as liquidated
damages and not as a penalty, the appropriate amounts as
indicated below:
. For early termination of Maintenance Services for any or
all Equipment under a one (1) year Service Request,
Customer shall remit seventy-five (75%) percent of the
Charges remaining under that Service Request with respect
to the terminated Maintenance Services after the end of
the Termination Notice Period;
. For early termination of Maintenance Services for any or
all Equipment under a two (2) year Service Request,
Customer shall remit with respect to the terminated
Maintenance Services fifty (50%) percent of the Charges
remaining in the first
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twelve (12) month period and thirty-five (35%) of the
Charges remaining in the second twelve (12) month period
after the end of the Termination Notice Period;
. For early termination of Maintenance Services for any or
all Equipment under a three (3) year Service Request,
Customer shall remit with respect to the terminated
Maintenance Services fifty (50%) percent of the Charges
remaining in the first twelve (12) month period, thirty-
five (35%) of the Charges remaining in the second twelve
(12) month period, and twenty-seven (27%) percent of the
Charges remaining in the third twelve (12)month period
after the end of the Termination Notice Period.
All such payment made under this Section shall be paid as
liquidated damages and not as a penalty. Accordingly, the
Parties acknowledge and agree that the payments provided for
in this Section 12.4(a) are fair and reasonable.
(ii) Notwithstanding the foregoing, liquidated damages will not
apply in the event that Customer replaces, (i.e. changes)
Equipment models at an End User Site, and retains Equant as
its Service provider for the replaced, (i.e. changed)
Equipment at that End User Site.
12.5 SURVIVAL.
The obligations of the parties under this Agreement, which by their
nature would continue beyond the termination, cancellation or
expiration of this Agreement, shall survive termination, cancellation
or expiration of this Agreement.
12.6 TERMINATION ASSISTANCE.
At the request of Customer made upon reasonable written notice to
Equant, following termination of this Agreement, in whole or in part,
and for any reason except in the event of termination occurring in
accordance with Articles 12.t(a) (Grounds for Termination -Payment
Default), 12.1 (b) (Grounds for Termination - Breach of Contract),
12.1 (d) (Grounds for Termination - Insolvency Event), 12.1 (e)
(Grounds for Termination Corporate Dissolution or Liquidation) and
12.1(f) (Grounds for Termination - Convenience), Equant will: (i)
continue to provide to Customer the Services for a period of up to one
hundred eighty (180) calendar days, for the same Charges set forth in
Exhibit 2 (Services List and Pricing), except that all provisions of
Section 4.5 (Adjustment to Charges) shall apply; and (ii) cooperate
with and assist Customer in conducting an orderly and efficient
transition of the Services to Customer or any subsequent vendor(s).
Additionally, at Customer's written request, Equant will negotiate in
good faith to provide, at a mutually acceptable rate, any commercially
reasonable transition services not described in Attachment A
(Statement of Work) which may facilitate a smooth and orderly
transition.
Article 13 - GENERAL
13.1 NOTICES.
(a) Except as otherwise specified in this Agreement, all notices,
requests, consents, approvals and other communications required
or permitted under this Agreement will be in writing and will be
deemed given: (i) when delivered personally; or (ii) when sent by
telecopy to the number specified below (with telecopier
confirmation slip retained by the sender and followed by a copy
sent by first class U.S. mail not later than the next Business
Day); or (iii) one business day after being sent by U.S. express
mail or by reputable overnight courier service, delivery charges
prepaid, in each case, to the person, telecopy number and/or
address specified below:
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IN THE CASE OF EQUANT:
EQUANT INTEGRATION SERVICES, INC.
45 Orville Drive
Bohemia, New York 11716
To the attention of: DIRECTOR, LEGAL AFFAIRS
Telecopy Number: (516) 563-9112
IN THE CASE OF CUSTOMER:
CLARENT CORPORATION
850 CHESAPEAKE DRIVE
REDWOOD CITY, CALIFORNIA 95063
To the attention of: Director, Worldwide Contracts
Telecopy Number: (650) 367-9966
(b) Either Party may from time to time change its contact person,
address or telecopy number for notification purposes upon at
least fifteen (15) Business Days' notice to the other Party of
the new contact person, address or telecopy number.
(c) A copy of any notice, request, consent, approval or other
communication to an Assignee of either Party will be sent to the
representative, telecopy number and/or address of such Party
specified in such Section, in either case as changed from time to
time in accordance therewith. Notices sent by telecopy (with
telecopier confirmation slip retained by the sender) will be
followed by a copy sent by first class mail. Notices may be by
U.S. express mail or, within any country or by reputable
overnight courier service and will be deemed given on the next
business day.
13.2 DISPUTES.
(a) NEGOTIATION.
Any Party believing that a dispute, controversy or claim relating
to this Agreement (a "DISPUTE") has arisen between the Parties
will provide the other Party with a written statement of the
nature of such Dispute.
(i) Within three (3) Business Days of such notice being given,
the Program Managers (or their designees) will meet and
attempt to resolve the Dispute through negotiation. If the
Program Managers are unable to resolve the Dispute within
ten (10) Business Days of the commencement of negotiations,
the Customer Program Manager will notify the Vice President,
having responsibility for the Customer account and the
Equant Program Manager will notify the Vice President,
Strategic Business Unit, (such persons, the "SENIOR
MANAGERS"), and each Program Manager will, not later than
the twelfth (12th) day following commencement of
negotiations, provide both Senior Managers with a written
statement describing his or her respective position
concerning the Dispute.
(ii) Within five (5) Business Days of the date the last of such
statements has been provided, the Senior Managers will meet
and attempt to resolve the Dispute through negotiation. If
the Senior Managers are unable to resolve the Dispute within
ten (10) Business Days of the commencement of negotiations,
either Party may, upon notice to the other Party, submit the
Dispute to a court or jury, or to appeal to a higher court
to commence litigation proceedings.
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13.3 CHOICE OF LAW.
This Agreement shall be governed by, and interpreted and construed in
accordance with, the laws of the State of New York, excluding choice
of law principles thereof.
13.4 JURISDICTION.
In the event that any dispute between the Parties, the Parties hereby
agree to the following:
(a) Customer hereby irrevocably and unconditionally consents to
commence any action, suit or proceedings arising out of or,
relating to this Agreement, the matters referred to herein or the
transactions contemplated hereby in the courts of the State of
New York located within the Counties of Nassau or Suffolk and of
the United States of America located in the Eastern District of
the State of New York; and
(b) Equant hereby irrevocably and unconditionally consents to
commence any action, suit or proceedings arising out of or,
relating to this Agreement, the matters referred to herein or the
transactions contemplated hereby in the courts of the State of
California located in the county of Santa Clara and of the United
States of America located in the Northern District of the State
of California.
(c) The Parties also hereby irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or
proceeding arising out of this Agreement, the matters referred to
herein or the transactions contemplated hereby in any court other
than those specified above, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum.
13.5 CHANGE CONTROL.
(a) Either Party may, from time to time, during the term of this
Agreement, request in writing changes, adjustments or
clarifications to the scope of Services being performed by Equant
under any Statement of Work or in any Service Request, in
accordance with the procedures set forth in this Section 13.5(a)
(hereinafter "CHANGE CONTROL PROCEDURE"). The Parties shall
confer to evaluate the impact that the requested changes will
have on the resources used by Equant to perform the Services, on
the ability of Equant to meet the performance specifications or
other obligations with respect to Equant's performance of the
Services, and on the Charges then payable by Customer. The
Parties shall work together to evaluate all information exchanged
in connection with the change request and revise their
responsibilities and/or amounts paid by Customer to Equant.
Equant shall have no obligation to implement the requested
changes to the Services until these Change Control Procedures
have been completed.
(b) Customer is responsible to provide complete and accurate
information (hereinafter "INFORMATION") to Equant, in order that
Equant can properly review the necessary scope of work to
determine the Charges (which have been fully described in this
Statement of Work or in any Service Request). In the event that
Equant reasonably determines during the Term that such
Information is incomplete or inaccurate, and the Services
described herein do not correctly reflect the Services being
provided, or that the cost to provide the Services has increased,
the Parties shall execute a change request, in accordance with
the Change Control Procedures described in Section 13.5(a).
Equant shall have no obligation to continue to provide the
Services until such Change Control Procedures have been
completed.
13.6 ASSIGNMENT.
This Agreement will be binding upon and will inure to the benefit of
each Party hereto, its successors and assigns. Neither Party may
assign this Agreement or any of its rights or obligations hereunder
without the consent of the other Party and any such attempted
assignment will be void; provided, however, that
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<PAGE>
each Party, without the consent of the other Party, may assign this
Agreement or any of its rights or obligations hereunder to one of
its Affiliates, provided, further, that either Party may assign this
Agreement or any of its rights or obligations hereunder without the
consent of the other Party pursuant to a change of control
transaction (including without limitation a merger, consolidation or
other similar corporate transaction, stock sale or sale of
substantially all assets), as long as such Party, if it survives
such transaction, remains primarily liable for its obligations
hereunder.
13.7 NON-SOLICITATION.
Neither Party will solicit, persuade or recruit to employ any of the
other Party's employees during the period commencing on the date
hereof and ending one (1) year after the termination date of this
Agreement. This Section does not apply to Equant employees who
respond to recruitment offering which are not specifically targeted
at Equant employees.
13.8 WAIVER.
A failure or delay of any Party's exercise or partial exercise of
any right or remedy it has under this Agreement will not operate to
impair, limit, preclude, cancel, waive or otherwise affect such
right or remedy. No waiver by any Party of any breach or covenant
hereunder shall be construed to be a waiver of any succeeding breach
or any other covenant.
13.9 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one single agreement between
the Parties.
13.10 HEADINGS. The article and section headings and the table of
contents are for reference and convenience only and will not be
considered in the interpretation of this Agreement.
13.11 SEVERABILITY.
If any provision of this Agreement is held to be invalid or
unenforceable at law, then the Agreement will be deemed amended by
revising such provision to make it valid and enforceable while
preserving the Parties' original objective thereunder or, if such
revision is not possible, by removing or limiting such provision to
the extent invalid or unenforceable, and the remaining provisions of
the Agreement will not be affected thereby and will be valid and
enforceable to the extent permitted by law.
13.12 ENTIRE AGREEMENT.
This Agreement shall incorporate the typed or written provisions on
Customer's orders issued pursuant to this Agreement and shall
constitute the entire agreement between the parties with respect to
the subject matter of this Agreement and the order(s) and shall not
be modified or rescinded, except by a writing signed by Equant and
Customer. Printed provisions on the reverse side of Customer's
orders (except as specified otherwise in this Agreement) and all
provisions on Equant's forms shall be deemed deleted. Estimates or
forecasts furnished by Customer shall not constitute commitments.
The provisions of this Agreement supersede all contemporaneous oral
agreements and all prior oral and written communications and
understandings of the parties with respect to the subject matter of
this Agreement.
13.13 INDEPENDENT CONTRACTOR; SUBCONTRACTORS.
(a) The performance by Equant of its duties and obligations under
this Agreement will be that of an independent contractor and
nothing contained in this Agreement, will create or imply an
agency relationship between Equant on the one hand, and
Customer, on the other hand, nor will this Agreement be deemed
to constitute a joint venture or partnership between Equant, on
the one hand, and Customer on the other hand. Equant agrees and
represents that it is an independent contractor and its
personnel are not agents or employees of Customer for federal
tax purposes and are not entitled to any employee benefits
therefrom. Equant and Customer each assume
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<PAGE>
sole and full responsibility for the acts of their respective
personnel, Affiliates and, in the case of Equant,
subcontractors, and Equant and Customer and their respective
personnel have no authority to make commitments or enter into
contracts on behalf of, bind or otherwise obligate the other
Party in any manner whatsoever.
(b) Equant may provide all or part of the Services through its
Affiliates or through subcontractors. No use of Affiliates or
subcontractors by Equant will relieve Equant of any of its
obligations or responsibilities under this Agreement. Equant
will be responsible for all payments to its Affiliates and
subcontractors.
13.14 THIRD PARTY BENEFICIARIES.
Each Party intends that this Agreement will not benefit, or create
any right or cause of action in or on behalf of, any person or
entity other than Equant or Customer.
13.15 CONSENTS, APPROVALS AND REQUESTS.
Unless otherwise specified in this Agreement, all consents and
approvals, acceptances or similar actions to be given by either
Party under this Agreement shall not be unreasonably withheld or
delayed and each Party shall make only reasonable requests under
this Agreement.
13.16 GOOD FAITH AND FAIR DEALING.
In performance of its obligations under this Agreement, each Party
will act fairly, reasonably, timely and in good faith.
13.17 COVENANT OF FURTHER ASSURANCES.
Equant and Customer covenant and agree that, subsequent to the
execution and delivery of this Agreement and without any additional
consideration, each of Equant and Customer will execute and deliver
any further legal instruments which are or may become reasonably
necessary to effectuate the purposes of this Agreement.
13.18 PUBLICITY.
(a) Each Party will (i) submit to the other all advertising,
written sales promotions, press releases and other publicity
matters relating to this Agreement in which the other Party's
name or mark is mentioned or language from which the connection
of said name or mark may be inferred or implied and (ii) not
publish or use such advertising, sales promotions, press
releases or publicity matters without the other Party's
consent.
(b) Equant shall not, without Customer's prior written consent,
engage in publicity related to this Agreement, or make public
use of any Identification in any circumstances related to this
Agreement. "Identification" means any semblance of any trade
name, trademark, service mark, insignia, symbol, logo, or any
other designation or drawing of Customer or its Affiliates.
Equant shall remove or obliterate any Identification prior to
any use or disposition of any material rejected or not
purchased by Customer.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement this 30/th/
day of December, 1998.
EQUANT INTEGRATION SERVICES, INC. CLARENT CORPORATION
By: /s/ Richard H. Blaustein By: /s/ Ilene Harding
--------------------------------- --------------------------------
Printed Name: Richard H. Blaustein Printed Name: Ilene Harding
Title: CEO, North America Title: Director, World Wide
Contracts
Date:_______________________________ Date:______________________________
26
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ATTACHMENT A
STATEMENT OF WORK
27
<PAGE>
EXHIBIT 1
EQUANT NORMAL BUSINESS HOURS
<TABLE>
<CAPTION>
SERVICE CENTER DAYS STANDARD BUSINESS HOURS
<S> <C> <C> <C>
Argentina Buenos Aries M-F 0900-1800
Buenos Aries M~F 0900-1800
La Plata M-F 0900-1800
Mar del Plata M-F 0900-1800
Mendoza M-F 0900-1800
Rosario M-F 0900-1800
Cordoba M-F 0900-1800
-----------------------------------------------------------------------------------
Australia Adelaide M-F 0900-1700
Brisbane M-F 0900-1700
Melbourne M-F 0900-1700
Perth M-F 0900-1700
Sydney M-F 0900-1700
-----------------------------------------------------------------------------------
Austria Vienna M-TH 0830-1700
FRI 0830-1430
-----------------------------------------------------------------------------------
Belgium Brussels M-F 0830-1730
-----------------------------------------------------------------------------------
Brazil Belem M-F 1830-1200 1400-1730
Belo Horizonte M M-F 1830-1200 1400-1730
Brasilla DF M-F 1830-1200 1400-1730
Campinas M-F 1830-1200 1400-1730
Curtiba M-F 1830-1200 1400-1730
Florionapolis M-F 1830-1200 1400-1730
Fortaleza M-F 1830-1200 1400-1730
Manaua M-F 1830-1200 1400-1730
Puerto Allegra M-F 1830-1200 1400-1730
Recife M-F 1830-1200 1400-1730
Rio de Janiero M-F 1830-1200 1400-1730
Salavador M-F 1830-1200 1400-1730
Sao Paolo M-F 1830-1200 1400-1730
-----------------------------------------------------------------------------------------------
Canada Montreal M-F 1900-1700
Toronto M-F 1900-1700
Vancouver M-F 1900-1700
-----------------------------------------------------------------------------------------------
Chile Concepcion M-F 0900-1800
Inuique M-F 0900-1800
Punta Arenas M-F 0900-1800
Santiago M-F 0900-1800
Temuco M-F 0900-1800
-----------------------------------------------------------------------------------------------
China Beijing M-F 0800-1200 1300-1700
Shanghai M-F 0800-1200 1300-1700
-----------------------------------------------------------------------------------------------
Denmark Copenhagen M-F 08300-1530
-----------------------------------------------------------------------------------------------
Egyptian Arab Republic Cairo M-F 0800-1530
-----------------------------------------------------------------------------------
Finland Helsinki M-F 0800-1600
-----------------------------------------------------------------------------------
France Coubevoie M-F 0830-1730
Lyon M-F 0830-1730
Marseille M-F 0830-1730
Nice M-F 0830-1730
Orly Airport M-F 0830-1730
Strasbourg M-F 0830-1730
Toulouse M-F 0830-1730
-----------------------------------------------------------------------------------
Germany Berlin M-F 1830-1730
Bremen M-F 1830-1730
Dusseldorf M-F 1830-1730
Frankfurt M-F 1830-1730
Hamburg M-F 1830-1730
Munich M-F 1830-1730
Stuttgart M-F 1830-1730
-----------------------------------------------------------------------------------
Greece Athens (Town) M-F 0800-1700
Thessaloniki M-F 0800-1700
-----------------------------------------------------------------------------------
Hong Kong Hong Kong M-F 0845-1730
-----------------------------------------------------------------------------------
Indonesia Jakarta M-F 0830-1700
-----------------------------------------------------------------------------------
Ireland Dublin M-F 0830-1700
Shannon M-F 0830-1700
-----------------------------------------------------------------------------------
Italy Milan M-F 0830-1730
Rome M-F 0830-1730
-----------------------------------------------------------------------------------
Ivory Coast Abidjan M-F 0800-1200 1445-1800
-----------------------------------------------------------------------------------------------
Japan Nagoya M-F 0900-1730
Osaka M-F 0900-1730
Tokyo M-F 0900-1730
-----------------------------------------------------------------------------------
Lebanon Beirut M-F 0730-1530
Malaysia Kuala Lumpur M-F 0900-1700
-----------------------------------------------------------------------------------
Mexico Aguas Callentes M-F 0900-1900
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SERVICE CENTER DAYS STANDARD BUSINESS HOURS
<S> <C> <C> <C>
Cancun M-F 0900-1900
Chicauhua M-F 0900-1900
Cuernavaca M-F 0900-1900
Cuidad Juarez M-F 0900-1900
Guadalajara M-F 0900-1900
Hermosillo M-F 0900-1900
Leon/Guanjuato M-F 0900-1900
Merida M-F 0900-1900
Mexico City M-F 0900-1900
Monterrey M-F 0900-1900
Puebla M-F 0900-1900
Queretaro M-F 0900-1900
Veracruz M-F 0900-1900
-----------------------------------------------------------------------------------
Netherlands Amsterdam M-F 0900-1700
-----------------------------------------------------------------------------------
New Zealand Auckland M-F 0900-1700
Christchurch M-F 0900-1701
Wellington M-F 0900-1702
-----------------------------------------------------------------------------------
Norway Oslo M-F 0830-1630
-----------------------------------------------------------------------------------
Portugal Lisbon M-F 0900-1300 1430-1800
Porto M-F 0900-1300 1430-1800
-----------------------------------------------------------------------------------------------
Russia Leningrad M-F 0900-1800
Moscow M-F 0900-1800
-----------------------------------------------------------------------------------
Saudi Arabia Dhahran Sat- 0830-1330 1600-1900
Wed.
Thur.
Jeddah Sat- 0830-1330 1600-1900
Wed.
Thur. 0830-1330
Riyadh Thur. 0830-1300
-----------------------------------------------------------------------------------------------
Senegal Dakar M-F 0830-1800
-----------------------------------------------------------------------------------
Singapore Singapore M-F 0830-1730
-----------------------------------------------------------------------------------
South Africa Capetown M-F 0800-1700
Durban M-F 0800-1700
Johannesburg M-F 0800-1700
-----------------------------------------------------------------------------------
South Korea Seoul M-F 0900-1800
-----------------------------------------------------------------------------------
Spain Barcelona M-F 0900-1400 1500-1800
Las Palmas M-F 0900-1400 1500-1800
Madrid M-F 0900-1400 1500-1800
Palma de Mallorca M-F 0900-1800
Malaga M-F 0900-1800
Valencia M-F 0900-1800
Alicante M-F 0900-1800
Bibao M-F 0900-1800
Tenerife M-F 0900-1800
-----------------------------------------------------------------------------------------------
Switzerland Geneva M-F 0800-1700
Zurich M-F 0800-1700
-----------------------------------------------------------------------------------
Syrian Arab Republic Damascus Sat- 0830-1330 1730-1930
Thur.
-----------------------------------------------------------------------------------------------
Taiwan Taipai M-F 0900-1730
-----------------------------------------------------------------------------------
Thailand Bangkok M-F 0830-1700
-----------------------------------------------------------------------------------
United Kingdom Birmingham M-F 0900-1730
Edinburgh M-F 0900-1730
London (Gatwick) M-F 0900-1730
London (Heathrow) M-F 0900-1730
Maidenhead M-F 0900-1730
Manchester M-F 0900-1730
Stanstead M-F 0900-1730
-----------------------------------------------------------------------------------
USA Atlanta M-F 090041700
Boston M-F 0900-1700
Chicago M-F 0900-1700
New York M-F 0900-1700
JFK Airport M-F 0900-1700
Miami M-F 0900-1700
Newark M-F 0900-1700
Philadelphia M-F 0900-1700
Pittsburgh M-F 0900-1700
Tampa M-F 0900-1700
Washington DC M-F 0900-1700
Los Angeles M-F 0900-1700
San Francisco M-F 0900-1700
Houston M-F 0900-1700
Seattle M-F 0900-1700
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SERVICE CENTER DAYS STANDARD BUSINESS HOURS
<S> <C> <C> <C>
Honolulu M-F 0900-1700
Venezuela Caracas M-F 0800-1200 1400-1800
-----------------------------------------------------------------------------------
La Guaria M-F 0800-1200 1400-1800
Maracaibo M-F 0800-1200 1400-1800
Puerto La Cruz M-F 0800-1200 1400-1800
-----------------------------------------------------------------------------------------------
Vietnam Hanoi City M-F 0700-1700
Ho Chi Minh City M-F 0700-1700
-----------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
EXHIBIT 2
SERVICE REQUEST PROCESS AND SPECIAL BID PROCESS
31
<PAGE>
[DIAGRAM APPEARS HERE]
32
<PAGE>
[DIAGRAM APPEARS HERE]
33
<PAGE>
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
1
<PAGE>
STATEMENT OF WORK
BETWEEN
EQUANT INTEGRATION SERVICES, INC.
AND
CLARENT CORPORATION
EQUANT CONTRACT NUMBER TM-3651
DATED: DECEMBER 29, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1.- Definitions............................................................................. 1
Section 2.- Term.................................................................................... 2
Section 3.- Commencement of Maintenance............................................................. 2
3.1 Program Management......................................................................... 2
3.2 Transition of Maintenance Services......................................................... 2
3.3 Existing Equipment......................................................................... 2
3.4 Certification of Existing Equipment........................................................ 2
3.5 Additional Equipment....................................................................... 3
3.6 Lead Time for New Equipment Types.......................................................... 3
3.7 Training................................................................................... 3
3.8 Certain Deliverables....................................................................... 3
Section 4.- Site Surveys............................................................................ 3
4.1 Existing End User Sites.................................................................... 3
4.1.1 Equant Responsibilities............................................................. 3
4.1.2 Clarent Responsibilities............................................................ 4
4.2 New End User Sites......................................................................... 4
4.2.1 Equant Responsibilities............................................................. 5
4.3 Charges for Site Surveys................................................................... 6
Section 5.- Site Preparation........................................................................ 6
Section 6.- Maintenance Services.................................................................... 6
6.1 Clarent Responsibilities................................................................... 6
6.2 Equant Responsibilities.................................................................... 7
6.2.1 Hours of Coverage................................................................... 7
6.2.2 On-Site Maintenance Services........................................................ 7
6.2.3 Levels of Coverage.................................................................. 7
6.2.4 Maintenance Service Closure Procedures.............................................. 8
6.2.5 Preventive Maintenance.............................................................. 8
6.2.6 Spares.............................................................................. 8
</TABLE>
PAGE i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
6.2.7 Exclusions to Maintenance Services.................................................. 9
Section 7 - Installations, Moves, Adds, Changes, Deletions and Equipment
Upgrades ("IMACs")................................................................................... 11
7.1 IMAC General Provision..................................................................... 11
7.1.1 Scheduling.......................................................................... 11
7.1.2 Site Preparation.................................................................... 11
7.1.3 IMAC Rescheduling................................................................... 12
7.1.4 Charges for IMACs................................................................... 12
7.2 Installation............................................................................... 12
7.2.1 Equant Responsibilities............................................................. 12
7.2.2 Clarent Responsibilities............................................................ 13
7.3 Installation of Additional Equipment and/or Components at an Existing End User Site........ 13
7.4 Deinstallation of a Whole End User Site, or Equipment and/or Components from a End
User Site................................................................................. 13
7.4.1 Clarent Responsibilities........................................................... 13
7.4.2 Equant Responsibilities............................................................ 14
7.5 Movement of Equipment within an End User Site.............................................. 14
7.6 Movement of Equipment between Sites........................................................ 15
7.7 Modifications and Upgrades of Equipment.................................................... 15
Section 8.- Technical Support....................................................................... 15
8.1 Hardware Technical Support................................................................. 15
8.2 Escalation Provisions...................................................................... 15
Section 9.- Reporting............................................................................... 15
Section 10- Operational Project Reviews............................................................. 16
Section 11.- Service Levels and Performance.......................................................... 16
11.1 Response Times and Time To Repair......................................................... 16
11.2 Exceptions to Performance Standard Measurements........................................... 16
</TABLE>
PAGE ii
<PAGE>
STATEMENT OF WORK
During the term of this Statement of Work, between Equant Integration Services,
Inc. ("Equant") and Clarent Corporation ("Clarent"), Clarent hereby designates
Equant as an Authorized Clarent Service Provider for all Equipment, as
identified in Exhibit 1, and as may be amended from time to time.
SECTION 1. - DEFINITIONS
All capitalized terms used but not defined herein shall have the meanings set
forth in the Agreement.
COMPONENT means a part, module or portion of any whole
unit of Equipment, including without
limitation, cards, drives and subassemblies.
CNCC means the CLARENT NETWORK CONTROL CENTER as
described in Exhibit 3.
GSC means Equant's regional Global SUPPORT
CENTER, located in London, and planned for
New York and Singapore, as described in
Exhibit 3.
FAULT means a fault, failure or malfunction in the
operational status of the Equipment.
FAULT CALL means the notification made by the End User
to the GSC to report the non-operability of
the Equipment, and the associated request for
Maintenance Services.
EQUIPMENT means a whole unit or item of hardware
installed at the End User Sites for which
Equant is providing the Services. Equipment
is comprised of various Components.
PROGRAM MANAGER means the personnel designated by each Party
to oversee the implementation and delivery of
the Services described herein.
PROPER OPERATIONAL
CONDITION means the operational status as set forth by
the Manufacturer and/or Supplier, or as
mutually agreed by the Parties and shall
include the ability of any item of Equipment
to run the specified operating system
software, but not any applications existing
on the Equipment.
RESPONSE TIME means the amount of time which elapses
between the placement of a Fault Call and the
arrival of a technician at the End User Site.
REPAIR TIME means the amount of time which elapses
between the arrival of the technician at the
End User Site and the restoration of the
Equipment to Proper Operational Condition.
SOFTWARE means any licensed software provided by
Clarent or by the End User, which is
installed on the Equipment, including any
changes, revisions, modifications, updates,
correction releases or enhancements thereto,
and including all related documentation and
any physical medium on which it is provided.
SPARES means the whole units, or modules, or
components of the Equipment used to replace
or repair Equipment that is not in Proper
Operational Condition.
PAGE 1
<PAGE>
SECTION 2. - TERM
The term of this Statement of Work shall commence on January 1, 1999
and continue for a period of five (5) years, concluding on December
31, 2003, (the "Statement of Work Initial Term"). Provided, however,
that should the Agreement terminate prior to the termination date of
this Statement of Work, this Statement of Work shall terminate
contemporaneously with the Agreement. Following the expiration of the
Statement of Work Initial Term, the Statement of Work shall continue
on a month to month basis until all terms of renewal are mutually
agreed upon, unless either Party forwards ninety (90) days prior
written notice of termination to the other Party. Thereafter, this
Statement of Work shall renew for successive one (1) year periods
(the "Statement of Work Extended Terms") unless terminated by either
Party by sending written notice of termination to the other Party at
least ninety (90) days prior to the expiration of the Initial Term or
any Extended Term (together referred to as the "Statement of Work
Term", and the last date of the Term shall be referred to as the
"Normal Expiration Date") or pursuant to Article 12 of the Agreement,
except that any provisions identified elsewhere in the Agreement as
surviving termination shall continue in effect.
SECTION 3. - COMMENCEMENT OF MAINTENANCE
3.1 PROGRAM MANAGEMENT
Upon execution of this Statement of Work, each Party shall
appoint a Program Manager who has the responsibility to oversee
the implementation and delivery of the Services. Such personnel
shall have the appropriate authority to commit resources within
their respective organizations necessary for the delivery of the
Services.
3.2 TRANSITION OF MAINTENANCE SERVICES
Within thirty (30) calendar days from the date of execution of
this Statement of Work, the Parties shall mutually agree to a
plan for the commencement of Maintenance Services by Equant for
all existing Clarent Equipment installed at the End User Sites
designated by Clarent (hereinafter, the "Transition Plan"), a
copy of which shall be attached to this Statement of Work as
Exhibit 6).
3.3 EXISTING EQUIPMENT
Within ten (10) Business Days from the date of execution of this
Statement of Work, Clarent shall provide to Equant, in electronic
format, a complete database of Clarent Equipment by location and
by type, which shall be attached as Exhibit 1, including, model
number, type, serial number (where available), and location (full
address, including ZIP/postal code). A contact name, and phone
number will be provided for each Clarent End User Site. Clarent
states that to the best of its knowledge, the Equipment listed in
Exhibit 1 has been continuously maintained and is in Proper
Operational Condition at the time of execution of this Statement
of Work. Clarent shall make available, wherever possible, all
maintenance records relating to the Equipment.
3.4 CERTIFICATION OF EXISTING EQUIPMENT
If Equant agrees to commence Maintenance Services based solely on
the listing provided by Clarent for any given End User Site, and
at the initial Maintenance Service call it is determined by both
Parties that the Fault is due to a lack of on-going maintenance,
Clarent agrees that such Services will be invoiced by Equant for
materials, and labor at the rates stated in Exhibit 2.
PAGE 2
<PAGE>
3.5 ADDITIONAL EQUIPMENT
Equant will be responsible to commence Maintenance Services upon
completion of installation of any Clarent Equipment which is not
listed in Exhibit 1.
3.6 LEAD TIME FOR NEW EQUIPMENT TYPES
The Parties recognize that in order for Equant to provide the
Services, Equant needs sufficient time to deploy the necessary
Clarent-provided Spares (as further described in Section 6.2.6)
to the country where the Services are requested. In all cases
where Equant is requested to provide Services for Equipment types
which are not currently maintained in the country where the
Services are requested, Clarent shall consign all necessary
Spares (in accordance with Section 6.2.6 below) and Equant shall
be given a reasonable lead time to deploy the necessary Spares in
that country.
3.7 TRAINING
At least ten (10) business days prior to the scheduled date for
the commencement of Maintenance Services, Clarent will provide,
at no cost to Equant, all necessary training required by Equant
for the performance of its responsibilities as set forth in this
Statement of Work. Thereafter, Equant shall be responsible for
the training of all its technical service personnel (hereinafter
"Equant Technicians"), including subcontractor technical service
personnel, to provide an adequate level of service as defined in
this Statement of Work. A training schedule shall be included as
part of the Transition Plan.
3.8 CERTAIN DELIVERABLES
Certain deliverables to be provided by Equant, Clarent, or
jointly, pursuant to this Statement of Work are set forth in
Exhibit 4.
SECTION 4. - SITE SURVEYS
4.1 EXISTING END USER SITES
Prior to commencement of Services at any End User Site, as set
forth in Exhibit 1, the Parties' respective Program Managers will
review the list of Clarent Equipment for each End User Site. If
deemed necessary by both Program Managers, Equant, in
coordination with Clarent, shall conduct a site survey as
described below.
Accompanied by a Clarent representative, Equant shall perform a
site survey to gather appropriate information in order to
determine if the Equipment is in Proper Operational Condition and
can be accepted by Equant for the commencement of Services.
Equant shall take all necessary precautions during the site
survey to ensure that the operation of the Equipment is
uninterrupted.
4.1.1 EQUANT RESPONSIBILITIES
Provided a local contact is available to accompany
Equant, Equant shall perform a site survey for the
specific End User Site. Unless otherwise agreed to
between the Parties, Equant shall perform site surveys
during normal business hours. In the event that a site
survey cannot be completed during Business Hours due to
the complexity of the site survey requirements or
difficulty in gaining access to the End User Site, the
Equant Technician shall return on the next Business Day
to complete the site survey. By special request of
Clarent, Equant may be
PAGE 3
<PAGE>
required to perform site surveys at times other than
Business Hours or on non-Business Days.
Items in the site survey form to be documented by
Equant shall include:
. Contents and arrangement of Equipment cabinets (as
applicable);
. AC power for Equipment and uninterruptable power
supply system (as appropriate) requirements;
. An inventory of existing Equipment in the
Equipment cabinets;
. Location of Equipment cabinets;
. Inspection and report on the physical condition of
the in-house cabling and the connections up to the
demarcation points as best can be determined from
visual inspection;
. Cable routes and measurements as best can be
determined from visual inspection;
. Environmental conditions (e.g. heat, ventilation,
air conditioning, humidity) as best can be
determined from visual inspection.
4.1.2 CLARENT RESPONSIBILITIES
Clarent shall provide Equant the following information
for each End User Site to enable Equant to perform the
site survey:
. End User Site location and address;
. Local End User contact and phone number, as well
as name and telephone of alternate contact at site
(if available);
. Potential electrical interference problems, but
not to include measurements with power monitoring
equipment;
. Access hours for site availability;
. List (types and quantities) of Equipment to be
installed at the End User Site;
. Any technical data, including without limitation,
configurations, schematics and diagrams, which are
available prior to the site survey;
. Provide all diagnostic and testing software
necessary to perform Maintenance Services.
4.2 NEW END USER SITES
Prior to commencement of Services at a new End User Site, as
requested in a Service Request, Equant reserves the right to
conduct a site survey in order to determine the requirements for
the installation of the Equipment at that End User Site.
PAGE 4
<PAGE>
4.2.1 EQUANT RESPONSIBILITIES
Provided a local contact is available to accompany Equant,
Equant shall perform a site survey for the specific End User
Site. Unless otherwise agreed to between the Parties, Equant
shall perform site surveys during normal business hours. In
the event that a site survey cannot be completed during
Business Hours due to the complexity of the site survey
requirements or difficulty in gaining access to the End User
Site, the Equant Technician shall return on the next
Business Day to complete the site survey. By special request
of Clarent, Equant may be required to perform site surveys
at times other than Business Hours or on non-Business Days.
Items in the site survey form to be documented by the Equant
shall include:
. Contents and arrangement of equipment cabinets (as
applicable);
. AC power for Equipment and uninterruptable power supply
system (as appropriate) requirements;
. Potential electrical interference problems, but not to
include measurements with power monitoring equipment;
. Construction and infrastructure needs as best can be
determined from visual inspection;
. Approximate cable measurements;
. If applicable, an inventory of existing equipment in
the equipment cabinets;
. Location of equipment cabinets;
. Distance between the equipment cabinets and demarcation
points at the circuit termination block(s);
. Environmental conditions (e.g. heat, ventilation, air
conditioning, humidity) as best can be determined from
visual inspection;
. Labeling of cabinet locations and circuit demarcations
for installers;
. Other tasks, as may be required.
All other relevant information affecting the delivery,
installation, and operation of the Equipment shall be
detailed in the Site Survey Form completed by Equant. In the
event Equant does not provide the site survey services,
Clarent shall provide Equant with a copy of all relevant
site documentation for Equant's records. Equant reserves the
right to delay commencement of Maintenance Services until
Equant has reviewed the results of any site surveys that
Equant did not perform.
4.2.2 END USER RESPONSIBILITIES
. Clarent shall provide Equant with the following
information for each End User Site to enable Equant to
perform the site survey:
PAGE 5
<PAGE>
. End User Site location and address;
. Local End User contact and phone number, as well as
name and telephone of alternate contact at site (if
available);
. Access hours for site availability;
. List (types and quantities) of Equipment to be
installed at the End User Site;
. Any technical data, including without limitation,
configurations, schematics and diagrams, which are
available prior to the site survey.
4.3 CHARGES FOR SITE SURVEYS
Unless otherwise agreed to between the Parties, the charges for
site surveys are set forth in Table 2.2 (Hourly Labor Rates) of
Exhibit 2 (Services List and Pricing). Site surveys performed
during Business Hours shall be charged at the Business Hour
hourly labor rate, and site surveys performed outside of Business
Hours, or on non-Business Days shall be charged at the non-
Business Hour hourly labor rate.
SECTION 5. - SITE PREPARATION
If as a result of a site survey, any further site preparation requirements
are needed, Clarent shall ensure that all such requirements are completed
prior to Equant providing any further Services. If End User fails to ensure
that all required site preparations are completed, Equant is relieved of
its responsibilities at that End User Site until such time as End User
proper and full preparations have been completed.
SECTION 6. MAINTENANCE SERVICES
Maintenance Services provided by Equant shall consist of restoring the
Components and the Equipment to Proper Operational Condition in the event
of a Fault, based on Fault localization provided by the CNCC and by Equant,
using diagnostic aids and test equipment as necessary. Failure or
malfunction of the Components or Equipment shall be corrected by adjustment
or by replacement of cards, modules, sub-assemblies or defective parts.
6.1 CLARENT RESPONSIBILITIES
Upon determination of a Fault, the End User shall contact the
GSC. The GSC shall gather the necessary information regarding the
End User (including contact information), and the nature of the
Fault. This information shall be provided to the CNCC, which
shall be responsible to perform all first level diagnostics and
remote troubleshooting ("Diagnostics"). Such Diagnostics shall
consist of:
. Determination of the Fault at the Component level, whenever
possible; and
. Elimination of all software-related faults.
Upon completion of such Diagnostics, the CNCC shall promptly
advise the GSC that if the Fault is hardware related, and request
dispatch of an Equant Technician to the End User Site in
accordance with the Fault reporting procedures ("Fault Reporting
Procedure") mutually agreed to between Clarent and Equant. The
Fault Reporting Procedure shall be jointly developed between the
Clarent Program Manager and the Equant Program Manager within
fifteen (15) Business Days from the date of execution of
PAGE 6
<PAGE>
this Statement of Work. All Fault Calls shall contain the
following information:
. Ticket Number/Clarent Service Request Number;
. End User Site Address, contact and phone number and
identification code;.
. Equipment and/or Component;
. Nature of the Fault;
. Local time at effected End User Site;
. Hours of Access;
. Prioritization of Dispatch (immediate or deferred).
6.2 EQUANT RESPONSIBILITIES
6.2.1 HOURS OF COVERAGE
Hours of coverage is defined as Equant being on-call
for on-site Maintenance Services as set forth in
Exhibit 4.
6.2.2 ON-SITE MAINTENANCE SERVICES
Equant shall provide Maintenance Services for the
Equipment in accordance with the procedures set forth
in Section 3. The appropriate contact number at the
CNCC shall be provided to Equant prior to commencement
of Services. This number may be changed by Clarent from
time to time upon timely prior written notice to
Equant.
On-site Maintenance Services shall consist of:
. Arrival of an Equant technician with necessary
Spares at the End User Sites within the Response
Times as set forth in Exhibit;
. Replacement of defective Components and/or
Equipment;
. Operate diagnostics on PC System Boards,
Communications Boards, and peripherals.
6.2.3 LEVELS OF COVERAGE
Equant shall provide on-site Maintenance Services for
the following level of coverage:
. Response times as set forth in Exhibit 1, during
the hours of coverage;
. Equant shall provide Maintenance Services labor
for Equipment covered under this Agreement.
PAGE 7
<PAGE>
6.2.4 MAINTENANCE SERVICE CLOSURE PROCEDURES
Upon completion of service action and prior to leaving
the End User Site, Equant will contact the CNCC to
initiate call closure. Equant shall provide the
following information to the CNCC:
. Site location;
. Ticket number/Clarent number;
. End User contact name;
. Time of repair;
. Exact repair solution;
. Equant engineer's name;
. Status of Equipment;
. Serial numbers of any replaced Equipment.
6.2.5 PREVENTIVE MAINTENANCE
Equant shall provide preventive maintenance in
conjunction with Service calls as recommended by the
hardware manufacturer, and as mutually agreed to
between the Parties as specified by the Manufacturer
and/or Supplier in conjunction with on-site Maintenance
Services. If additional preventive maintenance services
are requested, Equant will provide such services at a
mutually agreed upon rate. Any Maintenance Services
which may be required as a result of the information
acquired during the performance of preventive
maintenance will be scheduled in coordination with the
CNCC.
6.2.6 SPARES
In accordance with local laws and regulations, Clarent
shall consign a quantity of Spares to Equant, in order
to enable Equant to provide the Services, subject to
advance notice and approval by Clarent. At least sixty
(60) days prior to the commencement of Services, the
Parties shall mutually agree to a Spares consignment
plan which will be attached hereto as Exhibit 5.
(a) Equant shall have the following responsibilities
for all consigned Spares:
. Equant will be responsible for the
warehousing, safekeeping, and deployment of
such Spares for all End User Sites in the
countries defined in Exhibit 1 or such other
countries as the Parties may agree upon.
. Upon termination of the relationship between
the Parties, all such Spares will be
returned, at Clarent's expense, to Clarent's
main office, or will be shipped, at Clarent's
expense, to a Clarent designated location.
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(b) Clarent shall have the following responsibilities
for any Spares that are consigned:
. Clarent will be responsible for the cost and
the quality of repair of all Spares.
. Clarent will be responsible for, and bear the
costs of all direct expenses for shipment of
such consigned Spares, including but not
limited to, freight, customs and duties. If
any of these expenses are paid by Equant,
Equant shall invoice Clarent for these
charges, in accordance with Section 4.1 of
the Agreement.
(c) In any country that Clarent is legally unable to
consign Spares, and provided that Equant may
legally do so, Equant shall purchase and deploy
the necessary Spares, and shall re-invoice Clarent
for the costs thereof. Such purchased Spares shall
be used solely for Clarent's End Users in that
particular country. Prior to termination of the
relationship between the Parties, Clarent and
Equant shall come to a mutually agreement as to
the disposition of any Equant-purchased Spares.
(d) Equant agrees not to re-deploy any Spares provided
under this Section 6.2.6 from the original
consigned location unless agreed to in writing
between the Parties.
(e) Clarent reserves the right to request that a
Clarent representative visit the Spares depots to
confirm that the Spares are in place and available
for use. Such visits shall be referred to as a
"Spares Audit."
Clarent will advise the Equant Program Manager of
all requests for a Spares Audit. The Equant
Program Manager will schedule all Spares Audits
with the Spares depot during local Business Hours,
and in accordance with the following notification
provisions:
. All Spares Audits at depots will be scheduled
no less than ten (10) business days in
advance, for a date and time mutually
acceptable to the Parties;
. The total number of Spares Audits at any
Spares depot shall not exceed more than one
(1) per twelve (12) month period.
6.2.7 EXCLUSIONS TO MAINTENANCE SERVICES
Equant's obligation to provide Maintenance Services
described herein applies only to the maintenance
necessitated by reasonable wear and use of Equipment by
the End User, provided, however, the Parties shall
agree in the Transition Plan or other applicable
document, the extent to which Equant's responsibilities
apply to Equipment covered under Clarent's warranty,
including additional charges, if any.
(a) Equant shall be under no obligation to furnish
Maintenance Services and Equant not be responsible
for any damages to Clarent or its End User for the
loss of the use of the Equipment caused by:
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<PAGE>
(1) the partial or total loss of the use of the Equipment
occasioned by temperature or electrical current fluctuation,
fire flood, riots, warfare or any other casualty or loss;
(2) repair of any Equipment, which by reason of age or extreme
or abusive use has become so debilitated as to be beyond
reasonable repair;
(3) any such Services necessitated by improper, erroneous, or
incorrect adjustments, repairs or other services being
performed on the Equipment by any third parties not approved
in writing by Equant;
(4) virus related damage; and/or
(5) the inability of the Equipment and/or Software to properly
process date and change of date information.
Interventions and repairs rendered necessary by the causes set
forth above may be performed by Equant at Clarent's request at
the hourly labor rates set forth in Exhibit 2.
(b) Maintenance Services hereunder do not include:
. the provision of operating suppliers or accessories;
. paint or other refinished materials or labor;
. electrical work external to the Equipment;
. replacement of magnetic media such as disc packs or magnetic
tape;
. provisions of consumables, including without limitation,
ribbons, toner, cartridges and laser printer drum
assemblies; correction of software databases, and/or
programming errors, or any errors or damages caused by or
arising out of input or in the performance of the Services;
. correction of any instabilities in the operation of the
Equipment which are caused by or related to hardware,
software, firmware or system failure, or caused by or
related to the inability of the hardware, software or
firmware to process change of date information.
(c) Equant is not responsible for any instabilities in the operation
of the Equipment which are caused by, or related to (i) the use
of certain software, including Clarent's or End Users proprietary
software, and (ii) combinations of hardware and software.
PAGE 10
<PAGE>
SECTION 7. INSTALLATIONS, MOVES, ADDS, CHANGES, DELETIONS AND EQUIPMENT UPGRADES
("IMACS")
7.1 IMAC GENERAL PROVISION
7.1.1 SCHEDULING
Provided Equant has received the Service Request for an
IMAC at least fifteen (15) Business Days prior to the
date such IMAC Service is requested, Equant will
schedule with the CNCC, the following Services at the
applicable End User Site for the date set forth in the
Service Request:
. installations of Equipment at new End User Sites
(as described in Section 7.2);
. addition of new Equipment or Components or changes
of new Equipment or Components at an existing End
User Site (as described in Section 7.3;
. deletions of Components and/or Equipment (as
described in Section 7.4;
. movements of a Equipment within a End User Site
(same campus/same site or reclassification of the
site) (as described in Section 7.5);
. movements of Equipment between two End User Sites
(as described in Section 7.6); and
. upgrades of Components and Equipment (as described
in Section 7.7).
7.1.2 SITE PREPARATION
In accordance with Section 5, Clarent will be
responsible to advise its End Users of any preparations
that need to be made at the End User Site. Such
preparation activities may be recommended in a site
survey report provided by Equant.
In the event that the Equant Technician determines that
the End User Site is not appropriately prepared, and
the IMAC cannot take place, the Equant technician shall
immediately contact the (1) the Equant Program Manager,
(2) the CNCC and (3) the Clarent Program Manager, to
advise accordingly. Equant shall have no responsibility
to continue with the IMAC until Clarent advises Equant
that the End User Site has been properly prepared. If
the required preparation activities are required,
Equant may require that the IMAC activity be
rescheduled. If, as a result of such rescheduling,
Equant has to make more than one trip to the End User
Site, or has to remain on site to wait for the End User
Site to be appropriately prepared, the additional time
required will be billed at the applicable hourly rate
as detailed in Exhibit 2.
Equant will not be responsible for any failure to
complete an IMAC by the requested date, if such failure
is due to any cause beyond Equant's control, including
but not limited to, inability to gain access to the End
User Site as scheduled, failure by the local
telecommunications authority to complete installation
of data circuits, or End User's failure to prepare the
End User Site as required in the site survey report.
PAGE 11
<PAGE>
7.1.3 IMAC RESCHEDULING
In the event the requested date for performance of an
IMAC needs to be revised by Clarent, Clarent shall
provide at least five (5) business days advance written
notice of such revision. If the number of rescheduled
IMACs exceeds more than five (5) in any calendar month,
the Clarent Program Manager shall be required to
evaluate the reasons for the high reschedule rate and
take appropriate action to correct the problem.
7.1.4 CHARGES FOR IMACS
Unless otherwise agreed to between the Parties, the
charges for all IMACs described in this Article 7 are
set forth in Exhibit 2.
7.2 INSTALLATION
Equant shall install each Equipment for the applicable Site on
the date set forth in the Service Request and in accordance with
the requirements set forth below, provided the Equipment is on-
site and available for installation. In the event that Clarent
requests installation of Equipment in a in a country which is not
listed in Exhibit 2, such Services shall be deemed a New Service
in accordance with Section 3.3 of the Master Maintenance and
Support Services Agreement, Contract Number TM-3651, and Clarent
shall submit a request for pricing in accordance therewith.
7.2.1 EQUANT RESPONSIBILITIES
Equant shall:
. Provide its technicians with the appropriate
installation documentation for each Equipment
installation, including testing procedures and an
installation checklist for all Equipment and
cables (the "Installation Documentation"); a draft
of such Installation Documentation will be
delivered by Equant to Clarent no later than
fifteen (15) Business Days from the execution of
this for review, comments and approval.
. Confirm that the End User Site has been properly
prepared in accordance with the requirements
stated in the site survey form;
. Ensure that the Equipment has been delivered to
the End User Site;
. Arrive on-time to perform the installation;
. Unpack, inventory, and perform the activities to
install all Components or Equipment;
. Determine if wiring is in place between the
Equipment cabinet and the demarcation point, prior
to the start of the installation of Equipment;
. Interconnect the Equipment to the demarcation,
test all Equipment and provide the Clarent Program
Manager with the test results, and initiate turn-
up using information obtained from the
Installation Documentation;
. If Equant has procured, staged and shipped the
Equipment and/or Components, provide replacement
parts/units to remedy OBF situations or a
PAGE 12
<PAGE>
Equipment found inoperable during installation
(hereinafter "Defective Equipment"). If the
Defective Equipment cannot be repaired or Spares
are not available, Clarent will arrange for
immediate repair or replacement of the Defective
Equipment at no charge. Upon completion of repair
or replacement of a Defective Equipment, Equant
will complete the installation;
. Notify the CNCC immediately in the event any
problems occur during installation which adversely
affect the installation process;
. Commence Maintenance Services as of the date in
which the installation was completed and wired up.
7.2.2 CLARENT RESPONSIBILITIES
. Notify the Equant Program Manager if any of End
User timeframes for installation and support have
changed from the information contained in the
Service Request provided to Equant;
. Through the CNCC, provide telephone support to the
Equant technician for the purposes of problem
isolation and/or resolution, at no charge to
Equant;
. In the event End User cancels an installation
Service Request after the Equipment have been
delivered to Equant, Clarent shall immediately
advise Equant of the redeployment of the Equipment
for a different installation or if the Equipment
should be returned to Clarent. Clarent shall pay
all actual shipping costs plus a handling charge
of five (5)% to Equant.
7.3 INSTALLATION OF ADDITIONAL EQUIPMENT AND/OR COMPONENTS AT AN
EXISTING END USER SITE
Upon receipt and acceptance of a Service Request, Equant shall
install additional Equipment and/or Components at an existing End
User Site. The individual tasks required by the Parties are the
same as set forth in Section 7.2 of this Statement of Work.
7.4 DEINSTALLATION OF A WHOLE END USER SITE, OR EQUIPMENT AND/OR
COMPONENTS FROM A END USER SITE
As requested in a Service Request, Equant shall provide Services
for the deinstallation of an entire End User Site, or Equipment
and/or Components from a End User Site.
Equant will arrive at the End User Site, deinstall, and pack the
Equipment and/or Components for shipment or disposal. In the
event that Clarent requests that the Equipment and/or Components
be stored by Equant, Equant shall ship such Equipment and/or
Components to an Equant facility for storage, Clarent shall pay
all actual costs for packing materials, shipping and handling
plus a handling charge of five (5)% to Equant. Equant will store
the Equipment at a rate mutually agreed to between the Parties.
7.4.1 CLARENT RESPONSIBILITIES
Clarent shall be responsible to:
. Supply the Equant Program Manager with the exact
configuration of the End User Site being
deinstalled for establishing the correct packing
carton requirements at the local site;
PAGE 13
<PAGE>
. Provide shipping information and/or disposal
instructions;
. Provide local contact name, telephone number and
alternate contact information (if available);
. Arrange with local End User Site for storage and
shipment of boxes and Equipment.
7.4.2 EQUANT RESPONSIBILITIES
Equant shall be responsible to:
. Conduct a comprehensive inventory of the Equipment and
record model and serial numbers (the format shall be
determined and agreed to between the Parties prior to any
deinstallation);
. If the Equipment or Components to be deinstalled are to be
shipped from the End User Site, Equant shall:
. Ensure all packing materials are placed in the mutually
agreed local storage site, pending shipment in
accordance with Clarent instructions;
. Disconnect all cables from the Equipment, pack, and
label the boxes for shipping;
. Prepare all Equipment for shipping in accordance with
Clarent's instructions;
. Arrange for shipment of Equipment with local carriers.
. If the Equipment or Components to be deinstalled are to be
disposed of, Equant shall dispose of such Equipment and/or
Components in accordance with the disposal instructions
provided by Clarent;
. Notify the CNCC that the Clarent Site or the Equipment
and/or Components have been successfully deinstalled.
7.5 MOVEMENT OF EQUIPMENT WITHIN AN END USER SITE
All Equipment moves within an End User Site shall (i) require
performance of a site survey at the new End User Site, (ii)
deletion of the relevant Equipment from existing End User Site
and (iii) installation of the Equipment at the new End User Site.
The Parties' responsibilities regarding the activities for site
surveys, deletion and installation are set forth elsewhere in
this Statement of Work End User
Additional Clarent responsibilities shall include:
. Ensure that the new location is properly prepared in
accordance with the requirements of the site survey report
provided by Equant;
. Provide the necessary documentation with the specifics for
the Equipment move, including addresses;
. Provide local contact name, telephone number, and alternate
contact information (if
PAGE 14
<PAGE>
available) at the original Site and the new End User Site;
7.6 MOVEMENT OF EQUIPMENT BETWEEN SITES
Movement of Equipment between End User Sites will be treated as a
complete deinstallation of the original End User Site requiring
an inventory of the Equipment, performance of a site survey at
the new End User Site, and complete installation at the new End
User Site in accordance of the procedures set forth in Sections
4, 7.2 and 7.4.
7.7 MODIFICATIONS AND UPGRADES OF EQUIPMENT
Clarent shall notify Equant of any engineering changes, upgrades,
modifications, enhancements, or any other changes relevant to
servicing, operating or enhancing the Equipment and/or
Components. Unless otherwise agreed to between the Parties,
staging, installation and maintenance of enhancements,
Engineering Change Orders ("ECOs") and changes required by a
governmental or regulatory entity for product safety reasons
("Safety Changes") (collectively "Equipment Changes") shall be
performed at Equant's current hourly labor rate. The inclusion of
such Equipment Changes will be reflected by an amendment to this
Statement of Work.
7.7.1 Clarent will supply all necessary Components for any
Equipment Changes at no charge to Equant. Equant shall
arrange to receive the these Components for the
Equipment Changes. Equant shall install equipment
Changes in an agreed-upon time frame, or during on-site
Maintenance Services activities.
7.7.2 All ECOs and Safety Changes shall be coordinated be the
Equant Program Manager with the CNCC and the Clarent
Program Manager.
SECTION 8. - TECHNICAL SUPPORT
8.1 HARDWARE TECHNICAL SUPPORT
Clarent will provide a second level support mechanism for the
Equant Technicians, which will be available to provide such
support by telephone, twenty-four (24) hours per day, seven (7)
calendar days per week (Monday - Sunday, fifty-two (52) weeks per
year, including holidays). Such support shall include assisting
the Equant Technician through diagnostics and troubleshooting to
identify and resolve hardware problems the technician is not
otherwise able to resolve.
8.2 ESCALATION PROVISIONS
Within fifteen (15) calendar days from the execution of this
Statement of Work, the Parties shall mutually agree upon
appropriate escalation procedures in the event Equant's normal
maintenance procedures fail to restore the Equipment to Proper
Operational Condition in accordance with the Service Levels set
forth in Section 11.
SECTION 9. - REPORTING
Equant shall issue reports concerning the Services which have been
provided. The Parties agree that all reports generated by Equant shall be
in written and electronic format. All reports shall be kept confidential by
Clarent and the Parties shall use such reports for internal analysis only.
These reports may include, by way of example, Spares inventory, Clarent
Site inventory, activity history by Clarent Site/region/global.
PAGE 15
<PAGE>
SECTION 10. - OPERATIONAL PROJECT REVIEWS
Clarent and Equant will conduct the project reviews listed in Table
10.1 below during the term of this Statement of Work unless rescheduled
or terminated by mutual agreement of the Parties. The purpose of the
reviews is to facilitate the regular exchange of information between
the Parties and provide a forum for the identification, escalation and
resolution of issues affecting the performance of Services. Clarent and
Equant will identify the specific personnel to chair these reviews, as
well as any invited Equant or Clarent personnel.
TABLE 10.1 - PROJECT, REVIEW SCHEDULE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Review Purpose Interval Participants
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Review To review overall performance, Monthly, for the initial Clarent: (to be identified)
Meetings identify major issues, develop four (4) months after
corrective action plans, execution of Statement of Equant: (to be identified)
discuss general business Work, Quarterly, thereafter.
forecasting and strategy. Vendor Partners when required
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Performance Review operational performance Monthly, commencing with Clarent Program Manager
Operations against established SLAs; the implementation of the
identify and implement required first End User Site and Equant Program Manager
corrective actions; review continuing through the term
operational status of sparing of this Statement of Work
implementation.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SECTION 11.- SERVICE LEVELS AND PERFORMANCE
11.1 RESPONSE TIMES AND TIME TO REPAIR
Equant is required to arrive at the End User Site within the
stated Response Time as noted in Exhibit 1 and the repair of
Equipment is expected to be no more than three (3)* hours after
arrival at site unless otherwise specified in Exhibit 1.
11.1.1 In the event Equant fails to repair a Component or
unit of Equipment within the stated Time To Repair as
stated in Section 11.1 or as otherwise specified in
Exhibit 8, then such event shall be accepted as one
occurrence of non or substandard performance.
11.1.2 Equant agrees it will meet the required Time To
Repair standards, as stated in Section 1 t.1 or as
otherwise specified in Exhibit 8, for each ninety
(90) day period, effective from the first failure to
meet obligations as stated, for all End User Sites
covered by this Statement of Work on a ninety (90%)
percent of all Fault Calls for the term of this
Statement of Work. 11.2 Exceptions to Performance
Standard Measurements
11.2 EXCEPTIONS TO PERFORMANCE STANDARD MEASUREMENTS
11.2.1 Equant performance of its obligations under this
Statement of Work shall only be measured for
Maintenance Services as provided under Section 6 of
this Statement of Work; and
11.2.2 Equant shall only be measured on such Fault Calls
where the CNCC has been able to diagnose the Fault to
the Component level which is not in Proper
PAGE 16
<PAGE>
Operational Condition; however, such inability to
diagnose a Fault to Component level shall not
interfere with Equant's responsibility to respond to
that Fault Call; and
11.2.3 Equant shall only be measured on such Fault Calls
where the CNCC has accurately diagnosed the Fault.
IN WITNESS WHEREOF, the duly authorized representatives of the Parties have
executed this Statement of Work as of the last date set forth below.
ACCEPTED BY: AGREED TO:
EQUANT INTEGRATION SERVICES, INC. CLARENT CORPORATION
BY: /s/ Richard H. Blausteim BY: /s/ Ilene Harding
------------------------ -----------------
NAME: Richard H. Blausteim NAME: Ilene Harding
TITLE: CEO, North America TITLE: Director, World Wide Contracts
DATE: 12/30/98 DATE: 12/30/98
-------- --------
PAGE 17
<PAGE>
EXHIBIT I - END USER SITE AND EQUIPMENT LIST
TO BE PROVIDED WITHIN TEN (10) BUSINESS DAYS FROM EXECUTION OF THIS STATEMENT OF
WORK
PAGE 18
<PAGE>
EXHIBIT 2 - SERVICES LIST AND PRICING
PRICE SUMMARY NAM LAM 1 LAM 2 ASIA 1 ASIA 2
- ------------------
Maintenance: NBH $331.00 $301.00 $259.00 $329.00 $269.00
GSC Remote Support inc inc inc inc Inc
Maintenance 24x7 $496.50 $451.50 $388.50 $493.50 $403.50
(Premium + Ultra)
ASIA 3 EUMA 1 EUMA 2 EUMA 3 EUMA 4
Maintenance: NBH $227.00 $363.00 $327.00 $291.00 $219.00
GSC Remote Support inc inc inc inc inc
Maintenance 24x7 $340.50 $544.50 $490.50 $436.50 $328.50
(Premium + Ultra)
1. Prices assume sites are within fifty (50) kilometers of the nearest Equant
Service Center outside of the United States and within fifty (50) miles of
the nearest Equant Service Center within the United States, the following
coefficients will apply for sites in excess of this distance:
---------------------------------------------------
0km - 50km 1.00
---------------------------------------------------
less than 50km - 100km 1.50
---------------------------------------------------
less than 100km - 200km 1.75
---------------------------------------------------
less than 200km On request
Excluding travel cost for boat, train, and airfare, plus hotel expenses
(customer approval required).
2. Preventive maintenance will be limited to one call per year, which may be
revised by the Parties upon mutual agreement.
3. For pricing purposes, it should be assumed that the gateways are generally
under 30 ports and therefore single processor machines.
Regional Banding
NAM Canada, USA
LAM 1 Argentina, Brazil
LAM 2 Chile, Mexico, and Venezuela
ASIA 1 Japan
ASIA 2 Australia, China, Hong Kong, Indonesia, New Zealand, Singapore
ASIA 3 Malaysia, South Korea, Taiwan, Thailand, Vietnam
EUMA 1 Austria, France, Germany, Switzerland, UK
EUMA 2 Belgium, Denmark, Italy, Netherlands, Norway, Sweden
EUMA 3 Finland, Portugal, Saudi Arabia, Spain
EUMA 4 Egypt, Greece, Iran, Ivory Coast, Lebanon, Russia, Senegal,
South Africa, Syria
PAGE 19
<PAGE>
EXHIBIT 3 - EQUANT CUSTOMER CARE CENTERS AND CLARENT NETWORK CONTROL CENTER
The Clarent support center will notify the Equant Integration Services support
center in Maidenhead, UK for coordinating and dispatch of Engineers via a phone
notification. Optionally and for a potential future additional cost to Clarent,
the Clarent Support center may be linked to the Equant Integration Services
support center in Maidenhead, UK for coordinating and dispatch of Engineers.
PAGE 20
<PAGE>
EXHIBIT 4 - DELIVERABLES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
DELIVERABLE RESPONSIBLE DELIVERY TIME SECTION
PARTY REFERENCE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Appointment of Program Managers Equant and Upon execution of this Statement of Work. 3.1
Clarent
- -----------------------------------------------------------------------------------------------------------------
Transition Plan Equant and Within sixty (60) calendar days from 3.2
Clarent execution of this Statement of Work
- -----------------------------------------------------------------------------------------------------------------
Lead time commencement of Clarent Reasonable time to deploy spares 3.6
maintenance for new Equipment consigned by Clarent, or acquired by types
Equant where Clarent cannot legal consign.
- -----------------------------------------------------------------------------------------------------------------
Completion of Training Equant and At least ten (10) business day prior to 3.7
Clarent commencement of Services
- -----------------------------------------------------------------------------------------------------------------
Site Survey Form Completed Equant Ten (10) Business Days from completion 4.1.1, 4.2.1
of site survey
- -----------------------------------------------------------------------------------------------------------------
Fault Call Reporting Procedures Equant and Within fifteen (15) Business Days from 6.2
Clarent execution of this Statement of Work
- -----------------------------------------------------------------------------------------------------------------
Clarent's Network Control Center Clarent Upon execution of this Statement of Work 6.2.4
Telephone Number
- -----------------------------------------------------------------------------------------------------------------
Installation Documentation Form Equant and Within fifteen (15) Business Days from 7.2.2
Clarent execution of this Statement of Work
- -----------------------------------------------------------------------------------------------------------------
Escalation Procedures Equant and Within fifteen (15) Business Days from 8.2
Clarent execution of this Statement of Work
- -----------------------------------------------------------------------------------------------------------------
Report Form and Contents Equant and Within fifteen (15) Business Days from 9
Clarent execution of this Statement of Work
- -----------------------------------------------------------------------------------------------------------------
List of Equipment and End User Sites Clarent Within ten (10) Business Days from Exhibit 1 to
execution of the Statement of Work the Statement
of Work
- -----------------------------------------------------------------------------------------------------------------
Spare Parts Plan Equant and Within ten (10) Business Days from Exhibit 1 to
Clarent execution of the Statement of Work the Statement
of Work
- -----------------------------------------------------------------------------------------------------------------
Transition Plan Equant and Within ten (10) Business Days from Exhibit 1 to
Clarent execution of the Statement of Work the Statement
of Work
- -----------------------------------------------------------------------------------------------------------------
Second Level Support Requirements Equant and Within ten (10) Business Days from Exhibit 8 to
Clarent Execution of this Statement of Work. the Statement
of Work
- -----------------------------------------------------------------------------------------------------------------
Travel Expense Policy Clarent Upon execution of this Statement of Work 4.4 of Master
Maintenance
and Support
Services
Agreement
- -----------------------------------------------------------------------------------------------------------------
Equipment Shipment Forecast for Clarent Upon execution of this Statement of Work 3.2 of the
1998 Master
Maintenance
and Support
Services
Agreement
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 21
<PAGE>
EXHIBIT 5 - SPARE PARTS PLAN
TO BE PROVIDED WITHIN TEN (10) BUSINESS DAYS FROM EXECUTION OF THIS STATEMENT OF
WORK
PAGE 22
<PAGE>
EXHIBIT 6 - TRANSITION PLAN
TO BE PROVIDED WITHIN TEN (10) BUSINESS DAYS FROM EXECUTION OF THIS STATEMENT OF
WORK
PAGE 23
<PAGE>
EXHIBIT 7 - EQUANT HOLIDAY SCHEDULE
ARGENTINA
New Year's Day January 1
Labor Day May 1
Anniversary of May Revolution May 25
Malvinas Day Monday closest to June 10
Flag Day Monday closest to June 20
Independence Day July 9
Death of General Jose de San Martin August 17
Columbus Day October 12
Christmas Day December 25
Good Friday April 10
Easter April 12
CHINA
New Year's Day January 1
Chinese New Year January 28
Labor Day May 1
National Day October 1
COLUMBIA
New Year's Day January 1
Epiphany January 6
San Jose March 19
Labor Day May 1
St. Peter and Paul Day June 29
Independence Day July 20
Battle of Boyaca August 7
Assumption August 15
Dia de la Raza October 12
All Saints Day November 1
Cartegena Independence Day November 11
Immaculate Conception December 8
Christmas Day December 25
BAHRAIN
New Year's Day January 1
Eld Al Fitr January 30
Eld Al Adha April 8
Islamic New Year April 28
Ashoora May 7
Prophet's Birthday July 17
National Day December 16
BELGIUM
New Year's Day January 1
Easter Monday April 13
Labor Day May 1
Ascension May 21
Pentecost May 31
Whit Monday June 1
Dutch Holiday July 11
PAGE 24
<PAGE>
National Holiday July 21
Assumption August 15
French Holiday September 27
Alt Saints Day November 1
Veteran's Day November 11
Christmas Day December 25
UNITED KINGDOM
New Year's Day January 1
Bank Holiday (Scotland only) January 2
St. Patrick's Day (Northern Ireland only) March 17
Good Friday April 10
Easter Monday April 13
May Day Bank Holiday First Monday in May
Bank Holiday Last Monday in May
Battle of the Boyne Day (Northern Ireland only) July 12
Summer Bank Holiday (Scotland only) First Monday in August
Summer Bank Holiday (England and Northern Ireland) Last Monday in August
Christmas Day December 25
Boxing Day December 26
SOUTH AFRICA
New Year's Day January 1
Human Rights Day March 21
Family Day April 8
Freedom Day April 27
Workers Day May 1
Youth Day June 16
Public Holiday Third Monday in June
Women's Day August 9
Heritage Day September 24
Day of Reconciliation December 16
Christmas Day December 25
Day of Goodwill December 26
SAUDI ARABIA
Eld Al Fitr December 20
Eld Al Adha April 8
ECUADOR
HONG KONG
New Year's Day January 1
Lunar New Year February 28
Ching Ming Festival April 5
Good Friday April 10
Easter Monday April 13
Tuen Ng Festival June 28
SAR Establishment July 1
Victory Day
Day Following Mid Autumn Festival October 6
Chung Yeung Festival October 19
National Day
PAGE 25
<PAGE>
Christmas Day December 25
INDONESIA
New Year's Day January 1
Hari Raya Puasa January 30
Haft Raya Haji April 8
Good Friday April 10
Icaka New Year
Islamic New Year April 25
Weisek Day May 5
Ascension May 21
Prophet's Birthday July 7
Ascension of the Prophet
Christmas Day December 25
NEW ZEALAND
New Year's Day January 1
Waitangi Day February 6
Good Friday April 10
Easter Monday April 13
ANZAC Day April 25
Queen's Birthday First Monday in June
Labor Day Fourth Monday in October
Christmas Day December 25
Boxing Day December 26
SINGAPORE
New Year's Day January 1
Chinese New Year February 28
Hari Raya Puasa January 30
Labor Day May 1
Good Friday April 10
Hari Raya Haji April 8
Vesak May 21
National Day August 1
Depavali October 19
Christmas Day December 25
SRI LANKA
Tamil Thai Pongal January 14
Eid ul Fitr January 30
National Day February 4
Mahashivaratri or Shivaratri March 7
Eld ul Adha April 8
Good Friday April 10
Sihala/Tamil New Year's Eve April 12
Sihala/Tamil New Year's Day April 13
Heroes Day April 22
Prophet's Birthday July 7
May Day May 1
Special Bank Holiday June 30
Deepavali October 19
Christmas Day December 25
Special Bank Holiday December 31
PAGE 26
<PAGE>
THAILAND
New Year's Day January 1
Makha Bucha Day February 21
Chakri Day April 6
Songkran Festival/Family Day April 12- 14
Labor Day May 1
Coronation Day May 5
Ploughing Ceremony May 9
Visakha Bucha Day May 20
Mid Year Day July 1
Asarnha Bucha Day July 19
Khao Phansa Day July 20
Queen's Birthday August 12
Chulalongkorn Day October 23
King's Birthday December 5
Constitution Day December 10
New Year's Eve December 31
MACAU
New Year's Day January 1
Chinese New Year January 38
Cheng Ming April 5
Good Friday April 10
Anniversary of the Portuguese Revolution April 25
Labor Day May 1
Feast of Tun Ng May 30
Camoes Day and Portuguese Communities Day June 10
Feast of St. John Baptist June 24
National Day October 1
Portuguese Republic Day/Mid Autumn Festival October 5
Day Following Mid-Autumn Festival October 6
All Souls Day November 2
Restoration of Independence December 1
Feast of the Immaculate Conception December 8
Winter Solstice December 22
Christmas Eve December 24
Christmas Day December 25
INDIA
Republic Day January 26
Eid ul Fitr January 30
Holi March 13
Good Friday April 10
Sri Rama Navami April 16
Mahavir Jayanthi April 20
Buddha Purnima May 22
Hrishna Janamashti August 25
Independence Day August 15
Mahatma Gandhi's Birthday October 2
Dussehra (Vijaya Dashmi) October 11
Deepavali October 19
Guru Nanak's Birthday November 4
Christmas Day December 25
PAGE 27
<PAGE>
JAMAICA
New Year's Day January 1
Labor Day Late May
Independence Day First Monday in
August
National Heroes' Day Mid October
Christmas Day December 25
Boxing Day December 26
Ash Wednesday February 25
Good Friday April 10
Easter Monday April 13
MOROCCO
New Year's Day January 1
Independence Manifesto Day January 11
Eid Al Fitr January 30
National Day March 3
Eid At Adha April 8
Islamic New Year April 28
Labor Day May 1
National Day May 23
Prophet's Birthday July 7
King Hassan's Birthday July 9
Reunification Day August 14
King's and People's Revolution Day August 20
Anniversary of the Green March November 6
Independence Day November 18
PANAMA
New Year's Day January 1
Martyr's Day January 9
Labor Day May 1
Anniversary of the Founding of Panama City August 15
Anniversary of Separation from Columbia November 3
Flag Day November 4
Colon Day (Colon Only) November 5
Anniversary of the First Call for Independence in Los November 10
Santos
Anniversary of Independence from Spain November 29
Mothers' Day December 8
Christmas Day December 25
Carnival February 22 - 23
Good Friday April 10
PARAGUAY
New Year's Day January 1
Holy Thursday April 9
Good Friday April 10
Labor Day May 1
Heroes' Day March 1
Independence Day May 15
Chaco Armistice June 12
Founding of Asuncion August 15
Immaculate Conception December 8
PAGE 28
<PAGE>
Christmas Day December 25
PERU
New Year's Day January 1
Holy Thursday April 9
Good Friday April 10
Labor Day May 1
Independence Day May 15
St. Peter and St. Paul June 29
Independence Day Celebrations July 28-29
St. Rosa of Lima August 30
Battle of Angamos October 8
All Saints Day November 1
Immaculate Conception December 8
Christmas Day December 25
PHILIPPINES
New Year's Day January 1
Day of Valor April 9
Holy Thursday April 9
Good Friday April 10
Labor Day May 1
Independence Day June 12
Manila Day June 23
All Saints Day November 1
Bonifacio Day November 30
Christmas Day December 25
Public Holiday December 26
Rizal Day December 30
TRINIDAD
New Year's Day January 1
Arrival Day May 30
Labor Day June 19
Emancipation Day August 1
Independence Day August 31
Republic Day September 24
Christmas Day December 25
Boxing Day December 26
Eid Ul Fitr January 30
Carnival February 23 - 24
Good Friday April 10
Easter Monday
TUNISIA
New Year's Day January 1
Revolution Day January 18
Eid Al Fitr January 30
Independence Day March 20
Youth Day March 21
Martyrs' Day April 1
Eid Al Adha April B
Islamic New Year April 28
Labor Day May 1
PAGE 29
<PAGE>
Prophet's Birthday July 7
Republic Day July 25
Women's Day August 13
Celebration of September 4, 1934 September 3
Evacuation Day October 15
Commemoration Day November 7
UNITED ARAB EMIRATES
New Year's Day January 1
Eid At Fitr January 30
Eid Al Adha April 8
Islamic New Year April 28
Prophet's Birthday July 7
H.H. Sheikh Zayed Bin Sultal Al Nahyan's Accession Day August 6
Lailat al Mirah November 17
National Day December 6
PAGE 30
<PAGE>
EXHIBIT 8 - FAULT CALL HANDLING
Call Tracking
All calls into the Equant Global Support Center ("GSC") will be tracked using a
relational database. Monthly report will be generated by Equant to document the
key matrix, the form of which shall be defined in the transition plan.
CALL ESCALATION
Equant will escalate Fault Calls to Clarent Technical Support Help Desk using
the Clarify Front Office client application, provided by Clarent.
[_] Call answered within two (2) minutes on problem reporting.
[_] Call back within fifteen (15) minutes upon receipt of voice mail
message.
[_] On-Site response time is within four (4) hours of receiving customer
call (provided customer equipment site is within 50 miles (U.S.) or
fifty (50) kilometers (all other countries) of an Equant Service
Center).
[_] Equant shall use best effort to arrive on site within the following
times:
. 0-50 Km 4 hours
. 51-100 Km 6 hours
.. 100 Km 8 hours
REMOTE SOFTWARE ASSISTANCE
[_] Provide solution for reported software problem. (By Clarent Technical
Support Help Desk)
[_] Provide guidance in locating information within the documentation for
procedures that will resolve the problem. (By Equant)
[_] Provide temporary workaround procedures to circumvent a problem until a
fix/patch/update is available. (By Equant according to technical
bulletin from Clarent)
[_] Assist in downloading software fixes, patches or upgrades from Clarent
electronic database. (By ElS according to technical bulletin from
Clarent)
SOFTWARE UPDATE INSTALLATION ASSISTANCE
[_] Assistance in inquiries to software update questions.
[_] Operational support during installation of software update.
[_] Problem resolution support should problems occur while installing the
update.
SECOND LEVEL SUPPORT
[_] TO BE PROVIDED WITHIN TEN (10) BUSINESS DAYS AFTER EXECUTION OF THIS
STATEMENT OF WORK.
PAGE 31
<PAGE>
EXHIBIT 10.9
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. ACCOUNTING AND OTHER TERMS............................................. 1
2. LOAN AND TERMS OF PAYMENT.............................................. 1
2.1 Advances......................................................... 1
2.1.1 Revolving Advances....................................... 1
2.2 Overadvances..................................................... 1
2.3 Interest Rate, Payments.......................................... 1
2.4 Fees............................................................. 2
3. CONDITIONS OF LOANS.................................................... 2
3.1 Conditions Precedent to Initial Advance.......................... 2
3.2 Conditions Precedent to All Advances............................. 2
4. CREATION OF SECURITY INTEREST.......................................... 2
4.1 Grant of Security Interest....................................... 2
5. REPRESENTATIONS AND WARRANTIES......................................... 3
5.1 Due Organization and Authorization............................... 3
5.2 Collateral....................................................... 3
5.3 Litigation....................................................... 3
5.4 No Material Adverse Change In Financial Statements............... 3
5.5 Solvency......................................................... 3
5.6 Regulatory Compliance............................................ 3
5.7 Subsidiaries..................................................... 4
5.8 Full Disclosure.................................................. 4
6. AFFIRMATIVE COVENANTS.................................................. 4
6.1 Government Compliance............................................ 4
6.2 Financial Statements, Reports, Certificates...................... 4
6.3 Inventory; Returns............................................... 5
6.4 Taxes............................................................ 5
6.5 Insurance........................................................ 5
6.6 Primary Accounts................................................. 5
6.7 Financial Covenants.............................................. 5
6.8 Intellectual Property Rights..................................... 6
6.9 Further Assurances............................................... 6
7. NEGATIVE COVENANTS..................................................... 6
7.1 Dispositions.......................................................6
</TABLE>
<PAGE>
Table Of Contents
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
7.2 Changes in Business, Ownership, Management or Business Locations...6
7.3 Mergers or Acquisitions............................................6
7.4 Indebtedness.......................................................6
7.5 Encumbrance........................................................6
7.6 Distributions; Investments.........................................6
7.7 Transactions with Affiliates.......................................7
7.8 Subordinated Debt..................................................7
7.9 Compliance.........................................................7
8. EVENTS OF DEFAULT...................................................... 7
8.1 Payment Default.................................................. 7
8.2 Covenant Default................................................. 7
8.3 Material Adverse Change.......................................... 7
8.4 Attachment....................................................... 8
8.5 Insolvency....................................................... 8
8.6 Other Agreements................................................. 8
8.7 Judgments........................................................ 8
8.8 Misrepresentations............................................... 8
9.1 Rights and Remedies.............................................. 8
9.2 Power of Attorney................................................ 9
9.3 Accounts Collection.............................................. 9
9.4 Bank Expenses.................................................... 9
9.5 Bank's Liability for Collateral.................................. 9
9.6 Remedies Cumulative.............................................. 10
9.7 Demand Waiver.................................................... 10
10. NOTICES............................................................... 10
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER............................ 10
12. GENERAL PROVISIONS.................................................... 10
12.1 Successors and Assigns......................................... 10
12.2 Indemnification................................................ 10
12.3 Time of Essence................................................ 11
12.4 Severability of Provision...................................... 11
12.5 Amendments In Writing, Integration............................. 11
12.6 Counterparts................................................... 11
</TABLE>
2
<PAGE>
Table Of Contents
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
12.7 Survival....................................................... 11
12.8 Confidentiality................................................ 11
12.9 Attorneys' Fees, Costs and Expenses............................ 11
13. DEFINITIONS........................................................... 11
13.1 Definitions.................................................... 11
</TABLE>
3
<PAGE>
This LOAN AND SECURITY AGREEMENT dated May 22, 1998, between SILICON VALLEY
BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara, California 95054
and CLARENT CORPORATION ("Borrower'), whose address is 1900 Broadway, Suite 200,
Redwood City, California 94063 provides the terms on which Bank will lend to
Borrower and Borrower will repay Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
--------------------------
Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document. This Agreement shall be construed to impart upon Bank a
duty to act reasonably at all times.
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Advances.
Borrower will pay Bank the unpaid principal amount of all Advances and
interest on the unpaid principal amount of the Advances.
2.1.1 Revolving Advances.
(a) Bank will make Advances not exceeding the lesser of (A) the Committed
Revolving Line, subject to the Cap Amount or (B) the Borrowing Base, whichever
is less. Amounts borrowed under this Section may be repaid and reborrowed during
the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.
2.2 Overadvances.
If Borrower's Obligations under Section 2.1.1 exceed the lesser of either
(i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower must
immediately pay Bank the excess.
2.3 Interest Rate, Payments.
(a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate of one-half of one percentage point (0.500%) above
the Prime Rate. After an Event of Default, Obligations accrue interest at five
percentage points (5.000%) above the rate effective immediately before the Event
of Default. The interest rate increases or decreases when the Prime Rate
changes. Interest is computed on a 360 day year for the actual number of days
elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable on
the eleventh (11th) of each month. Bank may debit any of Borrower's deposit
accounts including Account Number ______________ for principal and interest
payments or any amounts Borrower owes Bank under this
<PAGE>
Agreement. Bank will notify Borrower when it debits Borrower's accounts. These
debits are not a set-off. Payments received after 2:00 PM Pacific time are
considered received at the opening of business on the next Business Day. When a
payment is due on a day that is not a Business Day, the payment is due the next
Business Day and additional fees or interest accrue.
2.4 Fees.
Borrower will pay:
(a) Facility Fee and Increase Fee. A fully earned, non-refundable Facility
Fee of $12,000 due on the Closing Date. Additionally, upon Borrower's election
to Advance in excess of the Cap Amount, Borrower will pay to Bank an additional
fee pro-rated at a rate of 0.400% per annum on the Advance amount in excess of
the Cap Amount (the "Increase Fee"), prior to such Advance.
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses) incurred in connection with the negotiation and documentation of
this Agreement are payable when due.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Advance.
Bank's obligation to make the initial Advance is subject to the condition
precedent that it receive the agreements, documents and fees set forth herein.
Bank's completion of a satisfactory accounts receivable audit.
3.2 Conditions Precedent to All Advances.
Bank's obligations to make each Advance, including the initial Advance, is
subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially true
on the date of the Payment/Advance Form and on the effective date of each
Advance and no Event of Default may have occurred and be continuing, or result
from the Advance. Each Advance is Borrower's representation and warranty on that
date that the representations and warranties of Section 5 remain true.
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral, except Bank acknowledges the existence of a prior lien on the
Intellectual Property in connection with the existing bridge loan in the
original principal amount of $2,600,000, dated February 26, 1998, by and between
Borrower and a third party creditor and additionally any lien taken on the
Intellectual Property in connection with bridge financing to Borrower's Series C
round of financing between Borrower and third party creditor. Notwithstanding
(i) that Borrower has granted to Bank a security interest in the Patents,
Trademarks, Copyrights, Mask Works and, (ii) that the Patents, Trademarks, Mask
Works and Copyrights are included in the Collateral, Bank shall not enforce its
security interest in the Patents, Trademarks, Mask Works, and Copyrights, other
than solely to the extent necessary to enable Bank to enforce its perfected
security interest in the Collateral other than the
<PAGE>
Patents, Trademarks, Mask Works and Copyrights. Bank may place a "hold" on any
deposit account pledged as Collateral.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it
is bound in which the default could cause a Material Adverse Change.
5.2 Collateral.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to the account debtor. Borrower has no notice of any actual
or imminent Insolvency Proceeding of any account debtor whose accounts are an
Eligible Account in any Borrowing Base Certificate. All Inventory is in all
material respects of good and marketable quality, free from material defects.
Borrower is the sole owner of the Intellectual Property, except for non-
exclusive licenses granted to its customers in the ordinary course of business.
Each Patent is valid and enforceable and no part of the Intellectual Property
has been judged invalid or unenforceable, in whole or in part, and no claim has
been made that any part of the Intellectual Property violates the rights of any
third party.
5.3 Litigation.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 No Material Adverse Change In Financial Statements.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrowers consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 Solvency.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 Regulatory Compliance.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of
<PAGE>
Governors). Borrower has complied with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
is reasonably likely to cause a Material Adverse Change. None of Borrower's or
any of Subsidiary's properties or assets has been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all taxes, except those
being contested in good faith with adequate reserves under GAAP. Borrower and
each Subsidiary has obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted.
5.7 Subsidiaries.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments, which includes Clarent Asia Pacific
Corporation.
5.8 Full Disclosure.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower will do all of the following:
6.1 Government Compliance.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrower's business or operations. Borrower will comply, and have
each Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 45 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank; (ii) as soon as available, but no later than 120 days after the last
day of Borrower's fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting firm
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $250,000 or more, (iv) budgets, sales
projections, operating plans or other financial information Bank requests; and
(v) prompt notice of any material change in the composition of the Intellectual
Property, including any subsequent ownership right of Borrower in or to any
Copyright, Patent or Trademark not shown in any intellectual property security
agreement between Borrower and Bank or knowledge of an event that materially
adversely affects the value of the Intellectual Property.
(b) At such times outstandings exist under the Committed Revolving Line and
prior to any Advance when there are no outstandings, within 20 days after the
last day of each month, Borrower will deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer in the form of Exhibit C, with aged
listings of accounts receivable and accounts payable.
<PAGE>
(c) Within 45 days after the last day of each month, Borrower will deliver
to Bank with the monthly financial statements a Compliance Certificate signed by
a Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Accounts at Borrower's expense,
but the audits will be conducted no more often than every 6 months unless an
Event of Default has occurred and is continuing.
6.3 Inventory; Returns.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims that involve more than $50,000.
6.4 Taxes.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 Insurance.
Borrower will keep its business and the Collateral insured for risks and in
amounts, as Bank reasonably requests. Insurance policies will be in a form,
with companies, and in amounts that are satisfactory to Bank. All property
policies will have a lender's loss payable endorsement showing Bank as an
additional loss payee as its interests appear and all liability policies will
show the Bank as an additional insured as its interests appear and provide that
the insurer must give Bank at least 20 days notice before canceling its policy.
At Bank's request, Borrower will deliver certified copies of policies and
evidence of all premium payments. Proceeds payable under any policy will, at
Bank's option, be payable to Bank on account of the Obligations.
6.6 Primary Accounts.
Borrower will maintain its primary depository and operating accounts with
Bank.
6.7 Financial Covenants.
Borrower will maintain as of the last day of each month:
(i) Quick Ratio. A ratio of Quick Assets to Current Liabilities of at least
1.50 to 1.00.
(ii) Debt/Tangible Net Worth Ratio. A ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more
than 1.00 to 1.00.
(iii) Tangible Net Worth. A Tangible Net Worth of at least $1,500,000, plus
50% of New Equity.
(iv) Profitability. Borrower will be profitable each quarter, except that
Borrower may suffer losses not to exceed $500,000 for the three (3) months
ending 3/31/98; and $200,000 for the three (3) months ending 6/30/98.
<PAGE>
6.8 Intellectual Property Rights.
Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Bank's written consent.
6.9 Further Assurances.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower will not do any of the following without Bank's written consent:
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business, (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business, (iii) of worn-out or obsolete Equipment, (iv) of exclusive licenses
and similar arrangements with geographic region or time limitations, or (v) of
other assets not in excess of $250,000 in any fiscal year during the term of
this Agreement.
7.2 Changes in Business, Ownership, Management or Business Locations.
Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower or have a material change
in its ownership of greater than 25%. Borrower will not, without at least 30
days prior written notice, relocate its chief executive office.
7.3 Mergers or Acquisitions.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, if no Event of Default has occurred and is
continuing or would result from such action during the term of this
Agreement or result in a decrease of more than 25% of Tangible Net Worth;
or (ii) merge or consolidate a Subsidiary into another Subsidiary or into
Borrower, if no Event of Default has occurred and is continuing or would
result from such action during the term of this Agreement or result in a
decrease of more than 25% of Tangible Net Worth.
7.4 Indebtedness.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance.
Create, incur, or allow any Lien on any Collateral, or assign or convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral
not to be subject to the first priority security interest granted here.
7.6 Distributions; Investments.
Directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments, or permit any of its Subsidiaries
to do so. Pay any dividends or make any
<PAGE>
distribution or payment or redeem, retire or purchase any capital stock;
provided, however, that (i) Borrower may redeem or repurchase up to $200,000
worth of its common stock, in the aggregate, per fiscal year, and (ii) Borrower
may pay dividends on its preferred stock up to $100,000 (Bank must give written
consent on payments over $100,000).
7.7 Transactions with Affiliates.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms which are not materially more favorable to Borrower than
would be obtained in an arm's length transaction with a non-affiliated Person.
7.8 Subordinated Debt.
Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank's prior written consent.
7.9 Compliance.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
8. EVENTS OF DEFAULT
-----------------
Any one of the following is an Event of Default:
8.1 Payment Default.
If Borrower fails to pay any of the Obligations;
8.2 Covenant Default.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Advances will be
made during the cure period);
8.3 Material Adverse Change.
If there (i) occurs a material adverse change in the business, operations,
or condition (financial or otherwise) of the Borrower, or (ii) is a material
impairment of the value, perfection, or priority of Bank's security interests in
the Collateral;
<PAGE>
8.4 Attachment.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Advances will be made
during the cure period);
8.5 Insolvency.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 60 days (but no Advances will be made before any
Insolvency Proceeding is dismissed);
8.6 Other Agreements.
If there is a default in any agreement between Borrower and a third party
that results in the third party's exercise of the right to accelerate any
Indebtedness exceeding $100,000 or that could cause a Material Adverse Change;
8.7 Judgments.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Advances
will be made before the judgment is stayed or satisfied); or
8.8 Misrepresentations.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble
the Collateral if Bank requires and make it available as Bank designates.
Bank may enter premises where the Collateral is located, take and maintain
possession of any part of the Collateral, and pay, purchase, contest, or
compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower
<PAGE>
grants Bank a license to enter and occupy any of its premises, without
charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a non-
exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any
name, trade secrets, trade names, Trademarks, service marks, and
advertising matter, or any similar property as it pertains to the
Collateral, in completing production of, advertising for sale, and selling
any Collateral and, in connection with Bank's exercise of its rights under
this Section, Borrower's rights under all licenses and all franchise
agreements inure to Bank's benefit; and
(g) Dispose of the Collateral according to the Code.
9.2 Power of Attorney.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Advances terminates.
9.3 Accounts Collection.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Upon the occurrence and continuation of an Event of
Default, Borrower must collect all payments in trust for Bank and, if requested
by Bank, immediately deliver the payments to Bank in the form received from the
account debtor, with proper endorsements for deposit.
9.4 Bank Expenses.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 Bank's Liability for Collateral.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral, or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral, except those resulting from
Bank's failure to comply with reasonable banking practices.
<PAGE>
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
9.7 Demand Waiver.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10. NOTICES
-------
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
------------------------------------------
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns.
This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights
under it without Bank's prior written consent which may be granted or withheld
in Bank's discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank's obligations, rights and benefits under this
Agreement.
12.2 Indemnification.
Borrower will indemnity, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from transactions between Bank and Borrower (including
reasonable attorneys fees and expenses), except for losses caused by Bank's, or
its agents, representatives, successors or assignees, gross negligence or
willful misconduct.
<PAGE>
12.3 Time of Essence.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 Severability of Provision.
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.5 Amendments In Writing, Integration.
All amendments to this Agreement must be in writing. This Agreement
represents the entire agreement about this subject matter, and supersedes prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of this Agreement merge into this Agreement and the Loan
Documents.
12.6 Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 Survival.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnity Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 Confidentiality.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans who agree in writing to assume the
confidentiality obligation set forth in this Section 12.8, (iii) as required by
law, regulation, subpoena, or other order, (iv) as required in connection with
Bank's examination or audit and (v) as Bank considers appropriate exercising
remedies under this Agreement. Confidential information does not include
information that either: (a) is in the public domain or in Bank's possession
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that
the third party is prohibited from disclosing the information.
12.9 Attorneys' Fees, Costs and Expenses.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.
13. DEFINITIONS
-----------
13.1 Definitions.
In this Agreement:
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology)
<PAGE>
or provision of services, all credit insurance, guaranties, other security and
all merchandise returned or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" is a loan advance (or advances) under the Committed
Revolving Line.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, defending and enforcing the Loan Documents (including appeals or
Insolvency Proceedings).
"Borrower's Books" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"Borrowing Base" is (i) 80% of Eligible Accounts plus (ii) 70% of Eligible
Pre-Approved Foreign Accounts plus (iii) 90% of Eligible Letter of Credit
Supported Foreign Accounts, as determined by Bank from Borrowers most recent
Borrowing Base Certificate.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"Closing Date" is the date of this Agreement.
"Code" is the California Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
"Committed Revolving Line" is an Advance of up to $5,000,000, however
capped at $3,000,000 (the "Cap Amount"). Any Advance in excess of the Cap
Amount is conditioned upon Borrower's payment of the Increase Fee, as described
in Section 2.4.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Copyrights" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
<PAGE>
"Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower notice. Unless
Bank agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of invoice
date;
(b) Accounts for an account, debtor, 50% or more of whose Accounts have not
been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that
exceed that percentage, unless the Bank approves in writing, except for
those certain Accounts from AT&T Jens, Siemens ATEA and Telecomet/KDD, for
which the percentage may be 40%;
(e) Accounts for which the account debtor does not have its principal place of
business in the United States except for Eligible Pre-Approved Foreign
Accounts;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to the
amount owed (sometimes called "contra" accounts, accounts payable, customer
deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which goods are
consigned, sales guaranteed, sale or return, sale on approval, bill and
hold, or other terms if account debtor's payment may be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate, officer,
employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes any claim
and Bank reasonably and in good faith believes there is a strong basis for
dispute (but only up to the disputed or claimed amount), or if the Account
Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or
goes out of business;
(k) Accounts for which Bank reasonably and in good faith determines collection
to be doubtful.
"Eligible Pre-Approved Foreign Accounts" are Accounts for which the account
debtor does not have its principal place of business in the United States but
are: Accounts owing from AT&T Jens, ATT Easylink, ATT Internetworking Center, HK
Telecom/International, Siemens ATEA, Singapore Telecommunications, Sun Telephone
and Telecomet/KDD.
"Eligible Letter of Credit Supported Foreign Accounts" are Accounts for
which the account debtor does not have its principal place of business in the
United States but are supported by letter(s) of credit negotiated and acceptable
to Bank.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
<PAGE>
"Indebtedness" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency, law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including amendments,
renewals, extensions, and all licenses or other rights to use and all license
fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Mask Works" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"Material Adverse Change" is defined in Section 8.3.
"New Equity" is new cash equity contributions, excluding the conversion of
present or future debt into equity.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, pursuant to the Loan Documents,
including letters of credit and Exchange Contracts
<PAGE>
and including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank.
"Patents" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other Loan
Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness secured by Permitted Liens;
(f) Contingent obligations of Borrower consisting of guarantees (and other
credit support) of the obligations of vendors and suppliers of Borrower in
respect of transactions entered into in the ordinary course of business;
(g) Indebtedness with respect to capital lease obligations (including
leases of real property);
(h) Prepaid royalties and deferred revenue in connection with prepaid
support services;
(i) Indebtedness to bridge loan investors incurred in connection with
Borrower's bridge loan financing(s) in an amount or amounts to be determined by
Borrower, from time to time, prior to Borrower's Series C Preferred Stock
financing;
(j) Other Indebtedness of Borrower, not exceeding $150,000 in the
aggregate outstanding at any time; and
(k) Extensions, renewals, refundings, refinancings, modifications,
amendments and restatements of any of the items of Permitted Indebtedness (a)
through (j) above, provided that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome terms upon
Borrower; and
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than I year after its
creation and having the highest rating from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit
issued maturing no more than 1 year after issue;
(c) Extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business;
(d) Investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business;
<PAGE>
(e) Investments (including debt obligations) received in connection with
the bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;
(f) Investments consisting of (i) compensation of employees, officers and
directors of Borrower so long as the Board of Directors of Borrower determines
that such compensation is in the best interests of Borrower, (ii) travel
advances, employee relocation loans and other employee loans and advances in the
ordinary course of business, (iii) loans to employees, officers or directors
relating to the purchase of equity securities of Borrower, (iv) other loans to
officers and employees approved by the Board of Directors; and
(g) other Investments aggregating not in excess of $500,000 at any time.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens, not otherwise permitted, which Liens do not in the aggregate
exceed $150,000;
(f) Liens securing Permitted Indebtedness; and
(g) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of fewer than 12 months determined according to GAAP.
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" is May 21, 1999.
"Schedule" is any attached schedule of exceptions.
<PAGE>
"Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank).
"Subsidiary" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
"Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"Trademarks" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
BORROWER:
CLARENT CORPORATION
By: /s/ Richard J. Heaps
--------------------------------------
Title: Secretary
-----------------------------------
BANK:
SILICON VALLEY BANK
By: /s/ Silicon Valley Bank
--------------------------------------
Title:
-----------------------------------
<PAGE>
SCHEDULE TO LOAN AND SECURITY AGREEMENT
DATED MAY 22, 1998
BY AND BETWEEN
CLARENT CORPORATION
AND
SILICON VALLEY BANK
Permitted Indebtedness shall include:
That certain bridge loan in the original principal amount of $2,600,000, dated
February 26, 1998, by and between Borrower and a third party creditor and
additionally any lien taken on the Intellectual Property in connection with
bridge financing to Borrower's Series C round of financing between Borrower and
third party creditor. Such bridge loan is convertible into Series C shares at a
price equal to 100% of share price, with warrants to purchase up to 15% of the
bridge loan amount at a price equal to 85% of share price.
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, letters of credit, certificates of
deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:_______________________________
FAX#: (408) 496-2426 TIME:________________________________
- --------------------------------------------------------------------------------
FROM: CLARENT CORPORATION
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CLIENT NAME (BORROWER)
REQUESTED BY:
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AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------------------
PHONE NUMBER:
-------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT#
------------------------ ------------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- ------------
PRINCIPAL INCREASE (ADVANCE) $
---------------------------------
PRINCIPAL PAYMENT (ONLY) $
---------------------------------
INTEREST PAYMENT (ONLY) $
---------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
---------------------------------
OTHER INSTRUCTIONS:
------------------------------------------------------------
- -------------------------------------------------------------------------------
All Borrower's representations and warranties in the Loan and Security
Agreement are true, correct and complete in all material respects on the date
of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
that date.
- --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- ------------------------- ---------------------------------
Authorized Requester Phone #
- ------------------------- ---------------------------------
Received By (Bank) Phone #
__________________________________
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: CLARENT CORPORATION Lender: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $5,000,000 (capped at $3,000,000)
<TABLE>
ACCOUNTS RECEIVABLE
<S> <C> <C>
1. Accounts Receivable Book Value as of ___ $____________
2. Additions (please explain on reverse) $____________
3. TOTAL ACCOUNTS RECEIVABLE $____________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due - $____________
5. Balance of 50% over 90 day accounts $____________
6. Credit balances over 90 day $____________
7. Concentration Limits* $____________
8. Foreign Accounts $____________
9. Governmental Accounts $____________
10. Contra Accounts $____________
11. Promotion or Demo Accounts $____________
12. Intercompany/Employee Accounts $____________
13. Other (please explain on reverse) $____________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $____________
15. Eligible Accounts (#3 minus #14) $____________
16. LOAN VALUE OF ACCOUNTS (80% of #15) $____________
* 40% for AT&T Jens, Siemens ATEA and Telecomet/KDD
PRE APPROVED FOREIGN ACCOUNTS RECEIVABLE DEDUCTIONS
17. Accounts Receivable Book Value as of $____________
18. Additions (please explain on reverse) $____________
19. TOTAL FOREIGN ACCOUNTS RECEIVABLE $____________
a. Amounts over 90 days due $____________
b. Balance of 50% over 90 day accounts $____________
c. Concentration Limits $____________
d. Governmental Accounts $____________
e. Foreign (ineligible) $____________
f. Contra Accounts $____________
9. Promotion or Demo Accounts $____________
h. Intercompany/Employee Accounts $____________
i. Other (please explain on reverse side) $____________
20. TOTAL FOREIGN ACCOUNTS RECEIVABLE $____________
DEDUCTIONS
21. Eligible Accounts (#19 minus #26) $____________
22. LOAN VALUE OF FOREIGN ACCOUNTS (70% of #21) $____________
</TABLE>
AT&T Jens, ATT Easylink, ATT Internetworking Center, HK Telecorn/International,
Siemens ATEA, Singapore Telecommunications, Sun Telephone and Telecomet/KDD
<PAGE>
<TABLE>
<S> <C>
LETTER OF CREDIT SECURED FOREIGN ACCOUNTS RECEIVABLE
23. Accounts Receivable Book Value as of _______________ $____________
24. Additions (please explain on reverse) $____________
25. TOTAL FOREIGN ACCOUNTS RECEIVABLE $____________
DEDUCTIONS
a. Amounts over 90 days due $____________
b. Balance of 50% over 90 day accounts $____________
c. Concentration Limits $____________
d. Governmental Accounts $____________
e. Foreign (ineligible) $____________
f. Contra Accounts $____________
g. Promotion or Demo Accounts $____________
h. Intercompany/Employee Accounts $____________
i. Other (please explain on reverse) $____________
26. TOTAL FOREIGN ACCOUNTS RECEIVABLE $____________
DEDUCTIONS
27. Eligible Accounts (#23 minus #26) $____________
28. LOAN VALUE OF FOREIGN ACCOUNTS (90% of #27) $____________
BALANCES
29. Maximum Loan Amount $____________
30. Total Funds Available [Lesser of #29 or (#16 plus #22 $_____________
plus #28)]
31. Present balance owing on Line of Credit $_____________
32. Outstanding under Sublimits ( ) $_____________
33. RESERVE POSITION (#30 minus #31 and #32) $____________
</TABLE>
The undersigned represents and warrants that this is true, complete and
correct, and that the information in this Borrowing Base Certificate complies
with the representations and warranties in the Loan and Security Agreement
between the undersigned and Silicon Valley Bank.
----------------------------
COMMENTS: | BANK USE ONLY |
| ------------- |
| |
| Rec'd By: |
| -------------- |
CLARENT CORPORATION | Auth. Signer |
| Date: |
By:_________________________________ | ----------------- |
Authorized Signer | Verified |
| --------------- |
| Auth. Signer |
| Date: |
| ------------------ |
|------------------------- |
--------------------------
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: CLARENT CORPORATION
The undersigned authorized officer of CLARENT CORPORATION certifies that
under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending __________ with all required covenants except as noted below
and (ii) all representations and warranties in the Agreement are true and
correct in all material respects on this date. Attached are the required
documents supporting the certification. The Officer certifies that these are
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer acknowledges that no borrowings
may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
- --------------------------------------- ------------------------------- ------------------
<S> <C> <C> <C>
Monthly financial statements + CC Monthly within 45 days Yes No
Annual (Audited) FYE within 120 days Yes No
A/R & A/P Agings* Monthly within 20 days Yes No
A/R Audit Initial and Semi-Annual Yes No
Borrowing Base Certificate* Monthly within 20 days Yes No
</TABLE>
*at such times as outstandings exist and prior to any disbursement if no
outstandings exist
<TABLE>
<CAPTION>
Financial Covenant Required Actual Complies
- --------------------------------------- ----------------------- ------------- ---------------
Maintain on a Monthly Basis:
<S> <C> <C> <C> <C>
Minimum Quick Ratio 1.50:1.00 ____:1.00 Yes No
Minimum Tangible New Work $1,500,000 plus $_______ Yes No
50% of new equity
Maximum Debt/Tangible New Worth 1.00:1.00 ____:1.00 Yes No
Profitability: beginning 9/30/98 Quarterly $_______ Yes No
and thereafter
Losses not to exceed: $500,000 for the three (3) months ending Yes No
3/31/98; and $200,000 for the three (3)
months ending 6/30/98
</TABLE>
<PAGE>
Comments Regarding Exceptions: See Attached
-----------------------------------
| BANK USE ONLY |
Sincerely, | ------------- |
| |
| Received By: |
CLARENT CORPORATION | -------------------- |
| Authorized Signature |
| Date: |
__________________________________ | ---------------------- |
Signature | Verified |
| -------------------- |
| Authorized Signature |
__________________________________ | Date: |
Title | ----------------------- |
| Compliance Status: Yes No |
-----------------------------------
__________________________________
Date
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: CLARENT CORPORATION
LOAN OFFICER: Ellen Chao
DATE: May 22, 1998
Revolving Loan Fee $12,000.00
Credit Report 35.00
UCC Search Fee 150.00
UCC Filing Fee 40.00
Intellectual Property Filing Fees 550.00
TOTAL FEE DUE $12,775.00
------------- ==========
Please indicate the method of payment:
( ) A check for the total amount is attached.
( ) Debit DDA # for the total amount.
-----
( ) Loan proceeds
Borrower:
By:
------------------------------------
(Authorized Signer)
- ---------------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of May 22,
1998 by and between SILICON VALLEY BANK ("Bank") and CLARENT CORPORATION
("Grantor").
RECITALS
--------
A. Bank has agreed to make certain advances of money and to extend certain
financial accommodation to Grantor (the "Loans") in the amounts and manner set
forth in that certain Loan and Security Agreement by and between Bank and
Grantor dated May 22, 1998 (as the same may be amended, modified or supplemented
from time to time, the "Loan Agreement"; capitalized terms used herein are used
as defined in the Loan Agreement). Bank is willing to make the Loans to
Grantor, but only upon the condition, among others, that Grantor shall grant to
Bank a security interest in certain Copyrights, Trademarks, Patents, and Mask
Works to secure the obligations of Grantor under the Loan Agreement.
Notwithstanding (i) that Grantor has granted to Bank a security interest in the
Patents, Trademarks, Copyrights, Mask Works and, (ii) that the Patents,
Trademarks, Mask Works and Copyrights are included in the Collateral, Bank shall
not enforce its security interest in the Patents, Trademarks, Mask Works, and
Copyrights, other than solely to the extent necessary to enable Bank to enforce
its perfected security interest in the Collateral other than the Patents,
Trademarks, Mask Works and Copyrights.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantors right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
---------
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents, Trademarks and Mask Works listed
on Schedules A, B, C, and D hereto), and including without limitation all
proceeds thereof (such as, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits), the right to sue for
past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions continuations, renewals,
extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security interest
granted to Bank under the Loan Agreement. The rights and remedies of Bank with
respect to the security interest granted hereby are in addition to those set
forth in the Loan Agreement and the other Loan Documents, and those which are
now or hereafter available to Bank as a matter of law or equity. Each right,
power and remedy of Bank provided for herein or in the Loan Agreement or any of
the Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in addition to every right, power or
remedy provided for herein and the exercise by Bank of any one or more of the
rights, powers or remedies provided for in this Intellectual Property Security
Agreement, the Loan Agreement or any of the other Loan Documents, or now or
hereafter existing at law or in equity, shall not preclude the simultaneous or
later exercise by any person, including Bank, of any or all other rights, powers
or remedies.
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
<PAGE>
GRANTOR:
Address of Grantor: CLARENT CORPORATION
1900 Broadway, Suite 200 By: /s/ Michael F. Vargo
- ------------------------------- ---------------------------------------
Redwood City, CA 94063
- -------------------------------
Title: Secretary
------------------------------------
Attn:
-------------------------
BANK:
Address of Bank: SILICON VALLEY BANK
3003 Tasman Drive By:
Santa Clara, CA 95054-1191 ---------------------------------------
Title:
-----------------------------------
Attn:
--------------------------
<PAGE>
EXHIBIT A
---------
Copyrights
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<PAGE>
EXHIBIT B
---------
Patents
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<PAGE>
EXHIBIT C
---------
Trademarks
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<PAGE>
EXHIBIT D
---------
Mask Works
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<PAGE>
CORPORATE BORROWING RESOLUTION
Borrower: CLARENT CORPORATION Bank: Silicon Valley Bank
1900 Broadway, Suite 200 3003 Tasman Drive
Redwood City, CA 94063 Santa Clara, CA 95054-1191
I, the undersigned Secretary or Assistant Secretary of CLARENT CORPORATION
("Borrower"), HEREBY CERTIFY that Borrower is a corporation duly organized and
existing under and by virtue of the laws of the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of Borrower, whose actual signatures are shown below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
Jerry Chang President /s/ Jerry Chang
- ------------------------------------ -------------------------------------- --------------------------------------
Martha Kodis Controller /s/ Martha Kodis
- ------------------------------------ -------------------------------------- --------------------------------------
- ------------------------------------ -------------------------------------- --------------------------------------
- ------------------------------------ -------------------------------------- --------------------------------------
</TABLE>
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
Borrow Money. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment should be
borrowed.
Execute Loan Documents. To execute and deliver to Bank the loan documents
of Borrower, on Bank's forms, at such rates of interest and on such terms
as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of Borrower to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the loan documents, or
any portion of the loan documents.
Grant Security. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations
to Bank.
Negotiate Items. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to Borrower or in which Borrower may have an
interest, and either to receive cash for the same or to cause such proceeds
to be credited to the account of Borrower with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
Letters of Credit. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
<PAGE>
Foreign Exchange Contracts. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as, in
the judgment of the officer or officers herein authorized.
Issue Warrants. To issue warrants to purchase Borrower's capital stock,
for such class, series and number, and on such terms, as an officer of
Borrower shall deem appropriate.
Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements, including agreements waiving the right to a trial by jury, as
they may in their discretion deem reasonably necessary or proper in order
to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Corporation and occupy the positions set opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that they are in full force and effect and have not been modified or revoked
in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on May 22, 1998 and attest that
the signatures set opposite the names listed above are their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ Michael F. Vargo
----------------------------------------
*Secretary or Assistant Secretary
X
----------------------------------------
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of February 16, 1999,
by and between Clarent Corporation ("Borrower") and Silicon Valley Bank
("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated May 22, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Revolving Line in the original principal
amount of Five Million Dollars ($5,000,000) (the "Revolving Facility"). Defined
terms used but not otherwise defined herein shall have the same meanings as in
the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as described in the Loan Agreement. Additionally,
Borrower has agreed not to mortgage, pledge, hypothecate, or otherwise encumber
any of its Intellectual Property, pursuant to a Negative Pledge agreement of
even date herewith.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement
---------------------------------
1. The first sentence of Section 2.1.2 entitled "Letters of Credit"
is hereby amended to read as follows:
Bank will issue or have issued Letters of Credit for Borrower's
account not exceeding (i) the lesser of the Committed Revolving
Line or the Borrowing Base minus (ii) the outstanding principal
balance of the Advances, but the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve) may not exceed
$7,000,000.
2. Section 2.1.3 entitled "Equipment Advances' is hereby
incorporated into the Loan Agreement, to read as follows:
(a) Through November 16, 1999 (the "Equipment Availability End
Date"), Bank will make advances ("Equipment Advance" and,
collectively, "Equipment Advances") not exceeding the Committed
Equipment Line. The Equipment Advances may only be used to
purchase or refinance Equipment purchased on or 90 days before
the Closing Date and may not exceed 100% of the equipment
invoice, excluding taxes, shipping, warranty charges, freight
discounts and installation expense. Leasehold improvements,
software, custom Equipment, and personal computers may constitute
up to $2,000,000 of aggregate Equipment Advances.
(b) Interest accrues from the date of each Equipment Advance at
the rate in Section 2.3(a) and is payable monthly until the
Equipment Availability End Date occurs. Equipment Advances
outstanding from Closing Date to May 16, 1999 are payable in 24
equal monthly installments of principal, plus accrued interest,
beginning on the
1.
<PAGE>
16th day of each month beginning June 16, 1999 and ending on May
16, 2001. Equipment Advances outstanding from May 16th 1999 to
August 16, 1999 are payable in 24 equal monthly installments of
principal, plus accrued interest, beginning on September 16, 1999
and ending on August 16, 2001. Equipment Advances outstanding on
the Equipment Availability End Date are payable in 24 equal
monthly installments of principal, plus accrued interest,
beginning on the 16th day of each month following the Equipment
Availability End Date and ending on November 16, 2001 the
(Equipment Loan Maturity Date). Equipment Advances when repaid
may not be reborrowed.
(c) To obtain an Equipment Advance, Borrower must notify Bank
(the notice is irrevocable) by facsimile no later than 3:00 p.m.
Pacific time 1 Business Day before the day on which the Equipment
Advance is to be made. The notice in the form of Exhibit B
(Payment/Advance Form) must be signed by a Responsible Officer or
designee and include a copy of the invoice for the Equipment
being financed.
3. Section 2.3 entitled "Interest Rate, Payments" is hereby amended,
in its entirety, to read as follows;
(a) Interest Rate. (i) Advances accrue interest on the
outstanding principal balance at a per annum rate of one-half of
one percentage point (0.500%) above the Prime Rate, decreasing to
one-quarter of one percentage point (0.250%) above the Prime
Rate, upon Borrower's achievement of two consecutive quarters of
Profitability of at least $500,000; Such interest rate change
shall be effective as of the first day of the month following
Bank's receipt of Borrower's financial statements indicating
Borrower has met the above described criteria; (ii) Interest
accrues from the date of each Equipment Advance at the rate of
three-fourth of one percentage point (0.750%) above the Prime
Rate. After an Event of Default, Obligations accrue interest at
five percentage points (5.000%) above the rate effective
immediately before the Event of Default. The interest rate
increases or decreases when the Prime Rate changes. Interest is
computed on a 360 day year for the actual number of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is
payable on the sixteenth (16th) of each month. Bank may debit
any of Borrower's deposit accounts including Account Number
3300099320 for principal and interest payments or any amounts
Borrower owes Bank under this Agreement. Bank will notify
Borrower when it debits Borrower's accounts. These debits are
not a set-off. Payments received after 2:00 PM Pacific time are
considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a
Business Day, the payment is due the next Business Day and
additional fees or interest accrue.
4. Sub-Section (d) of Section 6.7 entitled "Financial Covenants,
Reports, Certificates" is hereby amended to read as follows:
Bank has the right to audit Borrower's Accounts at Borrower's
expense, but the audits will be conducted no more often than
annually unless an Event of Default has occurred and is
continuing. However, if outstanding Advances exceed $3,500,000
for more than 60 consecutive days, such audits shall be conducted
semi-annually.
5. Section 6.7 entitled "Financial Covenants" is hereby amended, in
its entirety, to read as follows:
2.
<PAGE>
Borrower will maintain as of the last day of each month:
(i) Quick Ratio [Adjusted]. A ratio of Quick Assets to Current
Liabilities minus software Deferred Maintenance Revenue of at
least 1.50 to 1.00.
(ii) Tangible Net Worth. A Tangible Net Worth of at least
$10,000,000.
(iii) Debt/Net Worth Ratio [Adjusted]. A ratio of Total
Liabilities less Subordinated Debt less software Deferred
Maintenance Revenue to Tangible Net Worth plus Subordinated Debt
of not more than 1.00 to 1.00.
(iv) Liquidity Coverage Ratio. A Liquidity Coverage Ratio of
2.00 to 1.00; provided, however, upon Borrower's achievement of
two consecutive quarters (on a rolling 3 months period) of Debt
Service Coverage Ratio of 1.50 to 1.00, the Liquidity Coverage
Ratio shall be replaced by quarterly Debt Service Coverage Ratio
of 1.50 to 1.00.
(v) Profitability. Borrower will achieve a minimum
profitability of $1 each quarter, except that Borrower may suffer
losses not to exceed $2,500,000 for the quarter ended December
31, 1998; $3,000,000 for the quarter ending March 31, 1999;
$2,750,000 for the quarter ending June 30, 1999; $2,800,000 for
the quarter ending September 30, 1999; and $1,000,000 for the
quarter ending December 31, 1999.
6. The following Sub-Section (I) is hereby incorporated into Section
13.1 entitled "Definitions" under "Eligible Account," to read as
follows:
(I) Accounts for any account debtor with extended payment terms
of longer than net 90 days.
7. The following defined terms are hereby amended and/or
incorporated into Section 13.1 entitled "Definitions" to read as
follows:
"Borrowing Base" is (i) $1,000,000 (the "Non-Formula Amount")
plus (ii) 80% of Eligible Accounts plus (iii) 70% of Eligible
Pre-Approved Foreign Accounts plus (iv) 90% of Eligible Letter of
Credit Supported Foreign Accounts, as determined by Bank from
Borrower's most recent Borrowing Base Certificate.
"Committed Equipment Line" is a Credit Extension of up to
$3,000,000.
"Committed Revolving Line" is an Advance of up to $7,000,000.
"Eligible Pre-Approved Foreign Accounts" are Accounts for which
the account debtor does not have its principal place of business
in the United States but are: Accounts owing from AT&T Jens, ATT
Easylink, ATT Internetworking Center, HK Telecom/International,
Siemens ATEA, and Singapore Telecom.
"Equipment Advance" is defined in Section 2.1.3.
"Equipment Availability End Date" is defined in Section 2.1.3.
"Equipment Maturity Date" is defined in Section 2.1.3.
3.
<PAGE>
"Debt Service Coverage Ratio" is a ratio of annualized earnings
after tax plus annualized interest and annualized non cash
expenses divided by current maturities long term debt, plus
annualized interest.
"Deferred Maintenance Revenue" is all amounts received in advance
of performance under maintenance contracts and not yet recognized
as revenue.
"Liquidity Coverage Ratio" is a ratio of unrestricted cash (and
cash equivalents on deposit or invested with Bank) plus an amount
equal to the Borrowing Base (however, specifically excluding the
Non-Formula Amount) minus any outstanding Letters of Credit
including drawn but unreimbursed Letters of Credit divided by the
Non-Formula Amount plus the aggregate Equipment Advances then
outstanding.
"Revolving Maturity Date" is February 16, 2000.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
------------------
necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of
-------------------
Forty Thousand Two Hundred Fifty Dollars ($40,250) (the "Loan Fee") plus all
out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
----------
conditioned upon Borrower's payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
CLARENT CORPORATION SILICON VALLEY BANK
By: /s/ Martha E. Kodis By: /s/ Ellen Chao
------------------- --------------
Name: Martha E. Kodis Name: Ellen Chao
--------------- ------------
Title: Director of Finance Title: VP
------------------- ------------
4.
<PAGE>
________________________________________________________________________________
EXHIBIT C
BORROWING BASE CERTIFICATE
________________________________________________________________________________
Borrower: CLARENT CORPORATION Lender: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $7,0000,000
________________________________________________________________________________
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C> <C>
1. Accounts Receivable Book Value as of _____ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $__________
5. Balance of 50% over 90 day accounts $__________
6. Credit balances over 90 day $__________
7. Concentration Limits* $__________
8. Foreign Accounts $__________
9. Governmental Accounts $__________
10. Contra Accounts $__________
11. Promotion or Demo Accounts $__________
12. Intercompany/Employee Accounts $__________
13. Accounts with over 90 day terms $__________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________
15. Eligible Accounts (#3 minus #14) $__________
16. LOAN VALUE OF ACCOUNTS (80% of #15) $__________
*40% for AT&T Jens, Siemens ATEA
PREAPPROVED FOREIGN ACCOUNTS RECEIVABLE DEDUCTIONS
17. Accounts Receivable Book Value as of _____ $__________
18. Additions (please explain on reverse) $__________
19. TOTAL FOREIGN ACCOUNTS RECEIVABLE $__________
a. Amounts over 90 days due $__________
b. Balance of 50% over 90 day accounts $__________
c. Concentration Limits $__________
d. Governmental Accounts $__________
e. Foreign (ineligible) $__________
f. Contra Accounts $__________
g. Promotion or Demo Accounts $__________
h. Intercompany/Employee Accounts $__________
i. Other (please explain on reverse) $__________
20. TOTAL FOREIGN ACCOUNTS RECEIVABLE
DEDUCTIONS $__________
21. Eligible Accounts (#19 minus #26) $__________
22. LOAN VALUE OF FOREIGN ACCOUNTS (70% of #21) $__________
</TABLE>
AT&T Jens, ATT Easylink, ATT Internetworking Center, HK Telecom/International,
Siemens ATEA, Singapore Telecommunications
C-1.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
LETTER OF CREDIT SECURED FOREIGN ACCOUNTS RECEIVABLE
23. Accounts Receivable Book Value as of _____ $__________
24 Additions (please explain on reverse) $__________
TOTAL FOREIGN ACCOUNTS RECEIVABLE DEDUCTIONS
a. Amounts over 90 days due $__________
b. Balance of 50% over 90 day accounts $__________
c. Concentration Limits $__________
d. Governmental Accounts $__________
e. Foreign (ineligible) $__________
f. Contra Accounts $__________
g. Promotion or Demo Accounts $__________
h. Intercompany/Employee Accounts $__________
i. Other (please explain on reverse) $__________
26. TOTAL FOREIGN ACCOUNTS RECEIVABLE
DEDUCTIONS $__________
27. Eligible Accounts (#23minus #26) $__________
28. LOAN VALUE OF FOREIGN ACCOUNTS (90% of #27) $__________
BALANCES
19. Maximum Loan Amount $__________
30. Total Funds Available [Lesser of #29 or ($1,000,000 +#16 + #22 + #28)] $__________
31. Present balance owing on Line of Credit $__________
32. Outstanding under Sublimits (Letters of Credit) $__________
33. RESERVE POSITION (#30minus #31 and #32) $__________
</TABLE>
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
-----------------------
COMMENTS: BANK USE ONLY
-------------
Rec'd by: ________
Auth. Signer
CLARENT CORPORATION Date:_____________
By:________________________ Verified:_________
Authorized Signer Auth. Signer
Date:_____________
__________________
-----------------------
C-2.
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: CLARENT CORPORATION
The undersigned authorized officer of CLARENT CORPORATION ("Borrower")
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending ____________________with all required covenants
except as noted below and (ii)all representations and warranties in the
Agreement are true and correct in all material respects on this date. Attached
are required documents supporting the certification. The Officer certifies that
these are prepared in accordance with generally Accepted Accounting Principles
(GAAP) consistently applied from one period to the next except as explained in
accompanying letter or footnotes. The Officer acknowledges that no borrowings
may be requested at any time or date determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C>
Monthly financial statements + CC Monthly within 30 days Yes No
Annual (Audited) FYE within 120 days Yes No
A/R & NP Agings Monthly within 20 days Yes No
Borrowing Base Certificate Monthly within 20 days Yes No
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
----------------- -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio (adjusted) 1.50:1.00 _____:1.00 Yes No
Minimum Tangible Net Worth $10,000,000 $________ Yes No
Maximum Debt/Tangible Net Worth
(adjusted) 1.00:1.00 _____:1.00 Yes No
Minimum Liquidity coverage/**/ 2.00:1.00 _____:1.00 Yes No
Minimum Debt Service Coverage/**/ 1.50:1.00 _____:1.00 Yes No
Profitability: Quarterly $ 1.00 $________ Yes No
Losses not to exceed: $2,500,000 for QE 12/31/98 Yes No
$3,000,000 for QE 3/31/99
$2,750,000 for QE 6/30/99
$2,800,000 for QE 9/30/99
$1,000,000 for QE 12/31/99
</TABLE>
**Upon Borrower's achievement of two consecutive quarters (on a rolling 3 months
period) of Debt Service Coverage Ratio of 1.50 to 1.00, the Liquidity Coverage
Ratio shall be replaced by quarterly Debt Service Coverage Ratio of 1.50 to
1.00.
D-1.
<PAGE>
-----------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Sincerely, Received by:_______________________
AUTHORIZED SIGNER
CLARENT CORPORATION Date:______________________________
_________________________________ Verified:__________________________
Signature AUTHORIZED SIGNER
_________________________________ Date ______________________________
Title
Compliance Status: Yes No
_________________________________ ------------------------------------
Date
D-2.
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
February 16, 1999 by and between SILICON VALLEY BANK ("Bank") and CLARENT
CORPORATION ("Grantor").
RECITALS
--------
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated May 22, 1998 (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks, Patents,
and Mask Works to secure the obligations of Grantor under the Loan Agreement.
Notwithstanding (i) that Grantor has granted to Bank a security interest in the
Patents, Trademarks, Copyrights, Mask Works and, (ii) that the Patents,
Trademarks, Mask Works and Copyrights are included in the Collateral, Bank shall
not enforce its security interest in the Patents, Trademarks, Mask Works, and
Copyrights, other than solely to the extent necessary to enable Bank to enforce
its perfected security interest in the Collateral other than the Patents,
Trademarks, Mask Works and Copyrights.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete - payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
---------
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents, Trademarks and Mask Works listed
on Schedules A, B, C, and D hereto), and including without limitation all
proceeds thereof (such as, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits), the right to sue for
past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions continuations, renewals,
extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security interest
granted to Bank under the Loan Agreement. The rights and remedies of Bank with
respect to the security interest granted hereby are in addition to those set
forth in the Loan Agreement and the other Loan Documents, and those which are
now or hereafter available to Bank as a matter of law or equity. Each right,
power and remedy of Bank provided for herein or in the Loan Agreement or any of
the Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in addition to every right, power or
remedy provided for herein and the exercise by Bank of any one or more of the
rights, powers or remedies provided for in this Intellectual Property Security
Agreement, the Loan Agreement or any of the other Loan Documents, or now or
hereafter existing at law or in equity, shall not preclude the simultaneous or
later exercise by any person, including Bank, of any or all other rights, powers
or remedies.
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
1.
<PAGE>
GRANTOR:
Address of Grantor: CLARENT CORPORATION
700 Chesapeke Dr. By: /s/ Martha E. Kodis
----------------------
Redwood City, CA 94063
Title: Director of Finance
-------------------
Attn:______________________
BANK:
Address of Bank: SILICON VALLEY BANK
3003 Tasman Drive By: /s/ Ellen Chao
----------------------
Santa Clara, CA 95054-1191
Title: VP
--------------------
Attn:______________________
2.
<PAGE>
EXHIBIT A
---------
Copyrights
Description Registration/ Registration/
- -----------
Application Application
Number Date
------ ----
A-1.
<PAGE>
EXHIBIT B
---------
Patents
Description Registration/ Registration/
- -----------
CLARENT CORPORATION Application Application
SUMMARY OF PATENTS Number Date
------ ----
Description Registration/ Registration/
- -----------
Application Application
Number Date
------ ----
1 Dynamic Forward Error Correction
Algorithm for Internet Telephone 812 8/8/97
2 Internet Telephone System with Dynamically
Varying CODEC 820 12/12/97
3 System Architecture For Internet Telephone 821 12/12/97
4 System and Method For Real-Time Data and
Voice transmission Over An Internet Network 964 3/27/98
B-1.
<PAGE>
EXHIBIT C
---------
Trademarks
Description Registration/ Registration/
- -----------
Application Application
Number Date
------ ----
CLARENT CORPORATION
SUMMARY OF TRADEMARKS
"Clarent" registration pending
The Clarent Logo application pending
"Clarent ThroughPacket" application pending
"Clarent Command Center" application pending
C-1.
<PAGE>
EXHIBIT D
---------
Mask Works
Description Registration/ Registration/
- -----------
Application Application
Number Date
------ ----
D-1.
<PAGE>
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of February 16, 1999, by and
between Clarent Corporation ("Borrower") and Silicon Valley Bank ("Bank").
In connection with, among other documents, the Loan and Security Agreement (the
"Loan Documents") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows:
1. Borrower shall not sell, transfer, assign, mortgage, pledge, lease,
grant a security interest in, or encumber any of Borrower's
intellectual property, including, without limitation, the following:
a. Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held;
b. All mask works or similar rights available for the protection of
semiconductor chips, now owned or hereafter acquired;
c. Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
d. Any and all design rights which may be available to Borrower now
or hereafter existing, created, acquired or held;
e. All patents, patent applications and like protections including,
without limitation, improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the
same, including without limitation the patents and patent
applications;
f. Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower
connected with and symbolized by such trademarks, including
without limitation;
g. Any and all claims for damages by way of past, present and future
infringements of any of the rights included above, with the
right, but not the obligation, to sue for and collect such
damages for said use or infringement of the intellectual property
rights identified above;
h. All licenses or other rights to use any of the Copyrights,
Patents, Trademarks or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such
license or rights;
i. All amendments, extensions, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
1.
<PAGE>
j. All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing;
2. It shall be an event of default under the Loan Documents between
Borrower and Bank if there is a breach of any term of this Negative
Pledge Agreement.
3. Capitalized terms used but not otherwise defined herein shall have the
same meaning as in the Loan Documents.
BORROWER:
CLARENT CORPORATION
By: /s/ Martha E. Kodis
--------------------------------
Name: Martha E. Kodis
--------------------------------
Title: Director of Finance
--------------------------------
BANK:
SILICON VALLEY BANK
By: /s/ Ellen Chao
--------------------------------
Name: Ellen Chao
--------------------------------
Title: VP
--------------------------------
2.
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: CLARENT CORPORATION
LOAN OFFICER: ELLEN CHAO
DATE: FEBRUARY 16, 1999
<TABLE>
<S> <C> <C>
REVOLVING LOAN FEE* $25,250.00
EQUIPMENT LOAN FEE 15,000.00
TOTAL FEE DUE $40,250.00
------------- ==========
</TABLE>
*INCLUSIVE OF LOAN DOCUMENTATION FEE AND ALL OTHER CHARGES.
PLEASE INDICATE THE METHOD OF PAYMENT:
{ } A CHECK FOR THE TOTAL AMOUNT IS ATTACHED.
{ } DEBIT DDA# 3300099320 FOR THE TOTAL AMOUNT.
{ } LOAN PROCEEDS
BORROWER:
BY: /S/ MARTHA E. KODIS
---------------------------------------
(AUTHORIZED SIGNER)
/S/ ELLEN CHAO 2/25/99
- --------------------------------------------
SILICON VALLEY BANK (DATE)
ACCOUNT OFFICER'S SIGNATURE
<PAGE>
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. FILE NO. OF ORIG. FINANCING STATEMENT 1A. DATE OF FILING OF ORIG. FINANCING STATEMENT 1B. DATE OF ORIG. FINANCING STATEMENT
9823660423 8/19/98
1C. PLACE OF FILING ORIG. FINANCING STATEMENT
CALIFORNIA
- ------------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO., FEDERAL TAX NO.
Clarent Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
1900 Broadway Redwood City, CA 94063
- ------------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR FEDERAL TAX NO.
- ------------------------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
NAME SILICON VALLEY BANK
MAILING ADDRESS 3003 Tasman Drive
CITY Santa Clara STATE CA ZIP CODE 95054
- ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A [_] CONTINUATION- The original Financing Statement between the foregoing
Debtor and Secured Party bearing the file number and date shown above
is continued. If collateral is crops or timber, check here [_] and
insert description of real property on which growing or to be grown
in item 7 below.
- --------------------------------------------------------------------------------
B [_] RELEASE- From the collateral described in the Financing Statement
bearing the file number shown above, the Secured Party releases the
collateral described in item 7 below.
- --------------------------------------------------------------------------------
C [_] ASSIGNMENT- The Secured Party certifies that the Secured Party has
assigned to the Assignee above named, the Secured Party's rights
under the Financing Statement bearing the file number shown above in
the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D [_] TERMINATION- The Secured Party certifies that the Secured Party no
longer claims a security interest under Financing Statement bearing
the file number shown above.
- --------------------------------------------------------------------------------
E [X] AMENDMENT- The Financing Statement bearing the file number shown
above is amended as set forth in Item 7 below. (Signature of Debtor
required on all amendments.)
- --------------------------------------------------------------------------------
F [_] OTHER
- --------------------------------------------------------------------------------
7. Debtor's address has changed to:
700 Chesapeake Drive
Redwood City, CA 94063
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
8. Clarent Corporation (DATE) 2/24/1999 C 9. This Space Use of Filing Officer
O (Date, Time, Filing Office)
D
E
---
1
- ------------------------------------------------------------------------------
By: /s/ Martha E. Kodis Director of Finance 2
---------------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
SILICON VALLEY BANK 3
- ------------------------------------------------------------------------------
4
By:___________________________________________________________________________
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE) 5
- ------------------------------------------------------------------------------
10. RETURN COPY TO 6
NAME Data File Services, Inc.
ADDRESS P.O. Box 275 7
CITY AND Van Nuys
STATE CA 8
91408-2750
9
(1) FILING OFFICER COPY
</TABLE>
<PAGE>
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. FILE NO OF ORIG. FINANCING STATEMENT 1A. DATE OF FILING OF ORIG. FINANCING STATEMENT 1B. DATE OF ORIG. FINANCING STATEMENT
9823660423 8/19/98
1C. PLACE OF FILING ORIG. FINANCING STATEMENT
CALIFORNIA
- ------------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO., FEDERAL TAX NO.
CLARENT CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
700 Chesapeake Drive Redwood City, CA 94063
- ------------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR FEDERAL TAX NO.
- ------------------------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
NAME SILICON VALLEY BANK
MAILING ADDRESS 3003 Tasman Drive
CITY Santa Clara STATE CA ZIP CODE 95054
- ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX
NO. OR BANK TRANSIT AND A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A [_] CONTINUATION- The original Financing Statement between the foregoing
Debtor and Secured Party bearing the file number and date shown above
is continued. If collateral is crops or timber, check here [_] and
insert description of real property on which growing or to be grown
in item 7 below.
- --------------------------------------------------------------------------------
B [_] RELEASE- From the collateral described in the Financing Statement
bearing the file number shown above, the Secured Party releases the
collateral described in item 7 below.
- --------------------------------------------------------------------------------
C [_] ASSIGNMENT- The Secured Party certifies that the Secured Party has
assigned to the Assignee above named, the Secured Party's rights
under the Financing Statement bearing the file number shown above in
the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D [_] TERMINATION- The Secured Party certifies that the Secured Party no
longer claims a security interest under Financing Statement bearing
the file number shown above.
- --------------------------------------------------------------------------------
E [X] AMENDMENT- The Financing Statement bearing the file number shown
above is amended as set forth in item 7 below. (Signature of Debtor
required on all amendments.)
- --------------------------------------------------------------------------------
F [_] OTHER
- --------------------------------------------------------------------------------
7.
THE COLLATERAL DESCRIPTION IS HEREBY AMENDED TO READ AS SET FORTH ON
ATTACHED EXHIBIT "A"
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
8. CLARENT CORPORATION (DATE) 2/23 1999 C 9. This Space Use of Filing Officer
O (Date, Time, Filing Office)
D
E
---
1
- ------------------------------------------------------------------------------
By: /s/ Martha E. Kodis Director of Finance 2
---------------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) ECC/114 (TITLE)
SILICON VALLEY BANK 3
- ------------------------------------------------------------------------------
4
By:___________________________________________________________________________
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- ------------------------------------------------------------------------------
10. RETURN COPY TO 5
NAME Data File Services, Inc. 6
ADDRESS P.O. Box 275
CITY AND Van Nuys
STATE CA 7
91408-2750 8
(1) FILING OFFICER COPY 9
</TABLE>
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, letters of credit, certificates of
deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
Notwithstanding (i) that Grantor has granted to Bank a security interest in the
Patents, Trademarks, Copyrights, and Mask Works and, (ii) that the Patents,
Trademarks, Mask Works and Copyrights are included in the Collateral, Bank shall
not enforce its security interest in the Patents, Trademarks, Mask Works, and
Copyrights, other than solely to the extent necessary to enable Bank to enforce
its perfected security in the Accounts and the Collateral other than the
Patents, Trademarks, Mask Works and Copyrights.
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
A-1.
<PAGE>
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. FILE NO OF ORIG. FINANCING STATEMENT 1A. DATE OF FILING OF ORIG. FINANCING STATEMENT 1B. DATE OF ORIG. FINANCING STATEMENT
9822660208 8/12/98
1C. PLACE OF FILING ORIG. FINANCING STATEMENT
CALIFORNIA
- ------------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO. FEDERAL TAX NO.
CLARENT CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
700 Chesapeake Drive Redwood City, CA 94063
- ------------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR FEDERAL TAX NO.
- ------------------------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX
NO. OR BANK TRANSIT AND A.B.A. NO.
NAME SILICON VALLEY BANK
MAILING ADDRESS 3003 Tasman Drive
CITY Santa Clara STATE CA ZIP CODE 95054
- ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX
N0. OR BANK TRANSIT AND A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A [_] CONTINUATION- The original Financing Statement between the foregoing
Debtor and Secured Party bearing the file number and date shown above
is continued. If collateral is crops or timber, check here [_] and
insert description of real property on which growing or to be grown
in item 7 below.
- --------------------------------------------------------------------------------
B [_] RELEASE- From the collateral described in the Financing Statement
bearing the file number shown above, the Secured Party releases the
collateral described in item 7 below.
- --------------------------------------------------------------------------------
C [_] ASSIGNMENT- The Secured Party certifies that the Secured Party has
assigned to the Assignee above named, the Secured Party's rights
under the Financing Statement bearing the file number shown above in
the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D [_] TERMINATION- The Secured Party certifies that the Secured Party no
longer claims a security interest under Financing Statement bearing
the file number shown above.
- --------------------------------------------------------------------------------
E [X] AMENDMENT- The Financing Statement bearing the file number shown
above is amended as set forth in item 7 below. (Signature of Debtor
required on all amendments.)
- --------------------------------------------------------------------------------
F [_] OTHER
- --------------------------------------------------------------------------------
7.
THE COLLATERAL DESCRIPTION IS HEREBY AMENDED TO READ AS SET FORTH ON
ATTACHED EXHIBIT "A"
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
8. CLARENT CORPORATION (DATE) 2/23/1999 C 9. This Space Use of Filing Officer
O (Date, Time, Filing Office)
D
E
---
/s/ Martha E. Kodis 1
- ------------------------------------------------------------------------------
By: Director of Finance 2
---------------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) ECC/114 (TITLE)
SILICON VALLEY BANK 3
- ------------------------------------------------------------------------------
4
By:___________________________________________________________________________
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE) 5
- ------------------------------------------------------------------------------
10. RETURN COPY TO 6
NAME Data File Service, Inc.
ADDRESS P.O. Box 275 7
CITY AND Van Nuys
STATE CA 8
91408-2750
9
(1) FILING OFFICER COPY
</TABLE>
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, letters of credit, certificates of
deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to the foregoing; and
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing, notwithstanding (i) that Grantor has granted to Bank a security
interest in the Patents, Trademarks, Copyrights, and Mask Works and, (ii) that
the Patents, Trademarks, Mask Works and Copyrights are included in the
Collateral, Bank shall not enforce its security interest in the Patents,
Trademarks, Mask Works, and Copyrights, other than solely to the extent
necessary to enable Bank to enforce its perfected security in the Accounts and
the Collateral other than the Patents, Trademarks, Mask Works and Copyrights.
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
A-1.
<PAGE>
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. FILE NO. OF ORIG. FINANCING STATEMENT 1A. DATE OF FILING OF ORIG. FINANCING STATEMENT 1B. DATE OF ORIG. FINANCING STATEMENT
9822660208 8/12/98
1C. PLACE OF FILING OF ORIG. FINANCING STATEMENT
CALIFORNIA
- ------------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY OR FEDERAL TAX NO.
Clarent Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
1900 Broadway Redwood City, CA 94063
- ------------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR FEDERAL TAX NO.
- ------------------------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX
NO. OR BANK TRANSIT AND A.B.A. NO.
NAME SILICON VALLEY BANK
MAILING ADDRESS 3003 Tasman Drive
CITY Santa Clara STATE CA ZIP CODE 95054
- ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX
NO. OR BANK TRANSIT AND A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. A [_] CONTINUATION- The original Financing Statement between the foregoing
Debtor and Secured Party bearing the file number and date shown above
is continued. If collateral is crops or timber, check here [_] and
insert description of real property on which growing or to be grown
in item 7 below.
- --------------------------------------------------------------------------------
B [_] RELEASE- From the collateral described in the Financing Statement
bearing the file number shown above, the Secured Party releases the
collateral described in item 7 below.
- --------------------------------------------------------------------------------
C [_] ASSIGNMENT- The Secured Party certifies that the Secured Party has
assigned to the Assignee above named, the Secured Party's rights
under the Financing Statement bearing the file number shown above in
the collateral described in item 7 below.
- --------------------------------------------------------------------------------
D [_] TERMINATION- The Secured Party certifies that the Secured Party no
longer claims a security interest under Financing Statement bearing
the file number shown above.
- --------------------------------------------------------------------------------
E [X] AMENDMENT- The Financing Statement bearing the file number shown
above is amended as set forth in Item 7 below. (Signature of Debtor
required on all amendments.)
- --------------------------------------------------------------------------------
F [_] OTHER
- --------------------------------------------------------------------------------
7. Debtor's address has changed to:
700 Chesapeake Drive
Redwood City, CA 94063
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
8. Clarent Corporation (DATE) 2/24/1999 C 9. This Space Use of Filing Officer
O (Date, Time, Filing Office)
D
E
---
1
- ------------------------------------------------------------------------------
By: /s/ Martha E. Kodis /s/ Director of Finance 2
---------------------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE)
SILICON VALLEY BANK 3
- ------------------------------------------------------------------------------
4
By:___________________________________________________________________________
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- ------------------------------------------------------------------------------
10. RETURN COPY TO 5
NAME Data File Services, Inc. 6
ADDRESS P.O. Box 275
CITY AND Van Nuys 7
STATE CA
91408-2750 8
(4) FILING COPY - DBETOR 9
</TABLE>
<PAGE>
EXHIBIT 10.10
LEASE AGREEMENT
between
SEAPORT CENTRE ASSOCIATES, LLC
as "LANDLORD"
and
CLARENT CORPORATION
as "TENANT"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. PREMISES........................................................ 1
2. TERM; POSSESSION................................................ 1
3. RENT............................................................ 2
4. SECURITY DEPOSIT................................................ 5
5. USE AND COMPLIANCE WITH LAWS.................................... 6
6. TENANT IMPROVEMENTS & ALTERATIONS............................... 9
7. MAINTENANCE AND REPAIRS......................................... 11
8. TENANT'S TAXES.................................................. 12
9. UTILITIES....................................................... 13
10. EXCULPATION AND INDEMNIFICATION................................. 13
11. INSURANCE....................................................... 14
12. DAMAGE OR DESTRUCTION........................................... 16
13. CONDEMNATION.................................................... 17
14. ASSIGNMENT AND SUBLETTING....................................... 19
15. DEFAULT AND REMEDIES............................................ 22
16. LATE CHARGE AND INTEREST........................................ 24
17. WAIVER.......................................................... 24
18. ENTRY, INSPECTION AND CLOSURE................................... 25
19. SURRENDER AND HOLDING OVER...................................... 25
20. ENCUMBRANCES.................................................... 26
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.................. 27
22. NOTICES......................................................... 28
23. ATTORNEYS' FEES................................................. 28
24. QUIET POSSESSION................................................ 28
25. SECURITY MEASURES............................................... 28
26. FORCE MAJEURE................................................... 28
27. RULES AND REGULATIONS........................................... 29
28. LANDLORD'S LIABILITY............................................ 29
29. CONSENTS AND APPROVALS.......................................... 29
30. BROKERS......................................................... 30
31. RELOCATION OF PREMISES.......................................... 30
32. ENTIRE AGREEMENT................................................ 30
33. MISCELLANEOUS................................................... 30
34. AUTHORITY....................................................... 31
</TABLE>
i
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
ADDITIONAL PREMISES COMMENCEMENT DATE............................. 4
ADDITIONAL PREMISES SCHEDULED........
COMMENCEMENT DATE................................................ 4
ADDITIONAL RENT................................................... 7
ALTERATIONS....................................................... 12
AWARD............................................................. 20
BROKER............................................................ 33
BUILDING.......................................................... 4
BUILDING RULES.................................................... 32
BUILDING SYSTEMS.................................................. 9
CLAIMS............................................................ 16
CONDEMNATION...................................................... 20
CONDEMNOR......................................................... 21
CONTROLS.......................................................... 15
DATE OF CONDEMNATION.............................................. 21
DEVELOPMENT....................................................... 4
ENCUMBRANCE....................................................... 29
ENVIRONMENTAL LOSES............................................... 10
ENVIRONMENTAL REQUIREMENTS........................................ 10
EVENT OF DEFAULT.................................................. 25
EXPIRATION DATE................................................... 4
HANDLED BY TENANT................................................. 10
HANDLING BY TENANT................................................ 10
HAZARDOUS MATERIALS............................................... 10
HVAC.............................................................. 9
INITIAL PREMISES COMMENCEMENT DATE................................ 4
INITIAL PREMISES SCHEDULED
COMMENCEMENT DATE................................................ 4
INTEREST RATE..................................................... 27
LAWS.............................................................. 6
MORTGAGEE......................................................... 30
OPERATING COSTS................................................... 5
PARKING FACILITY.................................................. 4
PERMITTED HAZARDOUS MATERIALS..................................... 10
PREMISES.......................................................... 4
PROJECT........................................................... 4
PROPERTY.......................................................... 4
PROPERTY MANAGER.................................................. 17
PROPOSED TRANSFEREE............................................... 22
RENT.............................................................. 8
RENTAL TAX........................................................ 15
REPRESENTATIVES................................................... 10
SECURITY DEPOSIT.................................................. 9
SERVICE FAILURE................................................... 16
TAXES............................................................. 7
TENANT'S SHARE.................................................... 7
TENANT'S TAXES.................................................... 15
TENANT IMPROVEMENTS............................................... 12
TERM.............................................................. 4
TRADE FIXTURES.................................................... 13
TRANSFER.......................................................... 23
VISITORS.......................................................... 10
</TABLE>
ii
<PAGE>
BASIC LEASE INFORMATION
LEASE DATE: For identification purposes only, the date of this
Lease is August 12, 1998
LANDLORD: SEAPORT CENTRE ASSOCIATES, LLC, a California limited
liability company
TENANT: CLARENT CORPORATION. a California corporation
PROJECT: Seaport Centre Phase Three (East Campus)
DEVELOPMENT: Seaport Centre Phases One, Two and Three, consisting
of 26 buildings, the underlying land and associated
land.
BUILDING ADDRESS: 700 Chesapeake, Building 19 Redwood City, California
RENTABLE AREA OF Approximately 24,877 square feet
BUILDING:
RENTABLE AREA OF PROJECT: Approximately 176,392 square
PREMISES: Building Number: 19
Rentable Area: Approximately 24,877 square feet
INITIAL PREMISES: Rentable Area: Approximately 10,769 square feet out
of the Premises
ADDITIONAL PREMISES: Rentable Area: Approximately 14,108 square feet out
of the Premises
TERM FOR INITIAL (a) Initial Premises Commencement Date through the
PREMISES: Additional Premises Commencement Date, plus (b) 60
full calendar months (plus any partial month at the
beginning of the Term) following the Additional
Premises Commencement Date
TERM FOR ADDITIONAL 60 full calendar months (plus any partial month at
PREMISES: the beginning of the Term) following the Additional
Premises Commencement Date
INITIAL PREMISES
SCHEDULED COMMENCEMENT
DATE: August 28, 1998
ADDITIONAL PREMISES
SCHEDULED COMMENCEMENT
DATE: December 20, 1998
1.
<PAGE>
EXPIRATION DATE: The last day of the 60th full calendar month
following the Additional Premises Commencement Date
BASE RENT: Initial Premises Only:
Initial Premises Commencement Date to the
Additional Premises Commencement Date: $2.55 per
rentable square foot per month, and thereafter as
follows:
Existing Premises and Additional Premises combined:
Months following Additional Premises Commencement
Date:
Months 0 1 - 12:$2.55 per rentable square foot per
month
Months 13-24:$2.63 per rentable square foot per
month
Months 25-36:$2.71 per rentable square foot per
month
Months 37-48:$2.79 per rentable square foot per
month
Months 49-60:$2.87 per rentable square foot per
month
MAINTENANCE, OPERATING This is a "triple net lease" where Tenant is
COSTS AND TAXES responsible for maintenance, operating costs and
taxes, all in accordance with the applicable
provisions of the Lease.
TENANT'S SHARE: 6.11% from the Initial Premises Commencement Date
to the Additional Premises Commencement Date
14.10% from and after the Additional Premises
Commencement Date
SECURITY DEPOSIT: A Letter of Credit as provided in Section 36 below.
LANDLORD'S ADDRESS FOR Seaport Centre Associates, LLC
PAYMENT OF RENT: Ten Almaden Boulevard, Suite 430
San Jose, CA 95113
LANDLORD'S ADDRESS FOR Seaport Centre Associates, LLC
NOTICES: c/o William Wilson & Associates
Ten Almaden Boulevard, #430
San Jose, CA 95113
with a copy to:
Seaport Centre Associates, LLC
c/o William Wilson & Associates
2929 Campus Drive, Suite 450
San Mateo, CA 94403
Attn: General Counsel
TENANT'S ADDRESS FOR 700 Chesapeake, Building 19
NOTICES: Redwood City, California
2.
<PAGE>
BROKER(S): Cornish & Carey Commercial
GUARANTOR(S): (none)
PROPERTY MANAGER: William Wilson & Associates
ADDITIONAL PROVISIONS: 35. Letter of Credit
36. Parking
Exhibits:
- ---------
Exhibit A: The Premises
Exhibit A-1: The Initial Premises
Exhibit A-2: The Additional Premises
Exhibit A-3: Manufacturing Area
Exhibit B: Construction Rider
Exhibit C: Building Rules
Exhibit D: Additional Provisions
The Basic Lease Information set forth above is part of the Lease. In the
event of any conflict between any provision in the Basic Lease Information and
the Lease, the Lease shall control.
3.
<PAGE>
THIS LEASE is made as of the Lease Date set forth in the Basic Lease
Information, by and between the Landlord identified in the Basic Lease
Information ("LANDLORD"), and the Tenant identified in the Basic Lease
Information ("TENANT"). Landlord and Tenant hereby agree as follows:
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, upon the terms and subject to the conditions of this Lease, and
subject to covenants, conditions and restrictions recorded in the real estate
records in the county in which the Property is located, the space identified in
the Basic Lease Information as the Premises (the "PREMISES"), in the Building
located at the address specified in the Basic Lease Information (the
"BUILDING"). The approximate configuration and location of the Premises is
shown on Exhibit A. The approximate configuration and location of the Initial
---------
Premises is shown on Exhibit A-1. The approximate configuration and location of
-----------
the Additional Premises is shown on Exhibit A-2. Landlord and Tenant agree that
the rentable area of the Premises for all purposes under this Lease shall be the
Rentable Area specified in the Basic Lease Information. The Building, together
with the parking facilities serving the Building (the "PARKING FACILITY"), and
the parcel(s) of land on-which the Building and the Parking Facility are
situated (collectively, the "PROPERTY"), is part of the Project identified in
the Basic Lease Information (the "PROJECT"), which is part of the Development
identified in the Basic Lease Information (the "DEVELOPMENT").
2. TERM; POSSESSION. The term of this Lease with respect to the Initial
Premises shall commence on the date ("INITIAL PREMISES COMMENCEMENT DATE")
Landlord delivers possession of the Initial Premises to Tenant after Landlord
has obtained possession of the Initial Premises from the Existing Tenant
pursuant to the provisions contained hereinbelow. The "TERM") shall commence on
the Additional Premises Commencement Date as described below and, unless sooner
terminated, shall expire on the Expiration Date set forth in the Basic Lease
Information (the "EXPIRATION DATE"). The term of this Lease with respect to the
Additional Premises shall commence on the date ("ADDITIONAL PREMISES
COMMENCEMENT DATE") Landlord delivers possession of the Additional Premises to
Tenant after Landlord has obtained possession of the Additional Premises from
the Existing Tenant pursuant to the provisions contained hereinbelow. The
parties anticipate that the Initial Premises Commencement Date and the
Additional Premises Commencement Date will occur on or about the Initial
Premises Scheduled Commencement Date set forth in the Basic Lease Information
(the "INITIAL PREMISES SCHEDULED COMMENCEMENT DATE") and the Additional Premises
Scheduled Commencement Date get forth in the Basic Lease Information (the
"ADDITIONAL PREMISES SCHEDULED COMMENCEMENT DATE"); provided, however, that
Landlord shall not be liable for any claims, damages or liabilities if the
Initial Premises and Additional Premises are not ready for occupancy by their
respective Scheduled Commencement Dates. When the Initial Commencement Date and
Additional Commencement Date have been established, Landlord and Tenant shall at
the request of either party confirm the respective Commencement Dates and
Expiration Date in writing.
TENANT UNDERSTANDS AND AGREES THAT THE PREMISES ARE CURRENTLY LEASED BY
ANOTHER TENANT (THE "EXISTING TENANT"). LANDLORD AGREES TO USE ITS GOOD FAITH
EFFORTS TO NEGOTIATE A TERMINATION OF LEASE WITH THE EXISTING TENANT BY AUGUST
15, 1998, AND DELIVER POSSESSION OF THE INITIAL PREMISES TO TENANT ON OR BEFORE
THE INITIAL PREMISES SCHEDULED COMMENCEMENT DATE AND DELIVER POSSESSION OF THE
ADDITIONAL PREMISES TO TENANT ON OR BEFORE THE ADDITIONAL PREMISES SCHEDULED
COMMENCEMENT DATE. NOTWITHSTANDING ANY PROVISION
4.
<PAGE>
CONTAINED HEREIN TO THE CONTRARY, LANDLORD SHALL NOT BE OBLIGATED TO PAY ANY
CONSIDERATION TO THE EXISTING TENANT IN ORDER TO TERMINATE THE LEASE WITH THE
EXISTING TENANT. NOTWITHSTANDING THE FOREGOING, IF LANDLORD HAS NOT NEGOTIATED A
TERMINATION OF LEASE WITH THE EXISTING TENANT BY AUGUST 18, 1998, TENANT SHALL
HAVE THE RIGHT TO TERMINATE THIS LEASE BY WRITTEN NOTICE TO LANDLORD.
IN ADDITION, THE FORM AND CONTENT OF THIS LEASE ARE SUBJECT TO THE PRIOR
APPROVAL OF THE CURRENT MORTGAGEE (AS HEREINAFTER DEFINED) HAVING AN ENCUMBRANCE
ON THE PROPERTY. NOTWITHSTANDING THE FOREGOING, IF LANDLORD HAS NOTIFIED TENANT
OF MORTGAGEE APPROVAL BY AUGUST 18, 1998, TENANT SHALL HAVE THE RIGHT TO
TERMINATE THIS LEASE BY WRITTEN NOTICE TO LANDLORD.
3. RENT.
3.1 Base Rent. Tenant agrees to pay to Landlord the Base Rent set forth
---------
in the Basic Lease Information, without prior notice or demand, on the first day
of each and every calendar month during the Term, except that (a) for the
Initial Premises the Base Rent for the first full calendar month in which Base
Rent is payable shall be paid upon Tenant's execution of this Lease (b) for the
Additional Premises the Base Rent shall be payable within ten (10) days
following the Additional Premises Commencement Date, and (c) any partial month
at the beginning of the Term shall be paid on the respective Commencement Dates.
Base Rent for any partial month at the beginning or end of the Term shall be
prorated based on the actual number of days in the month.
If the Basic Lease Information provides for any change in Base Rent by
reference to years or months (without specifying particular dates), the change
will take effect on the applicable annual or monthly anniversary of the
Commencement Date (which won't necessarily be the first day of a calendar
month).
3.2 Additional Rent: Operating Costs and Taxes.
-------------------------------------------
(A) Definitions.
-----------
(1) "OPERATING COSTS" means all costs of managing, operating,
maintaining and repairing the Project, including all costs, expenditures, fees
and charges for: (A) operation, maintenance and repair of the Project (including
maintenance, repair and replacement of glass, the roof covering or membrane, and
landscaping); (B) utilities and services (including telecommunications
facilities and equipment, recycling programs and trash removal), and associated
supplies and materials; (C) compensation (including employment taxes and fringe
benefits) for persons who perform duties in connection with the operation,
management, maintenance and repair of the Project, such compensation to be
appropriately allocated for persons who also perform duties unrelated to the
Project; (D) property (including coverage for earthquake and flood if carried by
Landlord), liability, rental income and other insurance relating to the Project,
and expenditures for deductible amounts paid under such insurance; (E) licenses,
permits and inspections; (F) complying with the requirements of any law,
statute, ordinance or governmental rule or regulation or any orders pursuant
thereto (collectively "LAWS"); (G) amortization of capital
5.
<PAGE>
replacements, repairs or improvements to the Project, including capital
replacements, repairs or improvements required to comply with Laws, with
interest on the unamortized balance at the rate paid by Landlord on funds
borrowed to finance such capital improvements (or, if Landlord finances such
improvements out of Landlord's funds without borrowing, the rate that Landlord
would have paid to borrow such funds, as reasonably determined by Landlord),
over such useful life as Landlord shall reasonably determine in accordance with
generally accepted accounting principles; (H) an office for the management of
the Project, including expenses of furnishing and equipping such office and the
rental value of any space occupied for such purposes; (I) property management
fees reasonably charged by owners of commercial projects in the geographical
area of the Project; (J) accounting, legal and other professional services
incurred in connection with the operation of the Project and the calculation of
Operating Costs and Taxes; (K) a reasonable allowance for depreciation on
machinery and equipment used to maintain the Project and on other personal
property owned by Landlord in the Project (including window coverings and
carpeting in common areas); (L) contesting the validity or applicability of any
Laws that may affect the Project; (M) the Project's share of any shared or
common area maintenance fees and expenses (including costs and expenses of
operating, managing, owning and maintaining the Parking Facility and the common
areas of the Project, any fitness center in the Development, the fees and
charges from the Seaport Centre Owners Association and any other fees and
expenses shared with the Development); and (N) any other cost, expenditure, fee
or charge, whether or not hereinbefore described, which in accordance with
generally accepted property management practices would be considered an expense
of managing, operating, maintaining and repairing the Project. Operating Costs
for any calendar year during which average occupancy of the Project is less than
one hundred percent (100%) shall be calculated based upon the Operating Costs
that would have been incurred if the Project had an average occupancy of one
hundred percent (100%) during the entire calendar year.
Operating Costs shall not include (i) costs of special services rendered to
individual tenants (including Tenant) for which a special charge is made; (ii)
interest and principal payments, including penalties and late charges thereon,
on loans or indebtedness secured by the Building; (iii) costs of improvements
for Tenant or other tenants of the Project; (v) costs of services or other
benefits of a type which are not available to Tenant but which are available to
other tenants or occupants, and costs for which Landlord is reimbursed by other
tenants of the Project other than through payment of tenants' shares of
Operating Costs and Taxes; (vi) utility charges paid by Tenant (and other
tenants in the Project) directly to the applicable public utility company; (vii)
leasing commissions, attorneys' fees and other expenses incurred in connection
with leasing space in the Project or enforcing such leases; (viii) depreciation
or amortization, other than as specifically enumerated in the definition of
Operating Costs above; (ix) the auto court work made by Landlord in calendar
year 1998; (x) any capital repairs to the Parking Facility taking place near
building 15 (800 Chesapeake) caused by land sinkage; and (xi) costs, fines or
penalties incurred due to Landlord's violation of any Law. In no event shall
the Operating Costs used by Landlord in determining Tenant's Share of Operating
Costs exceed one hundred percent (100%) of the actual Operating Costs incurred
by Landlord in connection with the Project, and Landlord shall not recover the
costs of any items more than once.
(4) "TAXES" means: all real property taxes and general, special or
district assessments or other governmental impositions, of whatever kind, nature
or origin, imposed on or by reason of the ownership or use of the Project;
governmental charges, fees or
6.
<PAGE>
assessments for transit or traffic mitigation (including area-wide traffic
improvement assessments and transportation system management fees), housing,
police, fire or other governmental service or purported benefits to the Project;
personal property taxes assessed on the personal property of Landlord used in
the operation of the Project; service payments in lieu of taxes and taxes and
assessments of every kind and nature whatsoever levied or assessed in addition
to, in lieu of or in substitution for existing or additional, real or personal
property taxes on the Project or the personal property described above; any
increases in the foregoing caused by changes in assessed valuation, tax rate or
other factors or circumstances; and the reasonable cost of contesting by
appropriate proceedings the amount or validity of any taxes, assessments or
charges described above. Taxes shall not include any state and federal personal
or corporate income taxes measured by the income of Landlord from all sources
(other than taxes on rent at the Property), as well as any franchise,
inheritance, or estate, succession, gift tax, or capital levy. Landlord agrees
that for the purpose of this Lease any special assessments or special taxes for
public improvements to the property will be amortized, with interest at the rate
payable to the assessing or taxing authority, over the maximum time Landlord is
permitted to pay such special assessment or special tax without penalty. To the
extent paid by Tenant or other tenants as "Tenant's Taxes" (as defined in
Section 8 - Tenant's Taxes), "Tenant's Taxes" shall be excluded from Taxes.
(5) "TENANT'S SHARE" means the Rentable Area of the Premises
divided by the total Rentable Area of the Project, as set forth in the Basic
Lease Information. If the Rentable Area of the Project is changed or the
Rentable Area of the Premises is changed by Tenant's leasing of additional space
hereunder or for any other reason, Tenant's Share shall be adjusted accordingly.
(B) Additional Rent.
----------------
(1) Tenant shall pay Landlord as "ADDITIONAL RENT" for each
calendar year or portion thereof during the Term Tenant's Share of the sum of
(x) the amount of Operating Costs, and (y) the amount of Taxes.
(2) Prior to the Commencement Date and each calendar year
thereafter, Landlord shall notify Tenant of Landlord's estimate of Operating
Costs, Taxes and Tenant's Additional Rent for the following calendar year (or
first partial year following the Commencement Date). Commencing on the
Commencement Date, and in subsequent calendar years, on the first day of January
of each calendar year and continuing on the first day of every month thereafter
in such year, Tenant shall pay to Landlord one-twelfth (1/12th) of the
Additional Rent, as reasonably estimated by Landlord for such full calendar
year. If Landlord thereafter reasonably estimates that Operating Costs or Taxes
for such year will vary from Landlord's prior estimate, Landlord may, by notice
to Tenant, revise the estimate for such year (and Additional Rent shall
thereafter be payable based on the revised estimate).
(3) As soon as reasonably practicable after the end of each
calendar year, Landlord shall furnish Tenant a statement with respect to such
year, showing Operating Costs, Taxes and Additional Rent for the year, and the
total payments made by Tenant with respect thereto. Unless Tenant raises any
objections to Landlord's statement within ninety (90) days after receipt of the
same, such statement shall conclusively be deemed correct and Tenant
7.
<PAGE>
shall have no right thereafter to dispute such statement or any item therein or
the computation of Additional Rent based thereon. If Tenant does object to such
statement, then Landlord shall provide Tenant with reasonable verification of
the figures shown on the statement and the parties shall negotiate in good faith
to resolve any disputes. Any objection of Tenant to Landlord's statement and
resolution of any dispute shall not postpone the time for payment of any amounts
due Tenant or Landlord based on Landlord's statement, nor shall any failure of
Landlord to deliver Landlord's statement in a timely manner relieve Tenant of
Tenant's obligation to pay any amounts due Landlord based on Landlord's
statement.
(4) If Tenant's Additional Rent as finally determined for any
calendar year exceeds the total payments made by Tenant on account thereof,
Tenant shall pay Landlord the deficiency within twenty (20) days of Tenant's
receipt of Landlord's statement. If the total payments made by Tenant on account
thereof exceed Tenant's Additional Rent as finally determined for such year,
Tenant's excess payment shall be credited toward the rent next due from Tenant
under this Lease. For any partial calendar year at the beginning or end of the
Term, Additional Rent shall be prorated on the basis of a 365-day year by
computing Tenant's Share of the Operating Costs and Taxes for the entire year
and then prorating such amount for the number of days during such year included
in the Term. Notwithstanding the termination of this Lease, Landlord shall pay
to Tenant or Tenant shall pay to Landlord, as the case may be, within twenty
(20) days after Tenant's receipt of Landlord's final statement for the calendar
year in which this Lease terminates, the difference between Tenant's Additional
Rent for that year, as finally determined by Landlord, and the total amount
previously paid by Tenant on account thereof.
If for any reason Taxes for any year during the Term are reduced, refunded
or otherwise changed, Tenant's Additional Rent shall be adjusted accordingly.
If Taxes are temporarily reduced as a result of space in the Project being
leased to a tenant that is entitled to an exemption from property taxes or other
taxes, then for purposes of determining Additional Rent for each year in which
Taxes are reduced by any such exemption, Taxes for such year shall be calculated
on the basis of the amount the Taxes for the year would have been in the absence
of the exemption. The obligations of Landlord to refund any overpayment of
Additional Rent and of Tenant to pay any Additional Rent not previously paid
shall survive the expiration of the Term.
3.3 Payment of Rent. All amounts payable or reimbursable by Tenant under
---------------
this Lease, including late charges and interest (collectively, "RENT"), shall
constitute rent and shall be payable and recoverable as rent in the manner
provided in this Lease. All sums payable to Landlord on demand under the terms
of this Lease shall be payable within twenty (20) days after receipt of notice
from Landlord of the amounts due. All rent shall be paid without offset;
recoupment or deduction in lawful money of the United States of America to
Landlord at Landlord's Address for Payment of Rent as set forth in the Basic
Lease Information, or to such other person or at such other place as Landlord
may from time to time designate.
4. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with
Landlord the amount specified in the Basic Lease Information as the Security
Deposit, if any (the "SECURITY DEPOSIT"), as security for the performance of
Tenant's obligations under this Lease. Landlord may (but shall have no
obligation to) use the Security Deposit or any portion thereof to cure any Event
of Default under this Lease or to compensate Landlord for any damage Landlord
incurs as a result of Tenant's failure to perform any of Tenant's obligations
hereunder. In such
8.
<PAGE>
event Tenant shall pay to Landlord on demand an amount sufficient to replenish
the Security Deposit. If Tenant is not in default at the expiration or
termination of this Lease, then within thirty (30) days after Tenant vacates the
Premises Landlord shall return to Tenant the Security Deposit or the balance
thereof then held by Landlord and not applied as provided above. Landlord may
commingle the Security Deposit with Landlord's general and other funds. Landlord
shall not be required to pay interest on the Security Deposit to Tenant.
5. USE AND COMPLIANCE WITH LAWS.
5.1 Use. The Premises shall be used and occupied solely for the purposes
---
of (a) general business offices, (b) research and development, and (c) a limited
amount of light manufacturing, and for no other use or purpose. Tenant shall
comply with all present and future Laws relating to Tenant's use or occupancy of
the Premises (and make any repairs, alterations or improvements as required to
comply with all such Laws), and shall observe the "Building Rules" (as defined
in Section 27 - Rules and Regulations); provided, however, that the foregoing
shall not be interpreted to require Tenant to perform structural or capital work
except to the extent required as a result of Tenant's specific use of the
Premises. Tenant shall not do, bring, keep or sell anything in or about the
Premises that is prohibited by, or that will cause a cancellation of or an
increase in the existing premium for, any insurance policy covering the Property
or any part thereof. Tenant shall not permit the Premises to be occupied or
used in any manner that will constitute waste or a nuisance, or disturb the
quiet enjoyment of or otherwise annoy other tenants in the Building. Without
limiting the foregoing, the Premises shall not be used to manufacture goods or
products (other than computer software products), for educational activities
(other than occasional training sessions for Tenant's customers), practice of
medicine or any of the healing arts, providing social services, for any
governmental use (including embassy or consulate use), or for personnel agency,
customer service office, studios for radio, television or other media, travel
agency or reservation center operations or uses. Tenant shall not, without the
prior consent of Landlord, (i) bring into the Building or the Premises anything
that may cause substantial noise, odor or vibration, overload the floors in the
Premises or the Building or any of the heating, ventilating and air-conditioning
("HVAC"), mechanical, elevator, plumbing, electrical, fire protection, life
safety, security or other systems in the Building ("BUILDING SYSTEMS"), or
jeopardize the structural integrity of the Building or any part thereof; (ii)
connect to the utility systems of the Building any apparatus, machinery or other
equipment other than typical office equipment; or (iii) connect to any
electrical circuit in the Premises any equipment or other load wit with
aggregate electrical power requirements in excess of 80% of the rated capacity
of the circuit.
Tenant shall honor and comply with the terms of all recorded covenants,
conditions and restrictions relating to the Property.
9.
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5.2 Hazardous Materials.
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(A) Definitions.
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(1) "HAZARDOUS MATERIALS" shall mean any substance: (A) that now
or in the future is regulated or governed by, requires investigation or
remediation under, or is defined as a hazardous waste, hazardous substance,
pollutant or contaminant under any governmental statute, code, ordinance,
regulation, rule or order, and any amendment thereto, including the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
(S)9601 et seq., and the Resource Conservation and Recovery Act, 42 U. S.C.
------
(S)6901 et seq., or (B) that is toxic, explosive, corrosive, flammable,
------
radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline,
diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos,
radon and urea formaldehyde foam insulation.
(2) "ENVIRONMENTAL REQUIREMENTS" shall mean all present and
future Laws, orders, permits, licenses, approvals, authorizations and other
requirements of any kind applicable to Hazardous Materials.
(3) "HANDLED BY TENANT" and "HANDLING BY TENANT" shall mean and
refer to any installation, handling, generation, storage, use, disposal,
discharge, release, abatement, removal, transportation, or any other activity of
any type by Tenant or its agents, employees, contractors, licensees, assignees,
sublessees, transferees or representatives (collectively, "REPRESENTATIVES") or
its guests, customers, invitees, or visitors (collectively, "VISITORS"), at or
about the Premises in connection with or involving Hazardous Materials.
(4) "ENVIRONMENTAL LOSSES" shall mean all costs and expenses of
any kind, damages, including foreseeable and unforeseeable consequential
damages, fines and penalties incurred in connection with any violation of and
compliance with Environmental Requirements and all losses of any kind
attributable to the diminution of value, loss of use or adverse effects on
marketability or use of any portion of the Premises or Property.
(B) Tenant's Covenants. No Hazardous Materials shall be Handled by
------------------
Tenant at or about the Premises or Property without Landlord's prior written
consent, which consent may be granted, denied, or conditioned upon compliance
with Landlord's requirements, all in Landlord's absolute discretion.
Notwithstanding the foregoing, normal quantities and use of those Hazardous
Materials customarily used in the conduct of general office activities, such as
copier fluids and cleaning supplies ("PERMITTED HAZARDOUS MATERIALS"), may be
used and stored at the Premises without Landlord's prior written consent,
provided that Tenant's activities at or about the Premises and Property and the
Handling by Tenant of all Hazardous Materials shall comply at all times with all
Environmental Requirements. At the expiration or termination of the Lease,
Tenant shall promptly remove from the Premises and Property all Hazardous
Materials Handled by Tenant at the Premises or the Property. Tenant shall keep
Landlord fully and promptly informed of all Handling by Tenant of Hazardous
Materials other than Permitted Hazardous Materials. Tenant shall be responsible
and liable for the compliance with all of the provisions of this Section by all
of Tenant's Representatives and Visitors, and all of Tenant's obligations under
this Section (including its indemnification obligations under paragraph (e)
below) shall survive the expiration or termination of this Lease.
10.
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(C) Compliance. Tenant shall at Tenant's expense promptly take all
----------
actions required by any governmental agency or entity in connection with or as a
result of the Handling by Tenant of Hazardous Materials at or about the Premises
or Property, including inspection and testing, performing all cleanup, removal
and remediation work required with respect to those Hazardous Materials,
complying with all closure requirements and post-closure monitoring, and filing
all required reports or plans. All of the foregoing work and all Handling by
Tenant of all Hazardous Materials shall be performed in a good, safe and
workmanlike manner by consultants qualified and licensed to undertake such work
and in a manner that will not interfere with any other tenant's quiet enjoyment
of the Property or Landlord's use, operation, leasing and sale of the Property.
Tenant shall deliver to Landlord prior to delivery to any governmental agency,
or promptly after receipt from any such agency, copies of all permits,
manifests, closure or remedial action plans, notices, and all other documents
relating to the Handling by Tenant of Hazardous Materials at or about the
Premises or Property. If any lien attaches to the Premises or the Property in
connection with or as a result of the Handling by Tenant of Hazardous Materials,
and Tenant does not cause the same to be released, by payment, bonding or
otherwise, within twenty (20) days after the attachment thereof, Landlord shall
have the right but not the obligation to cause the same to be released and any
sums expended by Landlord (plus Landlord's administrative costs) in connection
therewith shall be payable by Tenant on demand.
(D) Landlord's Rights. Landlord shall have the right, but not the
-----------------
obligation, to enter the Premises at any reasonable time, upon reasonable notice
(and without any notice requirement for any emergency) (i) to confirm Tenant's
compliance with the provisions of this Section 5.2, and (ii) to perform Tenant's
obligations under this Section if Tenant has failed to do so after reasonable
notice to Tenant. Landlord shall also have the right to engage qualified
Hazardous Materials consultants to inspect the Premises and review the Handling
by Tenant of Hazardous Materials, including review of all permits, reports,
plans, and other documents regarding same. Tenant shall pay to Landlord on
demand the costs of Landlord's consultants' fees and all costs incurred by
Landlord in performing Tenant's obligations under this Section. Landlord shall
use reasonable efforts to minimize any interference with Tenant's business
caused by Landlord's entry into the Premises, but Landlord shall not be
responsible for any interference caused thereby.
(E) Tenant's Indemnification. Tenant agrees to indemnify, defend,
------------------------
protect and hold harmless Landlord and its partners or members and its or their
partners, members, directors, officers, shareholders, employees and agents from
all Environmental Losses and all other claims, actions, losses, damages,
liabilities, costs and expenses of every kind, including reasonable attorneys',
experts' and consultants' fees and costs, incurred at any time and arising from
or in connection with the Handling by Tenant of Hazardous Materials at or about
the Property or Tenant's failure to comply in full with all Environmental
Requirements with respect to the Premises.
(F) Landlord's Responsibilities. Landlord shall not use any of the
---------------------------
Land or Building for any activities involving the use, generation, handling,
release, threatened release, treatment, storage, discharge, disposal or
transportation of any Hazardous Materials, except in such quantity or
concentration that is customarily used, stored or disposed in the ordinary
course of the business so long as such activity duly complies with applicable
Laws and good business practice. If Landlord violates the foregoing covenant
resulting in an Environmental Claim (as
11.
<PAGE>
hereinafter defined) with respect to the Premises, then Landlord agrees to (a)
notify Tenant immediately of any such Environmental Claim and (b) clean up any
contamination in full compliance with all applicable Laws. The costs of any
Environmental Claim for Hazardous Materials (x) existing on the Land, or
included in the Building, on the Commencement Date of this Lease, (y) caused by
underground flow of Hazardous Materials shall not be included in Operating
Costs. "Environmental - Claim" means any claim, demand, action, cause of action,
suit, damage, punitive damage, fine, penalty, expense, liability, criminal
liability, judgment, or governmental investigation relating to remediation or
compliance with requirements of Laws covering Hazardous Materials. The term
"Environmental Claim" also includes any costs incurred in responding to efforts
to require remediation and any claim based upon any asserted or actual breach or
violation of any requirements of any Laws covering Hazardous Materials.
(G) Third Parties. Except as provided in the immediately preceding
-------------
subsection (f), if any third party (other than Landlord or its representatives,
any other tenant in the Project, or Tenant or its representatives) places
Hazardous Materials on the Property, then Landlord shall have the right to
include the costs of remediation and removal in Operating Costs, subject to the
provisions of Section 3.2 of this Lease.
6. TENANT IMPROVEMENTS & ALTERATIONS.
6.1 Landlord and Tenant shall perform their respective obligations with
respect to design and construction of any improvements to be constructed and
installed in the Premises (the "TENANT IMPROVEMENTS"), as provided in the
Construction Rider. Except for any Tenant Improvements to be constructed by
Tenant as provided in the Construction Rider, Tenant shall not make any
alterations, improvements or changes to the Premises, including installation of
any security system or telephone or data communication wiring, ("ALTERATIONS"),
without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. Notwithstanding any other provision contained
herein, Tenant shall not be required to obtain Landlord's prior consent for
minor, non-structural Alterations that (a) do not affect any of the Building
Systems, (b) are not visible from the exterior of the Premises, and (c) cost
less than Ten Thousand Dollars ($10,000), so long as Tenant gives Landlord
notice of the proposed Alterations at least ten (10) days prior to commencing
the Alterations and complies with all of the following provisions (except that
Tenant shall not be required to obtain Landlord's approval of any plans or
specifications therefor). Any such Alterations shall be completed by Tenant at
Tenant's sole cost and expense: (i) with due diligence, in a good and
workmanlike manner, using new materials; (ii) in compliance with plans and
specifications approved by Landlord; (iii) in compliance with reasonable
construction rules and regulations promulgated by Landlord from time to time;
(iv) in accordance with all applicable Laws (including all work, whether
structural or non-structural, inside or outside the Premises, required to comply
fully with all applicable Laws and necessitated by Tenant's work); and (v)
subject to all conditions which Landlord may in Landlord's discretion impose.
Such conditions may include requirements for Tenant to: (i) provide payment or
performance bonds or additional insurance (from Tenant or Tenant's contractors,
subcontractors or design professionals); (ii) use contractors or subcontractors
approved by Landlord, which approval shall not be unreasonably withheld, and use
contractors designated by Landlord for Alterations affecting the structure of
the Building, the Building Systems and the life safety systems of the Building;
(iii) for all Alterations costing more than One Hundred Thousand and 00/100
Dollars ($ 100,000.00) either (x) use Commercial Interior
12.
<PAGE>
Contractors ("CIC"), which is Landlord's contractor for such Alterations, or (y)
pay to Landlord a construction management fee, at market rates, for supervising
contractors other than CIC and (iv) remove all or part of the Alterations prior
to or upon expiration or termination of the Term, as designated in writing by
Landlord at the time Tenant requests Landlord's consent to the Alteration. If
any work outside the Premises, or any work on or adjustment to any of the
Building Systems, is required in connection with or as a result of Tenant's
work, such work shall be performed at Tenant's expense by contractors designated
by Landlord. Landlord's right to review and approve (or withhold approval of)
Tenant's plans, drawings, specifications, contractor(s) and other aspects of
construction work proposed by Tenant is intended solely to protect Landlord, the
Property and Landlord's interests. No approval or consent by Landlord shall be
deemed or construed to be a representation or warranty by Landlord as to the
adequacy, sufficiency, fitness or suitability thereof or compliance thereof with
applicable Laws or other requirements. Except as otherwise provided in
Landlord's consent, all Alterations shall upon installation become part of the
realty and be the property of Landlord.
6.2 Before making any Alterations, Tenant shall submit to Landlord for
Landlord's prior approval reasonably detailed final plans and specifications
prepared by a licensed architect or engineer, a copy of the construction
contract, including the name of the contractor and all subcontractors proposed
by Tenant to make the Alterations and a copy of the contractor's license.
Tenant shall reimburse Landlord upon demand for any reasonable expenses incurred
by Landlord in connection with any Alterations made by Tenant, including
reasonable fees charged by Landlord's contractors or consultants to review plans
and specifications prepared by Tenant and to update the existing as-built plans
and specifications of the Building to reflect the Alterations. Tenant shall
obtain all applicable permits, authorizations and governmental approvals and
deliver copies of the same to Landlord before commencement of any Alterations.
6.3 Tenant shall keep the Premises and the Project free and clear of all
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant. If any such lien attaches to the Premises or the Project,
and Tenant does not cause the same to be released by payment, bonding or
otherwise within twenty (20) days after the attachment thereof, Landlord shall
have the right but not the obligation to cause the same to be released, and any
sums expended by Landlord (plus Landlord's reasonable administrative costs) in
connection therewith shall be payable by Tenant on demand with interest thereon
from the date of expenditure by Landlord at the Interest Rate (as defined in
Section 16.2 - Interest). Tenant shall give Landlord at least ten (10) days'
notice prior to the commencement of any Alterations and cooperate with Landlord
in posting and maintaining notices of non-responsibility in connection
therewith.
6.4 Subject to the provisions of Section 5 - Use and Compliance with Laws
and the foregoing provisions of this Section, Tenant may install and maintain
furnishings, equipment, movable partitions, business equipment and other trade
fixtures ("TRADE FIXTURES") in the Premises, provided that the Trade Fixtures do
not become an integral part of the Premises or the Building. Tenant shall
promptly repair any damage to the Premises or the Building caused by any
installation or removal of such Trade Fixtures.
13.
<PAGE>
7. MAINTENANCE AND REPAIRS.
7.1 By taking possession of the Premises Tenant agrees that the Premises
are then in a good and tenantable condition. Tenant shall be responsible to
clean, maintain and repair the Premises, including providing janitorial services
and disposal of trash; and to that end, during the Term, Tenant, at Tenant's
expense but under the direction of Landlord, shall repair and maintain the
Premises, including, without limitation, any elevator, the heating, ventilating
and air conditioning system or systems serving the Premises, the electrical and
plumbing systems serving the Premises, including the lighting and plumbing
fixtures, the restrooms serving the Premises, interior stairways in the
Premises, the interior and exterior glass, plate glass skylights, interior
walls, floor coverings, ceiling (ceiling tiles and grid), Tenant Improvements,
Alterations, fire extinguishers, outlets and fixtures, and any appliances
(including dishwashers, hot water heaters and garbage disposers) in the
Premises, in a first class condition, and keep the Premises in a clean, safe and
orderly condition. Prior to the Commencement Date Tenant shall provide Landlord
with a copy of a service contract with a licensed commercial Heating,
Ventilating and Air-conditioning maintenance company (which contract and company
shall be subject to Landlord's prior approval, which shall not be unreasonably
withheld or delayed), to maintain, on an ongoing basis (at least quarterly), the
heating, ventilating and air-conditioning system serving the Premises. Tenant
acknowledges that the sewer piping at the Development is made of ABS plastic.
Accordingly, without Landlord's prior written consent, which consent may be
granted or withheld in Landlord's sole discretion, Tenant shall allow only
ordinary domestic sewage to be placed in the sewer system from the Premises.
UNDER NO CIRCUMSTANCES SHALL TENANT EVER PLACE, OR ALLOW TO BE PLACED, ANY
ESTERS OR KETONES (USUALLY FOUND IN SOLVENTS TO CLEAN UP PETROLEUM PRODUCTS) IN
THE DRAINS OR SEWER SYSTEM, FROM THE PREMISES.
7.2 Landlord shall (a) maintain or cause to be maintained in reasonably
good order, condition and repair, the structural portions of the roof,
foundations, floors and exterior walls of the Building, and the public and
common areas outside of the Building, (b) that portion of the electrical, water
and sanitary sewer systems serving the Building and located outside the
Building, (c) wash the exterior windows of the Building on a periodic basis, (d)
caulk exterior window joints and concrete slabs and (e) paint the exterior of
the Building, all of which shall be included as a part of Operating Costs,
subject to the terms and conditions contained in Section 3.2 of this Lease;
provided, however, if any maintenance or repair of electrical, water and
sanitary sewer systems outside the Building is caused by Tenant's misuse of such
system, the costs of such maintenance and repair shall not constitute a capital
expenditure for the purposes of Section 3.2 of this Lease. Landlord shall be
under no obligation to inspect the Premises. Tenant shall promptly report in
writing to Landlord any defective condition known to Tenant which Landlord is
required to repair. As a material part of the consideration for this Lease,
Tenant hereby waives any benefits of any applicable existing or future Law,
including the provisions of California Civil Code Sections 1932(l), 1941 and
1942, that allows a tenant to make repairs at its landlord's expense.
7.3 Landlord hereby reserves the right, at any time and from time to time,
without liability to Tenant, and without constituting an eviction, constructive
or otherwise, or entitling Tenant to any abatement of rent or to terminate this
Lease or otherwise releasing Tenant from any of Tenant's obligations under this
Lease:
14.
<PAGE>
(A) To make alterations, additions, repairs, improvements to or in or
to decrease the size of area of, all or any part of the Building, the fixtures
and equipment therein, and the Building Systems (except that Landlord shall not
have any right under this provision to materially reduce the size of the
Building, or permanently, materially and adversely affect Tenant's access to and
use of the Premises, except only as may be required to comply with Laws or as a
result of any fire or other casualty, or Condemnation);
(B) To change the Building's name or street address;
(C) To install and maintain any and all signs on the exterior and
interior of the Building;
(D) To reduce, increase, enclose or otherwise change at any time and
from time to time the size, number, location, lay-out and nature of the common
areas (including the Parking Facility) and other tenancies and premises in the
Property and to create additional rentable areas through use or enclosure of
common areas; and
(E) If any governmental authority promulgates or revises any Law or
imposes mandatory or voluntary controls or guidelines on Landlord or the
Property relating to the use or conservation of energy or utilities or the
reduction of automobile or other emissions or reduction or management of traffic
or parking on the Property (collectively "CONTROLS"), to comply with such
Controls, whether mandatory or voluntary, or make any alterations to the
Property related thereto.
(F) In exercising its rights under this Section 7.3, Landlord agrees
to use reasonable efforts to minimize any interruption to or disruption of
Tenant's use of the Premises.
8. TENANT'S TAXES. "TENANT'S TAXES" shall mean (a) all taxes, assessments,
license fees and other governmental charges or impositions levied or assessed
against or with respect to Tenant's personal property or Trade Fixtures in the
Premises, whether any such imposition is levied directly against Tenant or
levied against Landlord or the Property, (b) all rental, excise, sales or
transaction privilege taxes arising out of this Lease (excluding, however, state
and federal personal or corporate income taxes measured by the income of
Landlord from all sources) imposed by any taxing authority upon Landlord or upon
Landlord's receipt of any rent payable by Tenant pursuant to the terms of this
Lease ("RENTAL TAX"), and (c) any increase in Taxes attributable to inclusion of
a value placed on Tenant's personal property, Trade Fixtures or Alterations.
Tenant shall pay any Rental Tax to Landlord in addition to and at the same time
as Base Rent is payable under this Lease, and shall pay all other Tenant's Taxes
before delinquency (and, at Landlord's request, shall furnish Landlord
satisfactory evidence thereof). If Landlord pays Tenant's Taxes or any portion
thereof, Tenant shall reimburse Landlord upon demand for the amount of such
payment, together with interest at the Interest Rate from the date of Landlord's
payment to the date of Tenant's reimbursement.
15.
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9. UTILITIES.
9.2 Payment for Utilities and Services.
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(A) If the temperature otherwise maintained in any portion of the
Premises by the HVAC systems of the Building is affected as a result of any
lights, machines or equipment used by Tenant in the Premises, then Landlord
shall have the right to install any machinery or equipment reasonably necessary
to restore the temperature, including modifications to the standard air-
conditioning equipment. The cost of any such equipment and modifications,
including the cost of installation and any additional cost of operation and
maintenance of the same, shall be paid by Tenant to Landlord upon demand.
(B) Electricity, water, sanitary sewer and any gas will be separately
metered for the Premises. Tenant shall pay prior to delinquency all charges for
water, gas, electricity, telephone and other telecommunication services,
janitorial service, trash pick-up, sewer and all other services consumed on or
supplied to the Premises, and all taxes, levies, fees and surcharges thereon.
9.3 Interruption of Services. In the event of an interruption in or
------------------------
failure or inability to provide any services or utilities to the Premises or
Building for any reason (a "SERVICE FAILURE"), such Service Failure shall not,
regardless of its duration, impose upon Landlord any liability whatsoever,
constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to
an abatement of rent or to terminate this Lease or otherwise release Tenant from
any of Tenant's obligations under this Lease. Tenant hereby waives any benefits
of any applicable existing or future Law, including the provisions of California
Civil Code Section 1932(l), permitting the termination of this Lease due to such
interruption, failure or inability.
10. EXCULPATION AND INDEMNIFICATION.
10.1 Landlord's Indemnification of Tenant. Landlord shall indemnify,
------------------------------------
protect, defend and hold Tenant harmless from and against any claims, actions,
liabilities, damages, costs or expenses, including reasonable attorneys' fees
and costs incurred in defending against the same ("CLAIMS") asserted by any
third party against Tenant for loss, injury or damage, to the extent such loss,
injury or damage is caused by the willful misconduct or negligent acts or
omissions of Landlord or its authorized representatives.
10.2 Tenant's Indemnification of Landlord. Tenant shall indemnify,
------------------------------------
protect, defend and hold Landlord and Landlord's authorized representatives
harmless from and against Claims arising from (a) the acts or omissions of
Tenant or Tenant's Representatives or Visitors in or about the Property, or (b)
any construction or other work undertaken by Tenant on the Premises (including
any design defects), or (c) any breach or default under this Lease by Tenant, or
(d) any loss, injury or damage, howsoever and by whomsoever caused, to any
person or property, occurring in or about the Premises during the Term,
excepting only Claims described in this clause (d) to the extent they are caused
by the willful misconduct or negligent acts or omissions of Landlord or its
authorized representatives.
16.
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10.3 Damage to Tenant and Tenant's Property. Landlord shall not be liable
--------------------------------------
to Tenant for any loss, injury or other damage to Tenant or to Tenant's property
in or about the Premises or the Property from any cause (including defects in
the Property or in any equipment in the Property; fire, explosion or other
casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes
or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above,
or about the Premises or the Property; or acts of other tenants in the
Property). Tenant hereby waives all claims against Landlord for any such loss,
injury or damage and the cost and expense of defending against claims relating
thereto, including any loss, injury or damage caused by Landlord's negligence
(active or passive) or willful misconduct. Notwithstanding any other provision
of this Lease to the contrary, in no event shall Landlord or Tenant be liable to
the other party for any punitive or consequential damages or damages for loss of
business by Tenant or Landlord except for any liability which Tenant might have
for holding over in the Premises beyond the expiration of the Term in accordance
with the provisions of Section 19.2 of this Lease.
10.4 Survival. The obligations of the parties under this Section 10 shall
--------
survive the expiration or termination of this Lease.
11. INSURANCE.
11.1 Tenant's Insurance.
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(A) Liability Insurance. Tenant shall maintain in full force
throughout the Term, commercial general liability insurance providing coverage
on an occurrence form basis with limits of not less than Two Million Dollars
($2,000,000.00) each occurrence for bodily injury and property damage combined,
Two Million Dollars ($2,000,000.00) annual general aggregate, and Two Million
Dollars ($2,000,000.00) products and completed operations annual aggregate.
Tenant's liability insurance policy or policies shall: (i) include premises and
operations liability coverage, products and completed operations liability
coverage, broad form property damage coverage including completed operations,
blanket contractual liability coverage including, to the maximum extent
possible, coverage for the indemnification obligations of Tenant under this
Lease, and personal and advertising injury coverage; (ii) provide that the
insurance company has the duty to defend all insureds under the policy; (iii)
provide that defense costs are paid in addition to and do not deplete any of the
policy limits; (iv) cover liabilities arising out of or incurred in connection
with Tenant's use or occupancy of the Premises or the Property; (v) extend
coverage to cover liability for the actions of Tenant's Representatives and
Visitors; and (iv) designate separate limits for the Property. Each policy of
liability insurance required by this Section shall: (i) contain a cross
liability endorsement or separation of insureds clause; (ii) provide that any
waiver of subrogation rights or release prior to a loss does not void coverage;
(iii) provide that it is primary to and not contributing with, any policy of
insurance carried by Landlord covering the same loss; (iv) provide that any
failure to comply with the reporting provisions shall not affect coverage
provided to Landlord, its partners, property managers and Mortgagees; and (v)
name Landlord, its partners, the Property Manager identified in the Basic Lease
Information (the "PROPERTY MANAGER"), and such other parties in interest as
Landlord may from time to time reasonably designate to Tenant in writing, as
additional insureds. Such additional insureds shall be provided at least the
same extent of coverage as is provided to Tenant under such policies. All
endorsements effecting such additional insured
17.
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status shall be at least as broad as additional insured endorsement form number
CG 20 11 1185 promulgated by the Insurance Services Office.
(B) Property Insurance. Tenant shall at all times maintain in effect
------------------
with respect to any Alterations and Tenant's Trade Fixtures and personal
property, commercial property insurance providing coverage, on an "all risk" or
"special form" basis, in an amount equal to at least 90% of the full replacement
cost of the covered property. Tenant may carry such insurance under a blanket
policy, provided that such policy provides coverage equivalent to a separate
policy. During the Term, the proceeds from any such policies of insurance shall
be used for the repair or replacement of the Alterations, Trade Fixtures and
personal property so insured. Landlord shall be provided coverage under such
insurance to the extent of its insurable interest and, if requested by Landlord,
both Landlord and Tenant shall sign all documents reasonably necessary or proper
in connection with the settlement of any claim or loss under such insurance.
Landlord will have no obligation to carry insurance on any Alterations or on
Tenant's Trade Fixtures or personal property.
(C) Requirements For All Policies. Each policy of insurance required
-----------------------------
under this Section 11. 1 shall: (i) be in a form, and written by an insurer,
reasonably acceptable to Landlord, (ii) be maintained at Tenant's sole cost and
expense, and (iii) require at least thirty (30) days' written notice to Landlord
prior to any cancellation, nonrenewal or modification of insurance coverage.
Insurance companies issuing such policies shall have rating classifications of
"A" or better and financial size category ratings of "VII" or better according
to the latest edition of the A.M. Best Key Rating Guide. All insurance companies
issuing such policies shall be admitted carriers licensed to do business in the
state where the Property is located. Any deductible amount under such insurance
shall not exceed $5,000. Tenant shall provide to Landlord, upon request,
evidence that the insurance required to be carried by Tenant pursuant to this
Section, including any endorsement effecting the additional insured status, is
in full force and effect and that premiums therefor have been paid.
(D) Updating Coverage. Tenant shall increase the amounts of insurance
-----------------
as required by any Mortgagee, and, not more frequently than once every three (3)
years, as recommended by Landlord's insurance broker, if, in the reasonable
opinion of either of them, the amount of insurance then required under this
Lease is not adequate.
(E) Certificates of Insurance. Prior to occupancy of the Premises by
-------------------------
Tenant, and not less than thirty (30) days prior to expiration of any policy
thereafter, Tenant shall furnish to Landlord a certificate of insurance
reflecting that the insurance required by this Section is in force, accompanied
by an endorsement showing the required additional insureds satisfactory to
Landlord in substance and form. Notwithstanding the requirements of this
paragraph, Tenant shall at Landlord's request provide to Landlord a certified
copy of each insurance policy required to be in force at any time pursuant to
the requirements of this Lease or its Exhibits.
11.2 Landlord's Insurance. During the Term, to the extent such coverages
--------------------
are available at a commercially reasonable cost, Landlord shall maintain in
effect insurance on the Building with responsible insurers, on an "all risk" or
"special form" basis, insuring the Building and the Tenant Improvements in an
amount equal to at least 90% of the replacement cost thereof, excluding land,
foundations, footings and underground installations. Landlord may, but shall
not
18.
<PAGE>
be obligated to, carry insurance against additional perils and/or in greater
amounts. Landlord shall maintain in full force throughout the Term, commercial
general liability insurance providing coverage with limits of not less than Two
Million Dollars ($2,000,000.00) each occurrence for bodily injury and property
damage combined covering the Property (the cost of the premiums for which shall
be included in Operating Costs).
11.3 Mutual Waiver of Right of Recovery & Waiver of Subrogation. Landlord
----------------------------------------------------------
and Tenant each hereby waive any right of recovery against each other and the
partners, managers, members, shareholders, officers, directors and authorized
representatives of each other for any loss or damage that is covered by any
policy of property insurance maintained by either party (or required by this
Lease to be maintained) with respect to the Premises or the Property or any
operation therein, regardless of cause, including negligence (active or passive)
of the party benefiting from the waiver. If any such policy of insurance
relating to this Lease or to the Premises or the Property does not permit the
foregoing waiver or if the coverage under any such policy would be invalidated
as a result of such waiver, the party maintaining such policy shall obtain from
the insurer under such policy a waiver of all right of recovery by way of
subrogation against either party in connection with any claim, loss or damage
covered by Such policy.
12. DAMAGE OR DESTRUCTION.
12.1 Landlord's Duty to Repair.
-------------------------
(A) If all or a substantial part of the Premises are rendered
untenantable or inaccessible by damage to all or any part of the Property from
fire or other casualty then, unless either party is entitled to and elects to
terminate this Lease pursuant to Sections 12.2 - Landlord's Right to Terminate
and 12.3 -Tenant's Right to Terminate, Landlord shall, at its expense, use
reasonable efforts to repair and restore the Premises and/or the Property, as
the case may be, to substantially their former condition to the extent permitted
by then applicable Laws; provided, however, in no event shall Landlord have any
obligation for repair or restoration: (i) beyond the extent of the sum of (x)
the insurance proceeds received by Landlord for such repair or restoration plus
(y) $ 10,000, or (ii) for any of Tenant's personal property, Trade Fixtures or
Alterations.
(B) If Landlord is required or elects to repair damage to the
Premises and/or the Property, this Lease shall continue in effect, but Tenant's
Base Rent and Additional Rent shall be abated with regard to any portion of the
Premises that Tenant is prevented from using by reason of such damage or its
repair from the date of the casualty until substantial completion of Landlord's
repair of the affected portion of the Premises as required under this Lease. In
no event shall Landlord be liable to Tenant by reason of any injury to or
interference with Tenant's business or property arising from fire or other
casualty or by reason of any repairs to any part of the Property necessitated by
such casualty.
12.2 Landlord's Right to Terminate. Landlord may elect to terminate this
-----------------------------
Lease following damage by fire or other casualty under the following
circumstances:
19.
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(A) If, in the reasonable judgment of Landlord, the Premises and the
Property cannot be substantially repaired and restored under applicable Laws
within one (1) year from the date of the casualty;
(B) If, in the reasonable judgment of Landlord, adequate proceeds are
not, for any reason (except for Landlord's failure to maintain the insurance
coverage required to be maintained by Landlord under this Lease), made available
to Landlord from Landlord's insurance policies (and/or from Landlord's funds
made available for such purpose, at Landlord's sole option) to make the required
repairs;
(C) If the Building is damaged or destroyed to the extent that, in
the reasonable judgment of Landlord, the cost to repair and restore the Building
would exceed twenty-five percent (25%) of the full replacement cost of the
Building, whether or not the Premises are at all damaged or destroyed; or
(D) If the fire or other casualty occurs during the last year of the
Term.
If any of the circumstances described in subparagraphs (a), (b), (c) or (d) of
this Section 12.2 occur or arise, Landlord shall give Tenant notice within one
hundred and twenty (120) days after the date of the casualty, specifying whether
Landlord elects to terminate this Lease as provided above and, if not,
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease.
12.3 Tenant's Right to Terminate. If all or a substantial part of the
---------------------------
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Property from fire or other casualty, and Landlord does not elect to
terminate as provided above, then Tenant may elect to terminate this Lease if
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease is greater than one (1) year, in which event Tenant
may elect to terminate this Lease by giving Landlord notice of such election to
terminate within thirty (30) days after Landlord's notice to Tenant pursuant to
Section 12.2 - Landlord's Right to Terminate.
12.4 Waiver. Landlord and Tenant each hereby waive the provisions of
------
California Civil Code Sections 1932(2), 1933(4) and any other-applicable
existing or future Law permitting the termination of a lease agreement in the
event of damage or destruction under any circumstances other than as provided in
Sections 12.2 - Landlord's Right to Terminate and 12.3 - Tenant's Right to
Terminate.
13. CONDEMNATION.
13.1 Definitions.
-----------
(A) "AWARD" shall mean all compensation, sums, or anything of value
awarded, paid or received on a total or partial Condemnation.
(B) "CONDEMNATION" shall mean (i) a permanent taking (or a temporary
taking for a period extending beyond the end of the Term) pursuant to the
exercise of the power of condemnation or eminent domain by any public or quasi-
public authority, private corporation or individual having such power
("CONDEMNOR"), whether by legal proceedings or otherwise, or
20.
<PAGE>
(ii) a voluntary sale or transfer by Landlord to any such authority, either
under threat of condemnation or while legal proceedings for condemnation are
pending.
(C) "DATE OF CONDEMNATION" shall mean the earlier of the date that
title to the property taken is vested in the Condemnor or the date the Condemnor
has the right to possession of the property being condemned.
13.2 Effect on Lease.
---------------
(A) If more than one-third (1 /3) of the Premises is taken by
Condemnation, this Lease shall terminate as of the Date of Condemnation. If one-
third (1/3) or less of the Premises is taken by Condemnation, this Lease shall
remain in effect; provided, however, that if the portion of the Premises
remaining after the Condemnation will be unsuitable for Tenant's continued use,
then upon notice to Landlord within thirty (30) days after Landlord notifies
Tenant of the Condemnation, Tenant may terminate this Lease effective as of the
Date of Condemnation.
(B) If twenty-five percent (25%) or more of the Project or of the
parcel(s) of land on which the Building is situated or of the Parking Facility
or of the floor area in the Building is taken by Condemnation, or if as a result
of any Condemnation the Building is no longer reasonably suitable for use as an
office building, whether or not any portion of the Premises is taken, Landlord
may elect to terminate this Lease, effective as of the Date of Condemnation, by
notice to Tenant within thirty (30) days after the Date of Condemnation.
(C) If all or a portion of the Premises is temporarily taken by a
Condemnor for a period not extending beyond the end of the Term, this Lease
shall remain in full force and effect.
13.3 Restoration. If this Lease is not terminated as provided in Section
-----------
13.2 - Effect on Lease, Landlord, at its expense, shall diligently proceed to
repair and restore the Premises to substantially its former condition (to the
extent permitted by then applicable Laws) and/or repair and restore the Building
to an architecturally complete office building; provided, however, that
Landlord's obligations to so repair and restore shall be limited to the amount
of any Award received by Landlord and not required to be paid to any Mortgagee
(as defined in Section 20.2 below). In no event shall Landlord have any
obligation to repair or replace any improvements in the Premises beyond the
amount of any Award received by Landlord for such repair or to repair or replace
any of Tenant's personal property, Trade Fixtures, or Alterations.
13.4 Abatement and Reduction of Rent. If any portion of the Premises is
-------------------------------
taken in a Condemnation or is rendered permanently untenantable by repairs
necessitated by the Condemnation, and this Lease is not terminated, the Base
Rent and Additional Rent payable under this Lease shall be proportionally
reduced as of the Date of Condemnation based upon the percentage of rentable
square feet in the Premises so taken or rendered permanently untenantable. In
addition, if this Lease remains in effect following a Condemnation and Landlord
proceeds to repair and restore the Premises, the Base Rent and Additional Rent
payable under this Lease shall be abated during the period of such repair or
restoration to the extent such repairs prevent Tenant's use of the Premises.
21.
<PAGE>
13.5 Awards. Any Award made shall be paid to Landlord, and Tenant hereby
------
assigns to Landlord, and waives all interest in or claim to, any such Award,
including any claim for the value of the unexpired Term; provided, however, that
Tenant shall be entitled to receive, or to prosecute a separate claim for, an
Award for a temporary taking of the Premises or a portion thereof by a Condemnor
where this Lease is not terminated (to the extent such Award relates to the
unexpired Term), or an Award or portion thereof separately designated for
relocation and moving expenses or the interruption of or damage to Tenant's
business or as compensation for Tenant's personal property, Trade Fixtures or
Alterations.
13.6 Waiver. Landlord and Tenant each hereby waive the provisions of
------
California Code of Civil Procedure Section 1265.130 and any other applicable
existing or future Law allowing either party to petition for a termination of
this Lease upon a partial taking of the Premises and/or the Property.
14. ASSIGNMENT AND SUBLETTING.
14.1 Landlord's Consent Required. Tenant shall not assign this Lease or
---------------------------
any interest therein, or sublet or license or permit the use or occupancy of the
Premises or any part thereof by or for the benefit of anyone other than Tenant,
or in any other manner transfer all or any part of Tenant's interest under this
Lease (each and all a "TRANSFER"), without the prior written consent of
Landlord, which consent (subject to the other provisions of this Section 14)
shall not be unreasonably withheld. If Tenant is a business entity, any direct
or indirect transfer of fifty percent (50%) or more of the ownership interest of
the entity (whether in a single transaction or in the aggregate through more
than one transaction) shall be deemed a Transfer. A public offering of Tenant's
stock shall not constitute a Transfer under the provisions of this Lease.
Notwithstanding any provision in this Lease to the contrary, Tenant shall not
mortgage, pledge, hypothecate or otherwise encumber this Lease or all or any
part of Tenant's interest under this Lease.
14.2 Reasonable Consent.
-------------------
(A) Prior to any proposed Transfer, Tenant shall submit in writing to
Landlord (i) the name and legal composition of the proposed assignee, subtenant,
user or other transferee (each a "PROPOSED TRANSFEREE"); (ii) the nature of the
business proposed to be carried on in the Premises; (iii) a current balance
sheet, income statements for the last two years and such other reasonable
financial and other information concerning the Proposed Transferee as Landlord
may request; and (iv) a copy of the proposed assignment, sublease or other
agreement governing the proposed Transfer. Within fifteen (15) Business Days
after Landlord receives all such information it shall notify Tenant whether it
approves or disapproves such Transfer or if it elects to proceed under Section
14.7 - Landlord's Right to Space.
(B) Tenant acknowledges and agrees that, among other circumstances
for which Landlord could reasonably withhold consent to a proposed Transfer, it
shall be reasonable for Landlord to withhold consent where (i) the Proposed
Transferee does not intend itself to occupy the entire portion of the Premises
assigned or sublet, (ii) Landlord reasonably disapproves of the Proposed
Transferee's business operating ability or history, reputation or
creditworthiness or the nature or character of the business to be conducted by
the Proposed
22.
<PAGE>
Transferee at the Premises, (iii) the Proposed Transferee is a governmental
agency or unit or an existing tenant in the Project, unless, in the case of an
existing tenant, Landlord does not have space available for lease containing the
same or more square feet as is contained in the Premises to accommodate the
existing tenant's expansion or renewal in the Project, (iv) the proposed
Transfer would violate any "exclusive" rights of any tenants in the Project, (v)
Landlord or Landlord's agent has shown space in the Project to the Proposed
Transferee or responded to any inquiries from the Proposed Transferee or the
Proposed Transferee's agent concerning availability of space in the Project, at
any time within the preceding six months, or (vi) Landlord otherwise determines
that the proposed Transfer would have the effect of materially decreasing the
financial value of the Project or increasing the expenses associated with
operating, maintaining and repairing the Project. In no event may Tenant
publicly advertise all or any portion of the Premises for assignment or sublease
at a rental less than that then sought by Landlord for a direct lease (non-
sublease) of comparable space in the Project. Notwithstanding the foregoing,
Tenant may employ a broker who advertises on a commercial multiple listing
service in order to offer the Premises for assignment or sublease.
14.3 Excess Consideration. If Landlord consents to the Transfer, Landlord
--------------------
shall be entitled to receive as Additional Rent hereunder, fifty percent (50%)
of all "Sublease Profits" (as defined below). "Sublease Profits" shall mean any
consideration paid by the Transferee for the assignment or sublease and, in the
case of a sublease, the excess of the rent and other consideration payable by
the subtenant over the amount of Base Rent and Additional Rent payable hereunder
applicable to the subleased space, less any and all direct, out-of-pocket
expenses and cash concessions, including costs for necessary Alterations,
attorneys' fees (not to exceed One Thousand and 00/ 100 Dollars [$ 1,000.00] in
attorneys' fees) and brokerage commission, paid by Tenant to procure the
assignee or subtenant. Tenant shall pay to Landlord as additional rent, within
twenty (20) days after receipt by Tenant, any such excess consideration paid by
any transferee (the "TRANSFEREE") for the Transfer provided any capital
expenditures and brokerage commissions in connection with any sublease shall be
amortized over the term of the sublease.
14.4 No Release Of Tenant. No consent by Landlord to any Transfer shall
--------------------
relieve Tenant of any obligation to be performed by Tenant under this Lease,
whether occurring before or after such consent, assignment, subletting or other
Transfer. Each Transferee shall be jointly and severally liable with Tenant
(and Tenant shall be jointly and severally liable with each Transferee) for the
payment of rent (or, in the case of a sublease, rent in the amount set forth in
the sublease) and for the performance of all other terms and provisions of this
Lease. The consent by Landlord to any Transfer shall not relieve Tenant or any
such Transferee from the obligation to obtain Landlord's express prior written
consent to any subsequent Transfer by Tenant or any Transferee. The acceptance
of rent by Landlord from any other person (whether or not such person is an
occupant of the Premises) shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any Transfer.
14.5 Expenses and Attorneys' Fees. Tenant shall pay to Landlord on demand
----------------------------
all costs and expenses (including reasonable attorneys' fees not to exceed One
Thousand and 00/ 100 Dollars [$ 1,000.00] for each request for Landlord's
consent to a proposed Transfer) incurred by Landlord in connection with
reviewing or consenting to any proposed Transfer (including any
23.
<PAGE>
request for consent to, or any waiver of Landlord's rights in connection with,
any security interest in any of Tenant's property at the Premises).
14.6 Effectiveness of Transfer. Prior to the date on which any permitted
-------------------------
Transfer (whether or not requiring Landlord's consent) becomes effective, Tenant
shall deliver to Landlord a counterpart of the fully executed Transfer document
and Landlord's standard form of Consent to Assignment or Consent to Sublease
executed by Tenant and the Transferee in which each of Tenant and the Transferee
confirms its obligations pursuant to this Lease. Failure or refusal of a
Transferee to execute any such instrument shall not release or discharge the
Transferee from liability as provided herein. The voluntary, involuntary or
other surrender of this Lease by Tenant, or a mutual cancellation by Landlord
and Tenant, shall not work a merger, and any such surrender or cancellation
shall, at the option of Landlord, either terminate all or any existing subleases
or operate as an assignment to Landlord of any or all of such subleases.
14.7 Landlord's Right to Space. Notwithstanding any of the above
-------------------------
provisions of this Section to the contrary, if Tenant notifies Landlord that it
desires to enter into a Transfer, Landlord, in lieu of consenting to such
Transfer, may elect (x) in the case of an assignment or a sublease of the entire
Premises, to terminate this Lease, or (y) in the case of a sublease of less than
the entire Premises, to terminate this Lease as it relates to the space proposed
to be subleased by Tenant. In such event, this Lease will terminate (or the
space proposed to be subleased will be removed from the Premises subject to this
Lease and the Base Rent and Tenant's Share under this Lease shall be
proportionately reduced) on the date the Transfer was proposed to be effective,
and Landlord may lease such space to any party, including the prospective
Transferee identified by Tenant.
14.8 Assignment of Sublease Rents. Tenant hereby absolutely and
----------------------------
irrevocably assigns to Landlord any and all rights to receive rent and other
consideration from any sublease and agrees that Landlord, as assignee or as
attorney-in-fact for Tenant solely for purposes of collecting rent and other
consideration from any sublessee, or a receiver for Tenant appointed on
Landlord's application may (but shall not be obligated to) collect such rents
and other consideration and apply the same toward Tenant's obligations to
Landlord under this Lease; provided, however, that Landlord grants to Tenant at
all times prior to occurrence of any breach or default by Tenant a revocable
license to collect such rents (which license shall automatically and without
notice be and be deemed to have been revoked and terminated immediately upon any
Event of Default).
14.9 Transfer to Affiliate. Notwithstanding any provision contained in the
---------------------
Section 14 to the contrary, Tenant shall have the right, without the consent of
Landlord, upon ten (10) days prior written notice to Landlord, to transfer
Tenant's interest in this Lease to an "Affiliate" of Tenant, and the provisions
of Sections 14.2, 14.3 and 14.7 shall not apply with respect to the transfer to
the Affiliate, but the transfer to the Affiliate shall be subject to all other
terms and conditions of this Lease, including the provisions of this Section
14.9. Tenant shall remain liable under this Lease after any such transfer. For
the purposes of this Article 14, the term "Affiliate" of Tenant shall mean and
refer to any entity controlling, controlled by or under common control with
Tenant or Tenant's parent, as the case may be, or any corporation or other
entity resulting from a merger or consolidation with Tenant, or to any person or
entity which acquires at least ninety percent (90%) of all the assets of Tenant
as a going concern. "Control" as used herein
24.
<PAGE>
shall mean the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of such controlled entity; and the
ownership, or possession of the right to vote, in the ordinary direction of its
affairs, of at least fifty percent (50%) of the voting interest in any entity.
Notwithstanding Tenant's right to Transfer to an Affiliate pursuant to the
provisions of this Section 14.9, Tenant may not, through use of its rights under
this Article 14 in two or more transactions (whether separate transactions or
steps or phases of a single transaction), at one time or over time, whether by
first assigning this Lease to a subsidiary and then merging the subsidiary into
another entity or selling the stock of the subsidiary or by other means, assign
or sublease the Premises, or transfer control of Tenant, to any person or entity
which is not a subsidiary, affiliate or controlling corporation of the original
Tenant, as then constituted, existing prior to the commencement of such
transactions, without first obtaining Landlord's prior written consent pursuant
to the provisions of Section 14.2.
15. DEFAULT AND REMEDIES.
15.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an "EVENT OF DEFAULT" by Tenant:
(A) Tenant fails to make any payment of rent when due, or any amount
required to replenish the security deposit as provided in Section 4 above, if
payment in full is not received by Landlord within three (3) days after written
notice that it is due.
(B) Tenant abandons the Premises, together with Tenant's failure to
pay Rent when due.
(C) Tenant fails timely to deliver any subordination document,
estoppel certificate or financial statement requested by Landlord within the
applicable time period specified in Sections 20 - Encumbrances - and 21 -
Estoppel Certificates and Financial Statements - below.
(D) Tenant violates the restrictions on Transfer set forth in Section
14 -Assignment and Subletting.
(E) Tenant ceases doing business as a going concern; makes an
assignment for the benefit of creditors; is adjudicated an insolvent, files a
petition (or files an answer admitting the material allegations of a petition)
seeking relief under any under any state or federal bankruptcy or other statute,
law or regulation affecting creditors' rights; all or substantially all of
Tenant's assets are subject to judicial seizure or attachment and are not
released within 60 days, or Tenant consents to or acquiesces in the appointment
of a trustee, receiver or liquidator for Tenant or for all or any substantial
part of Tenant's assets.
(F) Tenant fails, within ninety (90) days after the commencement of
any proceedings against Tenant seeking relief under any state or federal
bankruptcy or other statute, law or regulation affecting creditors' rights, to
have such proceedings dismissed, or Tenant fails, within ninety (90) days after
an appointment, without Tenant's consent or acquiescence, of any trustee,
receiver or liquidator for Tenant or for all or any substantial part of Tenant's
assets, to have such appointment vacated.
25.
<PAGE>
(G) Tenant fails to perform or comply with any provision of this
Lease other than those described in (a) through (f) above, and does not fully
cure such failure within thirty (30) days after notice to Tenant or, if such
failure cannot be cured within such thirty (30)-day period, Tenant fails within
such thirty (30)-day period to commence, and thereafter diligently proceed with,
all actions necessary to cure such failure as soon as reasonably possible but in
all events within one hundred twenty (120) days of such notice; provided,
however, that if Landlord in Landlord's reasonable judgment determines that such
failure will not be cured by Tenant within such one hundred twenty (120) days,
then such failure shall constitute an Event of Default immediately upon such
notice to Tenant.
15.2 Remedies. Upon the occurrence of an Event of Default, Landlord shall
--------
have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:
(A) Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord, including re-entry into the Premises, efforts to relet the Premises,
reletting of the Premises for Tenant's account, storage of Tenant's personal
property and Trade Fixtures, acceptance of keys to the Premises from Tenant or
exercise of any other rights and remedies under this Section, shall constitute
an acceptance of Tenant's surrender of the Premises or constitute a termination
of this Lease or of Tenant's right to possession of the Premises. Upon such
termination in writing of Tenant's right to possession of the Premises, as
herein provided, this Lease shall terminate and Landlord shall be entitled to
recover damages from Tenant as provided in California Civil Code Section 1951.2
and any other applicable existing or future Law providing for recovery of
damages for such breach, including the worth at the time of award of the amount
by which the rent which would be payable by Tenant hereunder for the remainder
of the Term after the date of the award of damages, including Additional Rent as
reasonably estimated by Landlord, exceeds the amount of such rental loss as
Tenant proves could have been reasonably avoided, discounted at the discount
rate published by the Federal Reserve Bank of San Francisco for member banks at
the time of the award plus one percent (1%).
(B) Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations).
(C) Landlord may cure the Event of Default at Tenant's expense. If
Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the amount of such payment or
expense with interest at the Interest Rate from the date the sum is paid or the
expense is incurred until Landlord is reimbursed by Tenant.
(D) Landlord may remove all Tenant's property from the Premises, and
such property may be stored by Landlord in a public warehouse or elsewhere at
the sole cost and for the account of Tenant. If Landlord does not elect to store
any or all of Tenant's property left in the Premises, Landlord may consider such
property to be abandoned by Tenant, and Landlord
26.
<PAGE>
may thereupon dispose of such property in any manner deemed appropriate by
Landlord. Any proceeds realized by Landlord on the disposal of any such property
shall be applied first to offset all expenses of storage and sale, then credited
against Tenant's outstanding obligations to Landlord under this Lease, and any
balance remaining after satisfaction of all obligations of Tenant under this
Lease shall be delivered to Tenant.
16. LATE CHARGE AND INTEREST.
16.1 Late Charge. If any payment of rent is not received by Landlord
-----------
within five (5) days after written notice from Landlord to Tenant that the
payment is past due, Tenant shall pay to Landlord on demand as a late charge an
additional amount equal to four percent (4%) of the overdue payment; provided,
however, if Landlord has given Tenant written notice two (2) or more times in
any consecutive twelve (12) month period that a payment of rent is past due,
then Tenant shall pay to Landlord on demand commencing with the third (3rd) past
due payment in any twelve (12) month period, and continuing with each past due
payment thereafter in such twelve (12) month period, as a late charge an
additional amount equal to four percent (4%) of the overdue payment without any
requirement of additional notice that such payment is past due. A late charge
shall not be imposed more than once on any particular installment not paid when
due, but imposition of a late charge on any payment not made when due does not
eliminate or supersede late charges imposed on other (prior) payments not made
when due or preclude imposition of a late charge on other installments or
payments not made when due.
16.2 Interest. In addition to the late charges referred to above, which
--------
are intended to defray Landlord's costs resulting from late payments, any
payment from Tenant to Landlord not paid when due shall at Landlord's option
bear interest from the date due until paid to Landlord by Tenant at the rate of
fifteen percent (15%) per annum or the maximum lawful rate that Landlord may
charge to Tenant under applicable laws, whichever is less (the "INTEREST RATE").
Acceptance of any late charge and/or interest shall not constitute a waiver of
Tenant's default with respect to the overdue sum or prevent Landlord from
exercising any of its other rights and remedies under this Lease.
17. WAIVER. No provisions of this Lease shall be deemed waived by either party
unless such waiver is in a writing signed by the waiving party. The waiver by
either party of any breach of any provision of this Lease shall not be deemed a
waiver of such provision or of any subsequent breach of the same or any other
provision of this Lease. No delay or omission in the exercise of any right or
remedy of either party upon any default by the other party shall impair such
right or remedy or be construed as a waiver. Landlord's acceptance of any
payments of rent due under this Lease shall not be deemed a waiver of any
default by Tenant under this Lease (including Tenant's recurrent failure to
timely pay rent) other than Tenant's nonpayment of the accepted sums, and no
endorsement or statement on any check or on any letter accompanying any check or
payment shall be deemed an accord and satisfaction. The consent to or approval
by either party of any act by the other party requiring the first party's
consent or approval shall not be deemed to waive or render unnecessary the
consenting or approving party's consent to or approval of any subsequent act by
the other party.
27.
<PAGE>
18. ENTRY, INSPECTION AND CLOSURE. Upon reasonable oral or written notice to
Tenant (and without notice in emergencies), Landlord and its authorized
representatives may enter the Premises at all reasonable times to: (a) determine
whether the Premises are in good condition, (b) determine whether Tenant is
complying with its obligations under this Lease, (c) perform any maintenance or
repair of the Premises or the Building that Landlord has the right or obligation
to perform, (d) install or repair improvements for other tenants where access to
the Premises is required for such installation or repair, (e) serve, post or
keep posted any notices required or allowed under the provisions of this Lease,
(f) show the Premises to prospective brokers, agents, buyers, transferees, or
Mortgagees, or (g) do any other act or thing necessary for the safety or
preservation of the Premises or the Building. In addition, Landlord shall show
the Premises to prospective tenants upon prior reasonable oral or notice to
Tenant during the last twelve (12) months of the Term. When reasonably
necessary Landlord may temporarily close entrances, doors, corridors, elevators
or other facilities in the Building without liability to Tenant by reason of
such closure. Landlord shall conduct its activities under this Section in a
manner that will minimize inconvenience to Tenant without incurring additional
expense to Landlord. In no event shall Tenant be entitled to an abatement of
rent on account of any entry by Landlord, and Landlord shall not be liable in
any manner for any inconvenience, loss of business or other damage to Tenant or
other persons arising out of Landlord's entry on the Premises in accordance with
this Section. No action by Landlord pursuant to this paragraph shall constitute
an eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement
of rent or to terminate this Lease or otherwise release Tenant from any of
Tenant's obligations under this Lease.
19. SURRENDER AND HOLDING OVER.
19.1 Surrender. Upon the expiration or termination of this Lease, Tenant
---------
shall surrender the Premises and all Tenant Improvements and Alterations to
Landlord broom-clean and in good condition, except for reasonable wear and tear,
damage from casualty or condemnation and any changes resulting from approved
Alterations; provided, however, that on or before the expiration or termination
of this Lease Tenant shall remove all telephone and other cabling installed in
the Building by Tenant and remove from the Premises all Tenant's personal
property and any Trade Fixtures and all Alterations that Landlord has elected to
require Tenant to remove as provided in Section 6.1 - Tenant Improvements &
Alterations, and repair any damage caused by such removal; provided, however,
upon expiration or termination of this Lease Tenant shall not be obligated to
remove any Hazardous Material from the Property unless Handled by Tenant at the
Property. If such removal is not completed on or before the expiration or
termination of the Term, Landlord shall have the right (but no obligation) to
remove the same, and Tenant shall pay Landlord on demand for all costs of
removal and storage thereof and for the rental value of the Premises for the
period from the end of the Term through the end of the time reasonably required
for such removal. Landlord shall also have the right to retain or dispose of
all or any portion of such property if Tenant does not pay all such costs and
retrieve the property within ten (10) days after notice from Landlord (in which
event title to all such property described in Landlord's notice shall be
transferred to and vest in Landlord). Tenant waives all Claims against Landlord
for any damage or loss to Tenant resulting from Landlord's removal, storage,
retention, or disposition of any such property. Upon expiration or termination
of this Lease or of Tenant's possession, whichever is earliest, Tenant shall
surrender all keys to the Premises or any other part of the Building and shall
deliver to Landlord all keys for or make known to Landlord the combination of
locks on all safes, cabinets and vaults that may be located
28.
<PAGE>
in the Premises. Tenant's obligations under this Section shall survive the
expiration or termination of this Lease.
19.2 Holding Over. If Tenant (directly or through any Transferee or other
------------
successor-in-interest of Tenant) remains in possession of the Premises after the
expiration or termination of this Lease, Tenant's continued possession shall be
on the basis of a tenancy at the sufferance of Landlord. No act or omission by
Landlord, other than its specific written consent, shall constitute permission
for Tenant to continue in possession of the Premises, and if such consent is
given or declared to have been given by a court judgment, Landlord may terminate
Tenant's holdover tenancy at any time upon seven (7) days written notice. In
such event, Tenant shall continue to comply with or perform all the terms and
obligations of Tenant under this Lease, except that the monthly Base Rent during
Tenant's holding over shall be twice the Base Rent payable in the last full
month prior to the termination hereof. Acceptance by Landlord of rent after
such termination shall not constitute a renewal or extension of this Lease; and
nothing contained in this provision shall be deemed to waive Landlord's right of
re-entry or any other right hereunder or at law. Tenant shall indemnify, defend
and hold Landlord harmless from and against all Claims arising or resulting
directly or indirectly from Tenant's failure to timely surrender the Premises,
including (i) any rent payable by or any loss, cost, or damages claimed by any
prospective tenant of the Premises, and (ii) Landlord's damages as a result of
such prospective tenant rescinding or refusing to enter into the prospective
lease of the Premises by reason of such failure to timely surrender the
Premises.
20. ENCUMBRANCES.
20.1 Subordination. This Lease is expressly made subject and subordinate
-------------
to any mortgage, deed of trust, ground lease, underlying lease or like
encumbrance affecting any part of the Property or any interest of Landlord
therein which is now existing or hereafter executed or recorded ("ENCUMBRANCE");
provided, however, that such subordination shall only be effective, as to future
Encumbrances, if the holder of the Encumbrance agrees in writing that this Lease
shall survive the termination of the Encumbrance by lapse of time, foreclosure
or otherwise so long as Tenant is not in default under this Lease beyond any
applicable notice and cure period. Provided the conditions of the preceding
sentence are satisfied, Tenant shall execute and deliver to Landlord, within ten
(10) Business Days after written request therefor by Landlord and in a form
reasonably requested by Landlord, any additional documents evidencing the
subordination of this Lease with respect to any such Encumbrance and the
nondisturbance agreement of the holder of any such Encumbrance. If the interest
of Landlord-in the Property is transferred pursuant to or in lieu of proceedings
for enforcement of any Encumbrance, Tenant shall immediately and automatically
attorn to the new owner, and this Lease shall continue in full force and effect
as a direct lease between the transferee and Tenant on the terms and conditions
set forth in this Lease. Landlord agrees to use reasonable good faith efforts
to obtain, at Tenant's cost and expense, within 60 days after execution of this
Lease, a Subordination, Attornment and Non-Disturbance Agreement (the "SNDA")
from the holder of any Encumbrance existing at the date of this Lease pursuant
to the provisions contained above; provided, however, Landlord's failure to
obtain an SNDA shall not affect the validity of this Lease.
29.
<PAGE>
20.2 Mortgagee Protection. Tenant agrees to give any holder of any
--------------------
Encumbrance covering any part of the Property ("MORTGAGEE"), by registered mail,
a copy of any notice of default served upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise) of the address of such Mortgagee. If
Landlord shall have failed to cure such default within thirty (30) days from the
effective date of such notice of default, then the Mortgagee shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
to cure such default (including the time necessary to foreclose or otherwise
terminate its Encumbrance, if necessary to effect such cure), and this Lease
shall not be terminated so long as such remedies are being diligently pursued.
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.
21.1 Estoppel Certificates. Within ten (10) Business Days after written
---------------------
request therefor, Tenant shall execute and deliver to Landlord, in a form
provided by or satisfactory to Landlord, a certificate stating that this Lease
is in full force and effect, describing any amendments or modifications hereto,
acknowledging that this Lease is subordinate or prior, as the case may be, to
any Encumbrance and stating any other information Landlord may reasonably
request, including the Term, the monthly Base Rent, the date to which Rent has
been paid, the amount of any security deposit or prepaid rent, whether either
party hereto is in default under the terms of the Lease, and whether Landlord
has completed its construction obligations hereunder (if any). If Tenant fails
timely to execute and deliver such certificate as provided above, then Landlord
and the addressee of such certificate shall be entitled to rely upon the
information contained in the certificate submitted to Tenant as true, correct
and complete, and Tenant shall be estopped from later denying, contradicting or
taking any position inconsistent with the information contained in such
certificate. Any person or entity purchasing, acquiring an interest in or
extending financing with respect to the Property shall be entitled to rely upon
any such certificate. If Tenant fails to deliver such certificate within ten
(10) Business Days after Landlord's second written request therefor, Tenant
shall be liable to Landlord for any damages incurred by Landlord including any
profits or other benefits from any financing of the Property or any interest
therein which are lost or made unavailable as a result, directly or indirectly,
of Tenant's failure or refusal to timely execute or deliver such estoppel
certificate.
21.2 Financial Statements. Within ten (10) Business Days after written
--------------------
request therefor, but not more than once a year, Tenant shall deliver to
Landlord a copy of the financial statements (including at least a year end
balance sheet and a statement of profit and loss) of Tenant (and of each
guarantor of Tenant's obligations under this Lease) for each of the two most
recently completed years, prepared in accordance with generally accepted
accounting principles (and, if such is Tenant's normal practice, audited by an
independent certified public accountant), all then available subsequent interim
statements, and such other financial information as may reasonably be requested
by Landlord or required by any Mortgagee. Landlord shall not disclose details of
such financial statements except (x) pursuant to court proceedings, and (y) to
Landlord's (a) directors, (b) shareholders, (c) officers, (d) those employees of
Landlord and of Landlord's agents who have a need to know, (e) accountants, (f)
auditors, (g) lenders and/or Mortgagee, (h) purchasers, (i) potential lenders
and/or Mortgagees and purchasers, and (j) attorneys. Landlord shall use all
reasonable efforts to prevent such persons or employees of such entities from
disclosing details of Tenant's financial statements.
30.
<PAGE>
22. NOTICES. Any notice, demand, request, consent or approval that either party
desires or is required to give to the other party under this Lease shall be in
writing and shall be served personally, delivered by messenger or courier
service, or sent by U.S. certified mail, return receipt requested, postage
prepaid, addressed to the other party at the party's address for notices set
forth in the Basic Lease Information. Any notice required pursuant to any Laws
may be incorporated into, given concurrently with or given separately from any
notice required under this Lease. Notices shall be deemed to have been given and
be effective on the earlier of (a) receipt (or refusal of delivery or receipt);
or (b) one (1) day after acceptance by the independent service for delivery, if
sent by independent messenger or courier service, or three (3) days after
mailing if sent by mail in accordance with this Section. Either party may change
its address for notices hereunder, effective fifteen (15) days after notice to
the other party complying with this Section. If Tenant sublets the Premises,
notices from Landlord shall be effective on the subtenant when given to Tenant
pursuant to this Section.
23. ATTORNEYS' FEES. In the event of any dispute between Landlord and Tenant in
any way related to this Lease, the non-prevailing party shall pay to the
prevailing party all reasonable attorneys' fees and costs and expenses of any
type incurred by the prevailing party in connection with any action or
proceeding (including any appeal and the enforcement of any judgment or award),
whether or not the dispute is litigated or prosecuted to final judgment. The
"prevailing party" shall be determined based upon an assessment of which party's
major arguments or positions taken in the action or proceeding could fairly be
said to have prevailed (whether by compromise, settlement, abandonment by the
other party of its claim or defense, final decision, after any appeals, or
otherwise) over the other party's major arguments or positions on major disputed
issues.
24. QUIET POSSESSION. Subject to Tenant's full and timely performance of all of
Tenant's obligations under this Lease and subject to the terms of this Lease,
including Section 20 - Encumbrances, Tenant shall have the quiet possession of
the Premises throughout the Term as against any persons or entities lawfully
claiming by, through or under Landlord.
25. SECURITY MEASURES. Tenant shall be responsible for all security measures
for the Premises, such as the registration or search of all persons entering or
leaving the Building, requiring identification for access to the Building,
evacuation of the Building for cause, suspected cause, or for drill purposes,
the issuance of magnetic pass cards or keys for Building or elevator access to
prevent any threat of property loss or damage, bodily injury or business
interruption. Landlord shall have no security responsibility for the Premises or
the Project. Landlord, its agents and employees shall have no liability to
Tenant or its Representatives or Visitors for the implementation or exercise of,
or the failure to implement or exercise, any security measures for the Premises
or the Project, or for any resulting disturbance of Tenant's use or enjoyment of
the Premises.
26. FORCE MAJEURE. If either Landlord or Tenant is delayed, interrupted or
prevented from performing any of its obligations under this Lease (other than,
with respect to Tenant the payment of Base Rent, Additional Rent or any other
charge payable by Tenant to Landlord under this Lease), including Landlord's
obligations under the Construction Rider and such delay, interruption or
prevention is due to fire, act of God, governmental act or failure to act, labor
dispute, unavailability of materials or any cause outside the reasonable control
of Landlord or
31.
<PAGE>
Tenant, then the time for performance of the affected obligations of Landlord or
Tenant, as the case may be, shall be extended for a period equivalent to the
period of such delay, interruption or prevention. The inability to pay money
shall in no event constitute force majeure.
27. RULES AND REGULATIONS. Tenant shall be bound by and shall comply with the
rules and regulations attached to and made a part of this Lease as Exhibit C to
---------
the extent those rules and regulations are not in conflict with the terms of
this Lease, as well as any reasonable rules and regulations hereafter adopted by
Landlord for all tenants of the Building, upon notice to Tenant thereof
(collectively, the "BUILDING RULES"). Landlord shall not be responsible to
Tenant or to any other person for any violation of, or failure to observe, the
Building Rules by any other tenant or other person.
28. LANDLORD'S LIABILITY. The term "Landlord," as used in this Lease, shall
mean only the owner or owners of the Building at the time in question. In the
event of any conveyance of title to the Building, then from and after the date
of such conveyance, upon such transferee's written recognition of this Lease,
the transferor Landlord shall be relieved of all liability with respect to
Landlord's obligations to be performed under this Lease after the date of such
conveyance. Notwithstanding any other term or provision of this Lease, the
liability of Landlord for its obligations under this Lease is limited solely to
Landlord's interest in the Building as the same may from time to time be
encumbered, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's partners
or members or its or their respective partners, shareholders, members,
directors, officers or managers on account of any of Landlord's obligations or
actions under this Lease.
29. CONSENTS AND APPROVALS.
29.1 Determination in Good Faith. Wherever the consent, approval, judgment
---------------------------
or determination of Landlord is required or permitted under this Lease, Landlord
may exercise its good faith business judgment in granting or withholding such
consent or approval or in making such judgment or determination without
reference to any extrinsic standard of reasonableness, unless the specific
provision contained in this Lease providing for such consent, approval, judgment
or determination specifies that Landlord's consent or approval is not to be
unreasonably withheld, or that such judgment or determination is to be
reasonable, or otherwise specifies the standards under which Landlord may
withhold its consent. If it is determined that Landlord failed to give its
consent where it was required to do so under this Lease, Tenant shall be
entitled to injunctive relief but shall not to be entitled to monetary damages
or to terminate this Lease for such failure.
29.2 No Liability Imposed on Landlord. The review and/or approval by
--------------------------------
Landlord of any item or matter to be reviewed or approved by Landlord under the
terms of this Lease or any Exhibits or Addenda hereto shall not impose upon
Landlord any liability for the accuracy or sufficiency of any such item or
matter or the quality or suitability of such item for its intended use. Any such
review or approval is for the sole purpose of protecting Landlord's interest in
the Property, and no third parties, including Tenant or the Representatives and
Visitors of Tenant or any person or entity claiming by, through or under Tenant,
shall have any rights as a consequence thereof.
32.
<PAGE>
30. BROKERS. Landlord shall pay the fee or commission of the broker or brokers
identified in the Basic Lease Information (the "BROKER") in accordance with
Landlord's separate written agreement with the Broker, if any. Tenant warrants
and represents to Landlord that in the negotiating or making of this Lease
neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or
finder who might be entitled to a fee or commission for this Lease other than
the Broker. Tenant shall indemnify and hold Landlord harmless from any claim or
claims, including costs, expenses and attorney's fees incurred by Landlord
asserted by any other broker or finder for a fee or commission based upon any
dealings with or statements made by Tenant or Tenant's Representatives. Landlord
shall indemnify and hold Tenant harmless from any claim or claims, including
costs, expenses and attorney's fees incurred by Tenant asserted by any other
broker or finder for a fee or commission based upon any dealings with or
statements made by Landlord or Landlord's Representatives.
31. RELOCATION OF PREMISES. [Intentionally Deleted).
32. ENTIRE AGREEMENT. This Lease, including the Exhibits and any Addenda
attached hereto, and the documents referred to herein, if any, constitute the
entire agreement between Landlord and Tenant with respect to the leasing of
space by Tenant in the Building, and supersede all prior or contemporaneous
agreements, understandings, proposals and other representations by or between
Landlord and Tenant, whether written or oral, all of which are merged herein.
Neither Landlord nor Landlord's agents have made any representations or
warranties with respect to the Premises, the Building, the Project or this Lease
except as expressly set forth herein, and no rights, easements or licenses shall
be acquired by Tenant by implication or otherwise unless expressly set forth
herein. The submission of this Lease for examination does not constitute an
option for the Premises and this Lease shall become effective as a binding
agreement only upon execution and delivery thereof by Landlord to Tenant.
33. MISCELLANEOUS. This Lease may not be amended or modified except by a
writing signed by Landlord and Tenant. Subject to Section 14 - Assignment and
Subletting and Section 28 - Landlord's Liability, this Lease shall be binding on
and shall inure to the benefit of the parties and their respective successors,
assigns and legal representatives. The determination that any provisions hereof
may be void, invalid, illegal or unenforceable shall not impair any other
provisions hereof and all such other provisions of this Lease shall remain in
full force and effect. The unenforceability, invalidity or illegality of any
provision of this Lease under particular circumstances shall not render
unenforceable, invalid or illegal other provisions of this Lease, or the same
provisions under other circumstances. This Lease shall be construed and
interpreted in accordance with the laws (excluding conflict of laws principles)
of the State in which the Building is located. The provisions of this Lease
shall be construed in accordance with the fair meaning of the language used and
shall not be strictly construed against either party, even if such party drafted
the provision in question. When required by the context of this Lease, the
singular includes the plural. Wherever the term "including" is used in this
Lease, it shall be interpreted as meaning "including, but not limited to" the
matter or matters thereafter enumerated. The captions contained in this Lease
are for purposes of convenience only and are not to be used to interpret or
construe this Lease. If more than one person or entity is identified as Tenant
hereunder, the obligations of each and all of them under this Lease shall be
joint and several. Time is of the essence with respect to this Lease, except as
to the conditions relating to the
33.
<PAGE>
delivery of possession of the Premises to Tenant. Neither Landlord nor Tenant
shall record this Lease.
34. AUTHORITY. If Tenant is a corporation, partnership, limited liability
company or other form of business entity, each of the persons executing this
Lease on behalf of Tenant warrants and represents that Tenant is a duly
organized and validly existing entity, that Tenant has full right and authority
to enter into this Lease and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Lease. Tenant
shall provide Landlord upon request with evidence reasonably satisfactory to
Landlord confirming the foregoing representations.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of
the date first above written.
TENANT: LANDLORD:
CLARENT CORPORATION, SEAPORT CENTRE ASSOCIATES, LLC
a California corporation a California limited liability company
By: OPPORTUNITY CAPITAL
By: /s/ Jerry Chang PARTNERS IV, LLC,
--------------------------
Name: Jerry Chang a California limited liability company
---------------------
Title: President and CFO Manager
-------------------
By: __________________________ By: /s/ Stephen J. Pilch
------------------------
Name:_____________________ Name: Stephen J. Pilch
-------------------
Title:____________________ Title:__________________
By:________________________
Name:___________________
Title:__________________
34.
<PAGE>
EXHIBIT A
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 12, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
CLARENT CORPORATION, AS TENANT ("LEASE")
THE PREMISES
------------
[FLOOR PLAN APPEARS HERE]
24,877 RSF
INITIALS:
Landlord _______
Tenant _______
Exhibit A, Page 1.
<PAGE>
EXHIBIT A-1
-----------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 12, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
CLARENT CORPORATION, AS TENANT ("LEASE")
THE INITIAL PREMISES
--------------------
[FLOOR PLAN APPEARS HERE]
10,769 RSF
INITIALS:
Landlord: _______
Tenant: _______
Exhibit A-1, Page 1.
<PAGE>
EXHIBIT A-2
-----------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 12, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
CLARENT CORPORATION, AS TENANT ("LEASE")
THE ADDITIONAL PREMISES
-----------------------
[FLOOR PLAN APPEARS HERE]
14,108 RSF
INITIALS:
Landlord: ______
Tenant: ______
Exhibit A-2, Page 1.
<PAGE>
EXHIBIT A-3
-----------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 12, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
CLARENT CORPORATION, AS TENANT ("LEASE")
THE MANUFACTURING AREA
----------------------
[FLOOR PLAN APPEARS HERE]
INITIALS:
Landlord: _______
Tenant: _______
Exhibit A-3, Page 1.
<PAGE>
EXHIBIT B
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 12, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
CLARENT CORPORATION, AS TENANT ("LEASE")
CONSTRUCTION RIDER
------------------
1. Tenant Improvements. Tenant shall with reasonable diligence through a
-------------------
contractor selected by Tenant construct and install in the Premises the
improvements and fixtures provided for in this Construction Rider ("TENANT
IMPROVEMENTS"). Landlord shall have the right to review and approve Tenant's
contractor based on its qualifications, including quality of work,
creditworthiness, and experience. Tenant agrees to allow Landlord's contractor,
Commercial Interior Contractors ("CIC"), to bid on such work. Tenant recognizes
and agrees that CIC is an affiliate of Landlord. Upon request by Landlord,
Tenant shall designate in writing an individual authorized to act as Tenant's
Representative with respect to all approvals, directions- and authorizations
pursuant to this Construction Rider.
1.1 Plans. The Tenant Improvements shall be constructed substantially
-----
as shown on the conceptual space plan for the Premises prepared by a space
planner mutually agreeable to Landlord and Tenant, which space planner will be
retained by Tenant as the space planner for the Premises ("SPACE PLANNER"), to
prepare a space plan ("SPACE PLAN") reasonably acceptable to Landlord and
Tenant.
As soon as may be reasonably practicable after requested by Tenant,
the Space Planner will prepare and deliver to Landlord and Tenant detailed plans
and specifications sufficient to permit the construction of the Tenant
Improvements by Tenant's contractor ("CONSTRUCTION DOCUMENTS"). Tenant's
contractor will provide Landlord and Tenant with a cost estimate for the work
shown in the Construction Documents. Landlord and Tenant shall respond to the
Construction Documents and cost estimate within three (3) Business Days after
receipt thereof, specifying any changes or modifications Landlord and Tenant
desire in the Construction Documents. The Space Planner will then revise the
Construction Documents and resubmit them to Landlord and Tenant for their
approval and Tenant's contractor will provide Landlord and Tenant with a revised
cost estimate. Landlord and Tenant shall approve or disapprove the same within
three (3) Business Days after receipt. The revised Construction Documents and
cost estimate, as approved by Tenant and Landlord, are hereinafter referred to
as the "FINAL CONSTRUCTION DOCUMENTS" and "FINAL COST ESTIMATE," respectively.
Additional interior decorating services and advice on the furnishing and
decoration of the Premises, such as the selection of fixtures, furnishings or
design of mill work, shall be provided by Tenant at its expense, but shall be
subject to the reasonable approval of Landlord.
Exhibit B, Page 1.
<PAGE>
1.2 Construction. Upon approval by Landlord and Tenant of the Final
------------
Construction Documents and the Final Cost Estimate, Tenant shall proceed with
reasonable diligence to cause the Tenant Improvements to be Substantially
Completed by Tenant's contractor.
The Tenant Improvements shall be deemed to be "SUBSTANTIALLY COMPLETED"
when they have been completed in accordance with the Final Construction
Documents except for finishing details, minor omissions, decorations and
mechanical adjustments of the type normally found on an architectural "punch
list". (The definition of Substantially Completed shall also define the terms
"SUBSTANTIAL COMPLETION" and "SUBSTANTIALLY COMPLETE.")
Following Substantial Completion of the Tenant Improvements, Landlord and
Tenant shall inspect the Premises and jointly prepare a "punch list" of agreed
items of construction remaining to be completed. Tenant shall cause Tenant's
contractor to complete the items set forth in the punch list as soon as
reasonably possible using commercially reasonable efforts.
1.3 Cost of Tenant Improvements. Landlord shall contribute up to
---------------------------
Fifty Thousand and 00/100 Dollars ($50,000.00) (the "ALLOWANCE"), toward the
cost of the design (including preparation of space plans and Construction
Documents), construction and installation of the Tenant Improvements. The
balance, if any, of the cost of the Tenant Improvements ("ADDITIONAL COST")
shall be paid by Tenant. As construction of Tenant Improvements progresses,
within thirty (30) days after Landlord receives from Tenant each request for
payment, which request shall be accompanied by "Supporting Information,"
Landlord shall disburse portions of the Allowance to Tenant based upon an
invoice from Tenant's contractor for work completed in construction of Tenant
Improvements; provided, however, Landlord shall not be obligated to disburse
portions of the Allowance more often than once per month. The "Supporting
Information" shall include (a) an invoice from Tenant's contractor based upon
work then completed, less (i) previous disbursements and (ii) retainage of ten
percent (10%), (b) a cost breakdown of the work completed by trade or category,
with the amount of previous disbursements by trade or category, and (c)
conditional and unconditional lien releases from Tenant's contractor and the
applicable subcontractors and suppliers. In no event shall Landlord be obligated
to contribute more than the Allowance toward all the costs of the Tenant
Improvements and any permits and inspections required in connection with the
construction thereof.
1.4. Changes. If Tenant requests any change, addition or alteration in
-------
or to any Final Construction Documents ("CHANGES") Tenant shall cause the Space
Planner to prepare additional Plans implementing such Change. As soon as
practicable after the completion of such additional Construction Documents,
Tenant's contractor shall notify Landlord and Tenant of the estimated cost of
the Changes. Within three (3) Business Days after receipt of such cost estimate,
Tenant shall notify Landlord in writing whether Tenant approves the Change. If
Tenant approves the Change, Tenant's contractor shall proceed with the Change
and Tenant shall be liable for any Additional Cost resulting from the Change. If
Tenant fails to approve the Change within such three (3) Business Day period,
construction of the Tenant Improvements shall proceed as provided in accordance
with the original Construction Documents.
Exhibit B, Page 2.
<PAGE>
1.5 Delays. Tenant shall be responsible for, and shall pay to
------
Landlord, any and all costs and expenses incurred by Landlord in connection with
any delay in the commencement or completion of any Tenant Improvements and any
increase in the cost of Tenant Improvements caused by (i) Tenant's failure to
submit information to the Space Planner or approve any Space Plan, Construction
Documents or cost estimates within the time periods required herein, (ii) any
delays in obtaining any items or materials constituting part of the Tenant
Improvements requested by Tenant, (iii) any Changes, or (iv) any other delay
requested or caused by Tenant (collectively, "TENANT DELAYS").
2. Delivery of Premises. [Intentionally Deleted].
--------------------
3. Access to Premises. Landlord shall allow Tenant and Tenant's
------------------
Representatives to enter the Premises prior to the Commencement Date to permit
Tenant to make the Premises ready for its use and occupancy; provided, however,
that prior to such entry of the Premises, Tenant shall provide evidence
reasonably satisfactory to Landlord that Tenant's insurance, as described in
Section 11.1 - Tenant's Insurance of the Lease, shall be in effect as of the
time of such entry.
Tenant agrees that Landlord shall not be liable in any way for any
injury, loss or damage which may occur to any of Tenant's property placed upon
or installed in the Premises prior to the Commencement Date, the same being at
Tenant's sole risk, and Tenant shall be liable for all injury, loss or damage to
persons or property arising as a result of such entry into the Premises by
Tenant or its Representatives.
4. Ownership of Tenant Improvements. All Tenant Improvements, whether
--------------------------------
installed by Landlord or Tenant, shall become a part of the Premises, shall be
the property of Landlord and, subject to the provisions of the Lease, shall be
surrendered by Tenant with the Premises, without any compensation to Tenant, at
the expiration or termination of the Lease in accordance with the provisions of
the Lease. Upon expiration or termination of this Lease Tenant shall in the
manufacturing portion of the Premises, in the areas shown on Exhibit A-3
attached to this Lease, (a) restore any carpet and (b) remove any interior walls
installed by Tenant to be office space.
INITIALS:
Landlord ____
Tenant ____
Exhibit B, Page 3.
<PAGE>
EXHIBIT C
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 12,1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
CLARENT CORPORATION, AS TENANT ("LEASE")
BUILDING RULES
--------------
The following Building Rules are additional provisions of the foregoing
Lease to which they are attached. The capitalized terms used herein have the
same meanings as these terms are given in the Lease.
1. Use of Common Areas. Tenant will not obstruct the sidewalks, halls,
-------------------
passages, exits, entrances, elevators or stairways of the Building ("COMMON
AREAS"), and Tenant will not use the Common Areas for any purpose other than
ingress and egress to and from the Premises. The Common Areas, except for the
sidewalks, are not open to the general public and Landlord reserves the right to
control and prevent access to the Common Areas of any person whose presence, in
Landlord's opinion, would be prejudicial to the safety, reputation and interests
of the Building and its tenants.
2. No Access to Roof. Tenant has no right of access to the roof of the
-----------------
Building and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air-conditioner or other device on the roof of the Building, without
the prior written consent of Landlord. Any such device installed without such
written consent is subject to removal at Tenant's expense without notice at any
time. In any event Tenant will be liable for any damages or repairs incurred or
required as a result of its installation, use, repair, maintenance or removal of
such devices on the roof and agrees to indemnify and hold harmless Landlord from
any liability, loss, damage, cost or expense, including reasonable attorneys'
fees, arising from any activities of Tenant or of Tenant's Representatives on
the roof of the Building. Notwithstanding the foregoing, Landlord hereby
consents to entry by Tenant's HVAC contractor onto the roof for service of the
HVAC units, subject to reasonable rules and regulations of Landlord, and
provided that such contractor shall be responsible for any damage such
contractor causes to the roof.
3. Signage. Tenant shall have the right, at Tenant's sole cost and
-------
expense, to install a sign upon a monument to be located in front of the
Building, subject to Landlord's reasonable approval, and subject to ordinances,
regulations and any approval from the City of Redwood City. Landlord shall, at
Landlord's sole cost and expense, construct a monument, subject to approval of
the City of Redwood City. No sign, placard, picture, name, advertisement or
notice visible from the exterior of the Premises will be inscribed, painted,
affixed or otherwise displayed by Tenant on or in any part of the Building
without the prior written consent of Landlord. Landlord reserves the right to
adopt and furnish Tenant with general guidelines relating to signs in or on the
Building. All approved signage will be inscribed, painted or affixed
Exhibit C, Page 1.
<PAGE>
at Tenant's expense by a person approved by Landlord, which approval will not be
unreasonably withheld.
4. Prohibited Uses. The Premises will not be used for manufacturing, for
---------------
the storage of merchandise held for sale to the general public, for lodging or
for the sale of goods to the general public. Tenant will not permit any food
preparation on the Premises except that Tenant may use Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and similar beverages
so long as such use is in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations.
5. Janitorial Services. Tenant will be responsible, at Tenant's expense,
-------------------
to keep the Premises clean, including daily janitorial service. Tenant shall
enter into an agreement with a janitorial service to clean the Premises during
week-days, which contract and janitorial company shall be subject to Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed.
6. Keys and Locks. Landlord will furnish Tenant, free of charge, two keys
--------------
to each door or lock in the Premises. Landlord may make a reasonable charge for
any additional or replacement keys. Tenant will not duplicate any keys, alter
any locks or install any new or additional lock or bolt on any door of its
Premises or on any other part of the Building without the prior written consent
of Landlord, which consent shall not be unreasonably withheld or delayed and, in
any event, Tenant will provide Landlord with a key for any such lock (except for
secure areas designated reasonably by Tenant). On the termination of the Lease,
Tenant will deliver to Landlord all keys to any locks or doors in the Building
which have been obtained by Tenant.
7. Freight. Tenant shall not transport freight in loads exceeding the
-------
weight limitations of any elevator in the Building. Landlord reserves the right
to prescribe the weight, size and position of all equipment, materials,
furniture or other property brought into the Building, and no property will be
received in the Building except along such routes as may be designated by
Landlord. Landlord reserves the right to require that heavy objects will stand
on wood strips of such length and thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage to
any such property from any cause, and Tenant will be liable for all damage or
injuries caused by moving or maintaining such property.
8. Nuisances and Dangerous Substances. Tenant will not conduct itself or
----------------------------------
permit Tenant's Representatives or Visitors to conduct themselves, in the
Premises or anywhere on or in the Project in a manner which is offensive or
unduly annoying to any other Tenant or Landlord's property managers. Tenant
will not install or operate any phonograph, radio receiver, musical instrument,
or television or other similar device in any part of the Common Areas and shall
not operate any such device installed in the Premises in such manner as to
disturb or unreasonably annoy other tenants of the Project. Tenant will not use
or keep in the Premises or the Property any kerosene, gasoline or other
combustible fluid or material other than limited quantities thereof reasonably
necessary for the maintenance of office equipment, or, without Landlord's prior
written approval, use any method of heating or air conditioning other than that
supplied by Landlord. Tenant will not use or keep any foul or noxious gas or
substance in the Premises or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable to
Exhibit C, Page 2.
<PAGE>
Landlord or other occupants of the Project by reason of noise, odors or
vibrations, or interfere in any way with other tenants or those having business
therein. Tenant will not bring or keep any animals in or about the Premises or
the Project, except for animals trained to assist, and assisting Tenant's
disabled Visitors.
9. Building Name and Address. Without Landlord's prior written consent,
-------------------------
Tenant will not use the name of the Building in connection with or in promoting
or advertising Tenant's business except as Tenant's address.
10. Building Directory. A directory for the Building will be provided for
------------------
the display of the name and location of tenants. Landlord reserves the right to
approve any additional names Tenant desires to place in the directory and, if so
approved, Landlord may assess a reasonable charge for adding such additional
names.
11. Window Coverings. No curtains, draperies, blinds, shutters, shades,
----------------
awnings, screens or other coverings, window ventilators, hangings, decorations
or similar equipment shall be attached to, hung or placed in, or used in or with
any window of the Building without the prior written consent of Landlord, and
Landlord shall have the right to control all lighting within the Premises that
may be visible from the exterior of the Building.
12. Floor Coverings. Tenant will not lay or otherwise affix linoleum,
---------------
tile, carpet or any other floor covering to the floor of the Premises in any
manner except as approved in writing by Landlord. Tenant will be liable for the
cost of repair of any damage resulting from the violation of this rule or the
removal of any floor covering by Tenant or its contractors, employees or
invitees.
13. Wiring and Cabling Installations. Landlord will direct Tenant's
--------------------------------
electricians and other vendors as to where and how data, telephone, and
electrical wires and cables are to be installed. No boring or cutting for wires
or cables will be allowed without the prior written consent of Landlord. The
location of burglar alarms, smoke detectors, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the written
approval of Landlord, which approval shall not be unreasonably withheld or
delayed.
14. Office Closing Procedures. Tenant will see that the doors of the
-------------------------
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant or its employees leave the Premises, so as
to prevent waste or damage. Tenant will be liable for all damage or injuries
sustained by other tenants or occupants of the Building or Landlord resulting
from Tenant's carelessness in this regard or violation of this rule. Tenant will
keep the doors to the Building corridors closed at all times except for ingress
and egress.
15. Plumbing Facilities. The toilet rooms, toilets, urinals, wash bowls
-------------------
and other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall be
disposed of therein. Tenant will be liable for any breakage, stoppage or damage
resulting from the violation of this rule by Tenant, its employees or invitees.
Exhibit C, Page 3.
<PAGE>
16. Use of Hand Trucks. Tenant will not use or permit to be used in the
------------------
Premises or in the Common Areas any hand trucks, carts or dollies except those
equipped with rubber tires and side guards or such other equipment as Landlord
may approve.
17. Refuse. Tenant shall store all Tenant's trash and garbage within the
------
Premises or in other facilities designated By Landlord for such purpose. Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary manner of removing and disposing of
trash and garbage in the city in which the Building is located without being in
violation of any law or ordinance governing such disposal. All trash and garbage
removal shall be made in accordance with directions issued from time to time by
Landlord, only through such Common Areas provided for such purposes and at such
times as Landlord may designate. Tenant shall be responsible for removing trash
from the Premises. Tenant shall comply with the requirements of any recycling
program adopted by Landlord for the Building.
18. Soliciting. Canvassing, peddling, soliciting and distribution of
----------
handbills or any other written materials in the Building are prohibited, and
Tenant will cooperate to prevent the same.
19. Parking. Tenant will use, and cause Tenant's Representatives and
-------
Visitors to use, any parking spaces to which Tenant is entitled under the Lease
in a manner consistent with Landlord's directional signs and markings in the
Parking Facility. Specifically, but without limitation, Tenant will not park, or
permit Tenant's Representatives or Visitors to park, in a manner that impedes
access to and from the Building or the Parking Facility or that violates space
reservations for handicapped drivers registered as such with the California
Department of Motor Vehicles. Landlord may use such reasonable means as may be
necessary to enforce the directional signs and markings in the Parking Facility,
including but not limited to towing services, and Landlord will not be liable
for any damage to vehicles towed as a result of noncompliance with such parking
regulations.
20. Fire, Security and Safety Regulations. Tenant will comply with all
-------------------------------------
safety, security, fire protection and evacuation measures and procedures
established by Landlord or any governmental agency.
21. Responsibility for Theft. Tenant assumes any and all responsibility
------------------------
for protecting the Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises closed.
22. Sales and Auctions. Tenant will not conduct or permit to be conducted
------------------
any sale by auction in, upon or from the Premises or elsewhere in the Property,
whether said auction be voluntary, involuntary, pursuant to any assignment for
the payment of creditors or pursuant to any bankruptcy or other insolvency
proceeding.
23. Waiver of Rules. Landlord may waive any one or more of these Building
---------------
Rules for the benefit of any particular tenant or tenants, but no such waiver by
Landlord will be construed as a waiver of such Building Rules in favor of any
other tenant or tenants nor prevent
Exhibit C, Page 4.
<PAGE>
Landlord from thereafter enforcing these Building Rules against any or all of
the tenants of the Building.
24. Effect on Lease. These Building Rules are in addition to, and shall
---------------
not be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Violation of these Building
Rules constitutes a failure to fully perform the provisions of the Lease, as
referred to in Section 15.1 - "Events of Default".
25. Non-Discriminatory Enforcement. Subject to the provisions of the Lease
------------------------------
(and the provisions of other leases with respect to other tenants), Landlord
shall use reasonable efforts to enforce these Building Rules in a non-
discriminatory manner, but in no event shall Landlord have any liability for any
failure or refusal to do so (and Tenant's sole and exclusive remedy for any such
failure or refusal shall be injunctive relief preventing Landlord from enforcing
any of the Building Rules against Tenant in a manner that discriminates against
Tenant).
26. Additional and Amended Rules. Landlord reserves the right to rescind
----------------------------
or amend these Building Rules and/or adopt any other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.
INITIALS:
Landlord _____
Tenant _____
Exhibit C, Page 5.
<PAGE>
EXHIBIT D
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 12,1998
BETWEEN
SEAPORT. CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
CLARENT CORPORATION, AS TENANT ("LEASE")
ADDITIONAL PROVISIONS RIDER
---------------------------
35. LETTER OF CREDIT.
(A) Within fifteen (15) days after the execution hereof, Tenant shall
deliver to Landlord a clean, unconditional, irrevocable, transferable letter of
credit (the "Letter of Credit") in form, and issued by a financial institution
("Issuer") satisfactory to Landlord in Landlord's sole discretion. The Letter of
Credit shall be in the amount of Four Hundred Eighty-Five Thousand and 00/100
Dollars ($485,000.00), name Landlord as the beneficiary thereunder, and provide
that draws thereunder will be honored upon receipt by Issuer of a written
statement signed by Landlord or Landlord's authorized agent stating that
Landlord is drawing down on the Letter of Credit pursuant to the terms of this,
Lease. Landlord shall be entitled to draw the entire amount under the Letter of
Credit if either (i) Tenant commits an Event of Default under this Lease, (ii)
Tenant does not deliver to Landlord a replacement letter of credit from Issuer
or another financial institution satisfactory to Landlord in Landlord's sole
discretion in the amount and form of the initial Letter of Credit no later than
one month before the expiration date of the then existing Letter of Credit, or
(iii) upon a proposed sale or other transfer of the Building, the Land, this
Lease, or Landlord (including consolidations, mergers or other entity changes
Tenant does not deliver to any such transferees, successors or assigns a
replacement Letter of Credit pursuant to the provisions of (c) below. Any amount
drawn under the Letter of Credit shall be held or applied by Landlord as a
Security Deposit, subject to, the terms of Section 4 of this Lease.
(B) Tenant shall not assign or encumber or attempt to assign or encumber
the Letter of Credit and neither Landlord nor its successors or assigns shall be
bound by any such assignment or encumbrance or attempted assignment or
encumbrance.
(C) If Landlord shall be holding the Letter of Credit as security, then,
in the event of a proposed sale or lease of the Building by Landlord, Tenant
will, upon ten (10) Business Days' notice, at its sole cost and expense, cause
the issuing bank to consent to the assignment or to issue a substitute letter of
credit on identical terms except for the stated beneficiary, from the same
issuing bank or another bank acceptable to Landlord in Landlord's sole
discretion, naming the new landlord as the beneficiary thereof upon delivery by
Landlord of the then outstanding Letter of Credit.
Exhibit D, Page 1.
<PAGE>
(D) If, and only if, (x) there has been no Event of Default under the
Lease during the eighteen (18) months prior to Reduction Date (as hereinafter
defined) and (y) during each of Tenant's four (4) most recent accounting
quarters immediately prior to the Reduction Date Tenant has publicly reported
positive net income equal to three (3) times the sum of (A) the Base Rent, and
(B) the actual Additional Rent (as such Base Rent and Additional Rent may from
time to time change) for each of the same four (4) accounting quarters for which
net income is being compared, then when all of the preceding conditions
contained in this subsection (d) have been satisfied (the "Reduction Date"),
then the amount remaining available to be drawn under the Letter of Credit shall
be reduced in twelve month increments, beginning twenty-four months after the
Commencement Date, so the amount available to be drawn under the Letter of
Credit shall be as follows:
<TABLE>
<CAPTION>
Months (counting from the Commencement Date through Amount Available
applicable monthly anniversary of Commencement Date Under the Letter of Credit
- ----------------------------------------------------------------------------------------
<S> <C>
01 - 24 $485,000.00
25 - 36 $388,000.00
37 - 48 $291,000.00
49 - 60 $194,000.00
</TABLE>
(E) If (i) there is an initial public offering ("IPO") of Tenant' s stock
on any public stock exchange, and (ii) there has been no Event of Default under
the Lease during the eighteen (18) months prior to the IPO, or at any time
thereafter, then six (6) months after the IPO Landlord agrees to review, in
Landlord's sole discretion, the Letter of Credit requirement, taking into
account Tenant's financial strength, including net income, following the IPO and
Tenant's obligations under the Lease at that time, including obligations with
respect to any additional space leased by Tenant hereunder. Based upon such
review Landlord agrees to consider, in Landlord's sole discretion, waiving the
requirement of the Letter of Credit.
36. PARKING.
(A) Tenant's Parking Rights. Landlord shall provide Tenant, on an
-----------------------
unassigned and non-exclusive basis, for use by Tenant and Tenant's
Representatives and Visitors, at the users' sole risk, one (1) parking space in
the Parking Facility for each three hundred thirty-three (333) rentable square
feet of space leased to Tenant. The parking spaces to be made available to
Tenant hereunder may contain a reasonable mix of spaces for compact cars and up
to ten percent (10%) of the unassigned spaces may also be designated by Landlord
as Building visitors' parking.
(B) Availability of Parking Spaces. Landlord shall take reasonable actions
------------------------------
to ensure the availability of the parking spaces leased by Tenant, but Landlord
does not guarantee the availability of those spaces at all times against the
actions of other tenants of the Building and users of the Parking Facility.
Access to the Parking Facility may, at Landlord's option, be regulated by card,
pass, bumper sticker, decal or other appropriate identification issued by
Landlord. Landlord retains the right to revoke the parking privileges of any
user of the Parking Facility who violates the rules and regulations governing
use of the Parking Facility (and Tenant
Exhibit D, Page 2.
<PAGE>
shall be responsible for causing any employee of Tenant or other person using
parking spaces allocated to Tenant to comply with all parking rules and
regulations).
(C) Assignment and Subletting. Notwithstanding any other provision of the
-------------------------
Lease to the contrary, Tenant shall not assign its rights to the parking spaces
or any interest therein, or sublease or otherwise allow the use of all or any
part of the parking spaces to or by any other person, except either (i) to a
Permitted Transferee, or (ii) with Landlord's prior written consent, which may
be granted or withheld by Landlord in its sole discretion. In the event of any
separate assignment or sublease of parking space rights that is approved by
Landlord, Landlord shall be entitled to receive, as additional Rent hereunder,
one hundred percent (100%) of any profit received by Tenant in connection with
such assignment or sublease of parking spaces.
(D) Condemnation, Damage or Destruction. In the event the Parking Facility
-----------------------------------
is the subject of a Condemnation, or is damaged or destroyed, and this Lease is
not terminated, and if in such event the available number of parking spaces in
the Parking Facility is permanently reduced, then Tenant's rights to use parking
spaces hereunder may, at the election of Landlord, thereafter be reduced in
proportion to the reduction of the total number of parking spaces in the Parking
Facility. In such event, Landlord reserves the right to reduce the number of
parking spaces to which Tenant is entitled or to relocate some or all of the
parking spaces to which Tenant is entitled to other areas in the Parking
Facility.
INITIALS:
Landlord ____
Tenant ____
Exhibit D, Page 3.
<PAGE>
EXHIBIT 10.11
SUBLEASE
--------
THIS SUBLEASE is dated for references purposes as of May __, 1998, and is
made by and between UNWIRED PLANET, INC., a Delaware corporation ("Sublessor"),
and CLARENT CORPORATION, a California corporation ("Sublessee"). Sublessor and
Sublessee hereby agree as follows:
1. Recitals: This Sublease is made with reference to the fact that
--------
Seaport Centre Associates, LLC, a California limited liability company ("Master
Lessor"), as Landlord, and Sublessor, as Tenant, entered that certain lease
dated as of March 10, 1998 ("Master Lease") with respect to that real property
commonly known as Seaport Centre III, Building 15, 800 Chesapeake, Redwood City,
California ("Premises"), as more particularly described in the Master Lease. A
copy of the Master Lease is attached hereto as Exhibit "A" and incorporated by
-----------
reference herein.
2. Premises: Sublessor hereby subleases to Sublessee, and Sublessee
--------
hereby subleases from Sublessor, a portion of the Premises consisting of
approximately fourteen thousand four hundred forty-four (14,444) rentable square
feet ("Subleased Premises"). The Premises are more particularly described on
Exhibit "B" attached hereto and incorporated by reference herein. The Subleased
- -----------
Premises are more particularly described on Exhibit C attached hereto and
---------
incorporated by reference herein.
3. Term:
----
A. Term. The term of this Sublease ("Term") shall be for that period
----
commencing on the later of (i) June 8, 1998, or (ii) completion of the
Improvements described in Paragraph 7 below ("Commencement Date"), and ending
eighteen (18) months thereafter ("Expiration Date"), unless this Sublease is
sooner terminated pursuant to its terms or the Master Lease is sooner terminated
pursuant to its terms.
B. No Option to Extend. The parties acknowledge that Sublessee has
-------------------
no option to extend the Term of this Sublease.
C. Early Possession. Sublessor shall permit Sublessee to occupy the
----------------
Subleased Premises for the purpose of installing its trade fixtures and data
communications, telephone and computer cabling prior to June 8, 1998 (but in any
event not prior to the Commencement Date of the Master Lease). Such occupancy
(i) shall be subject to all of the provisions of this Sublease except for the
obligation to pay Base Rent and Additional Rent; and (ii) shall not advance the
termination date of this Sublease. Notwithstanding the foregoing, Sublessee's
right of early entry hereunder shall be subject to Sublessee's having provided
to Sublessor certificates of insurance for the insurance required by Section
11.1 of the Master Lease.
D. Sublessor's Option to Extend. Notwithstanding anything to the
----------------------------
contrary contained in this Sublease, if Sublessor, at its sole option,
determines that it desires to extend the Term of this Sublease beyond the
Expiration Date, Sublessor shall so notify Sublessee in writing on or before the
last day of the fifteenth (15th) month of the Term. Any such extension shall be
1.
<PAGE>
on a month-to-month basis, terminable by either party upon sixty (60) days'
prior written notice. Any such extension otherwise shall be upon all of the
terms and conditions of this Sublease, except that (i) Base Rent for months
nineteen (19) through twenty-four (24), if applicable, shall be $2.75 per
rentable square foot, or Thirty-Nine Thousand Seven Hundred Twenty-One Dollars
($39,721.00) per month; and (ii) Base Rent for any month thereafter, if
applicable, shall be $2.85 per rentable square foot, or Forty-One Thousand One
Hundred Sixty-Five Dollars ($41,165.00) per month.
4. Rent:
----
A. Monthly Base Rent. Sublessee shall pay to Sublessor as Base Rent
-----------------
for the Subleased Premises equal monthly installments as follows:
Months Base Rent
------ ---------
1-12 $2.65 per rentable square foot, or Thirty-Eight
Thousand Two Hundred Seventy-Six and 60/100
Dollars ($38,276.60) per month
13-18 $2.75 per rentable square foot, or Thirty-Nine
Thousand One Hundred Seventy-One Dollars
($39,721.00) per month
As used herein, "month" shall mean a period beginning on the first (1st) day of
a calendar month and ending on the last day of that month. Rent (as defined in
Paragraph 4.B. below) shall be paid on or before the first (1st) day of each
month. Rent for any period during the Term hereof which is for less than one
month of the Sublease Term shall be a prorata portion of the monthly installment
based on a 30-day month. Rent shall be payable without notice or demand and
without any deduction, offset, or abatement (except as otherwise expressly
provided in this Sublease), in lawful money of the United States of America.
The Rent shall be paid directly to Sublessor at 800 Chesapeake, Redwood City,
California 94063, Attn: Chief Financial Officer, or such address as may be
designated in writing by Sublessor.
B. Additional Rent. In addition to Base Rent, Sublessee shall pay
---------------
to Sublessor Sublessee's percentage share ("Percentage Share", as defined below)
of any amounts payable by Sublessor to Master Lessor pursuant to the Master
Lease, including, without limitation, Operating Costs and Taxes as defined in
Section 3.2 of the Master Lease. Sublessee's "Percentage Share" shall be thirty-
five and forty-one hundredths percent (3 5.41 %), which Share was determined by
dividing the rentable area of the Subleased Premises by the total rentable area
of the Premises. Sublessee also shall pay to Sublessor as additional rent,
within twenty (20) days after receipt of Sublessor's invoices therefor,
Sublessee's Percentage Share of Sublessor's costs for water, gas, electricity
and sanitary sewer charges applicable to the Subleased Premises. Sublessee shall
be responsible for payment of its own telephone, telecommunications, janitorial
and trash pick-up charges. All monies required to be paid by Sublessee under
this Sublease shall be deemed additional rent ("Additional Rent"). Monthly Base
Rent and Additional Rent hereinafter collectively shall be referred to as
"Rent." Sublessee and Sublessor agree, as a material part of the consideration
given by Sublessee to Sublessor for this Sublease, that Sublessee shall pay
Sublessee's Percentage Share of all costs, expenses, taxes, insurance,
2.
<PAGE>
maintenance, and other charges of every kind and nature arising out of this
Sublease or the Master Lease in connection with the Subleased Premises, such
that Sublessor shall receive, as a net consideration for this Sublease, the
Monthly Base Rent payable under Paragraph 4.A. hereof .
C. Payment of First Month's Rent. Upon execution hereof by
-----------------------------
Sublessee, Sublessee shall provide to Sublessor the sum of Thirty-Eight Thousand
Two Hundred Seventy-Six and 60/100 Dollars ($3 8,276.60), which shall constitute
Monthly Base Rent for the first month of the Term.
D. Abatement of Rent. In the event of casualty or condemnation
-----------------
affecting the Subleased Premises, Sublessee's Base Rent and Additional Rent
shall be abated, but only to the extent that Sublessor's Base Rent and
Additional Rent are abated pursuant to the terms of the Master Lease.
5. Security Deposit: Upon execution hereof, Sublessee shall deposit with
----------------
Sublessor a certificate of deposit ("CD") issued by a by a money-center bank (a
bank which accepts deposits, maintains accounts, has a local Silicon Valley
office, and whose deposits are insured by the FDIC) in an amount equal to three
(3) months' Base Rent, or One Hundred Fourteen Thousand Eight Hundred Twenty-
Nine and 80/Dollars ($114,829.80), as security for the performance by Sublessee
of the terms and conditions of this Sublease. The CD shall be for a period not
less than one hundred eighty (180) days, issued in Sublessor's name and
renewable by Sublessor (but not beyond the Term hereof) on the applicable
renewal date. If Sublessee fails to pay Rent or other charges due hereunder or
otherwise defaults with respect to any provision of this Sublease, then
Sublessor may draw upon, use, apply or retain all or any portion of the CD for
the payment of any Rent or other charge in default, for the payment of any other
sum which Sublessor has become obligated to pay by reason of Sublessee's
default, or to compensate Sublessor for any loss or damage which Sublessor has
suffered thereby. If Sublessor so uses or applies all or any portion of the CD,
then Sublessee shall, within ten (10) days after demand therefor, deposit cash
with Sublessor in the amount required to restore Sublessor's security to the
full amount stated above. Sublessor shall not be liable for payment of any
penalties or lost interest due to Sublessor's draw upon the CD pursuant to the
provisions hereof; provided, however, that all interest thereon shall accrue to
the benefit of Sublessee if Sublessor does not draw upon the CD pursuant to the
provisions hereof. Within five (5) days after demand by Sublessor, Sublessee
shall increase the amount of the CD to an amount not less than three (3) months'
Rent then payable under the terms of the Sublease. Upon the expiration of this
Sublease, Sublessor shall return the CD to Sublessee, or so much of the CD as
has not been applied by Sublessor pursuant to this Paragraph, or which is not
otherwise required to cure Sublessee's defaults. Notwithstanding anything to the
contrary contained in this Lease, at any time during the Term that Sublessee
completes a financing raising not less than Ten Million Dollars ($
10,000,000.00), provided that Sublessee has not been in default prior to such
date, beyond applicable cure periods, of any obligation to pay money hereunder,
Sublessee shall so notify Sublessor in writing of the completion of such
financing and provide such reasonable verification as Sublessor shall require.
Upon the next CD renewal date, Sublessor shall draw down the sum of Thirty-Eight
Thousand Two Hundred Seventy-Six and 60/100 Dollars ($38,276.60) and promptly
return such sum to Sublessee. Sublessor shall "roll over" the remaining CD sum
(and all interest thereon) for the remainder of the Term as Sublessor's security
pursuant to the provisions of this Paragraph.
3.
<PAGE>
6. Late Charge: If Sublessee fails to pay Sublessor any amount due
-----------
hereunder within five (5) days after notice from Sublessor that such sum is due,
Sub-lessee shall pay Sublessor upon demand a late charge equal to five percent
(5%) of the delinquent amount. In addition, Sublessee shall pay to Sublessor
interest on all amounts due (excluding the late charge), at the rate of fifteen
percent (15%) per annum or the maximum rate allowed by law, whichever is less
(the "Interest Rate"), from the due date to and including the date of the
payment. the parties agree that the foregoing late charge represents a
reasonable estimate of the cost and expense which Sublessor will incur in
processing each delinquent payment. Sublessor's acceptance of any interest or
late charge shall not waive Sublessee's default in failing to pay the delinquent
amount.
7. Repairs: Sublessor shall deliver the Subleased Premises to Sublessee
-------
in "broom clean" condition, free of debris and occupants. Except as set forth in
this Paragraph, Sublessee shall accept the Subleased Premises in its then-
existing, "as is" condition, and Sublessor shall have no obligation whatsoever
to make or pay the cost of any alterations, improvements or repairs to the
Subleased Premises, including, without limitation, any improvement or repair
required to comply with any law, regulation, building code or ordinance
(including, without limitation, the Americans With Disabilities Act of 1990
("ADA"), except as otherwise expressly provided in the Master Lease). Sublessee
shall look solely to the Master Lessor for performance of any repairs required
to be performed by Master Lessor under the terms of the Master Lease.
Notwithstanding anything to the contrary contained in this Paragraph, Sublessor,
at no cost to Sublessee, shall install the following improvements
("Improvements") in the Subleased Premises prior to the Commencement Date: (i)
installation of a single-door entry to be located adjacent to the tab space, and
the installation of a concrete walkway from the door to the parking lot; (ii)
installation in the kitchen area of an insink disposal, a dishwasher and new
linoleum, with cost for the foregoing not to exceed Fifteen Hundred and No/100
Dollars ($1,500.00); (iii) a demising wall separating the Subleased Premises
from the Premises; (iv) a reception/front lobby entrance with double doors and a
walkway to the parking lot; and (v) shared access to the first floor restrooms.
The foregoing items are more particularly described on Schedule 1, attached
----------
hereto and incorporated by reference herein. Also attached hereto is Change
Order No. 1, which identifies work to be performed by Sublessor but paid for by
Sublessee. Sublessee shall reimburse Sublessor for the cost of such work within
ten (10) days after receipt of Sublessor's invoice therefor. Sublessor and
Sublessee shall share access of the underlying services provided in the network
room (i.e., UPS). Sublessee and Sublessor shall use good faith, reasonable
----
efforts to avoid interference with or damage to the business and property of the
other in sharing the restrooms. In addition, Sublandlord and Subtenant (i)
shall take all steps necessary to protect the confidential work product, files,
documents, computer files and all other such information of the other; (ii)
shall notify its employees regarding the obligation to refrain from accessing or
otherwise coming into contact with the confidential information of the other;
(iii) shall take all steps reasonably necessary to prevent its employees,
contractors and invitees from accessing or otherwise coming into contact with
the confidential information of the other, (iv) shall use diligent, good faith
efforts to comply with, and to require its employees to comply with, the
reasonably security precautions of the other; and (v) shall strictly enforce its
employees', its own and the other's reasonable security precautions.
4.
<PAGE>
8. Indemnity:
---------
A. Sublessee's Indemnification. Except to the extent caused by
---------------------------
Sublessor's gross negligence or willful misconduct or a breach of its
obligations hereunder, Sublessee shall indemnify, protect, defend with counsel
reasonably acceptable to Sublessor and hold harmless Sublessor from and against
any and all claims, liabilities, judgments, causes of action, damages, costs and
expenses (including reasonable attorneys' and experts' fees), caused by or
arising in connection with: (i) the use, occupancy or condition of the Subleased
Premises, (ii) the negligence or willful misconduct of Sublessee or its
employees, contractors, agents, or invitees, or (iii) a breach of Sublessee's
obligations under this Sublease; or (iv) a breach of Sublessee's obligations
under the Master Lease; or (iv) any Hazardous Materials (as defined in Section
5.2(a)(1) of the Master Lease) used, stored, released, disposed, generated or
transported by Sublessee, its agents, employees, contractors or invitees in, on
or about the Premises.
B. Sublessor's Indemnification. Except to the extent caused by
---------------------------
Sublessee's negligence or willful misconduct or a breach of its obligations
hereunder, Sublessor shall indemnify, protect, defend with counsel reasonably
acceptable to Sublessor and hold Sublessor harmless from and against any and all
claims, liabilities, judgments, causes of action, damages, costs, and expenses
(including reasonable attorneys' and experts' fees), caused by or arising in
connection with: (i) a breach of Sublessor's obligations under this Sublease; or
(ii) a breach of Sublessor's obligations as Tenant under the Master Lease to the
extent those obligations are not assumed by Sublessee under this Sublease; or
(iii) the gross negligence or willful misconduct of Sublessor, its employees,
contractors, agents or invitees occurring on or about the Subleased Premises; or
(iv) Hazardous Materials used, stored or disposed of on or about the Premises by
Sublessor.
9. Right to Cure Defaults: If Sublessee fails to pay any sum of money to
----------------------
Sublessor, or fails to perform any other act on its part to be performed
hereunder, then Sublessor may, but shall not be obligated to, make such payment
or perform such act. All such sums paid, and all costs and expenses of
performing any such act, shall be deemed Additional Rent payable by Sublessee to
Sublessor upon demand, together with interest thereon at the Interest Rate from
the date of the expenditure until repaid. Notwithstanding the foregoing,
Sublessor shall only exercise its right to cure as set forth herein if Sublessee
fails to pay the sum or perform the act at issue within two (2) days after
Sublessor's notice to Sublessee describing the default.
10. Assignment and Subletting: Sublessee shall have no right to assign
-------------------------
this Sublease, sublet the Subleased Premises, transfer any interest of Sublessee
therein, or permit any use of the Subleased Premises by another party.
11. Use: Sublessee may use the Subleased Premises only for the uses
---
permitted in Section 5.1 of the Master Lease and for no other purpose. With
respect to Hazardous Materials as defined in Section 5.2(a) of the Master Lease,
Sublessor shall comply with the provisions of Section 5.2 of the Master Lease as
they relate to the Subleased Premises. Upon demand, Sublessee shall pay to
Sublessor all taxes or charges incurred by Sublessee and imposed by applicable
governmental authorities against the Subleased Premises or Sublessor (including,
without limitation, assessments imposed as a consequence of the occurrence,
storage, use or disposal of Hazardous Materials in or about the Subleased
Premises by Sublessee, its agents,
5.
<PAGE>
employees or contractors). Sublessee shall not do or permit anything to be done
in or about the Subleased Premises which would (i) injure the Subleased
Premises, or (ii) vibrate, shake, overload, or impair the efficient operation of
the Subleased Premises or the sprinkler systems, heating ventilating or air
conditioning equipment, or utilities systems located therein. Sublessee shall
not store any materials, supplies, finished or unfinished products, or articles
of any nature outside of the Subleased Premises. Sublessee shall comply with all
reasonable rules and regulations promulgated from time to time by Master Lessor.
12. Effect of Conveyance: As used in this Sublease, the term "Sublessor"
--------------------
means the holder of the lessee's interest under the Master Lease. In the event
of any transfer of said lessee's interest, the Sublessor shall be and hereby is
entirely relieved of all covenants and obligations of the Sublessor hereunder,
and it shall be deemed and construed, without further agreement between the
parties, that the transferee has assumed and shall carry out all covenants and
obligations thereafter to be performed by Sublessor hereunder. Sublessor shall
transfer and deliver any security of Sublessee to the transferee of said
lessee's interest in the Master Lease, and thereupon the Sublessor shall be
discharged from any further liability with respect thereto.
13. Delivery and Acceptance: If Sublessor is unable to deliver possession
-----------------------
of the Subleased Premises to Sublessee on or before June 8, 1998 for any reason
whatsoever, then this Sublease shall not be void or voidable, nor shall
Sublessor be liable to Sublessee for any loss or damage; provided, however, in
such event, Rent shall abate until Sublessor delivers possession of the
Subleased Premises to Sublessee. Notwithstanding anything to the contrary
contained in the foregoing sentence, if Sublessor has not delivered the
Subleased Premises to Sublessee by July 8, 1998, Sublessee shall have the right
to terminate this Sublease, and Sublessor promptly shall return to Sublessee all
sums paid by Sublessee in connection with its execution of this Sublease. By
taking possession of the Subleased Premises, Sublessee shall conclusively be
deemed to have accepted the Subleased Premises in their as-is, then-existing
condition, subject to the provisions of Paragraph 7 hereof.
14. Improvements: No alteration or improvements shall be made to the
------------
Subleased Premises except in accordance with this Sublease and the Master Lease,
and with the prior written consent of both Master Lessor and Sublessor, with
Sublessor's consent not to be unreasonably withheld. At the time that Sublessee
requests consent to any alteration or improvement, if Sublessee so requests of
Sublessor, Sublessor shall notify Sublessee in writing whether Sublessee shall
be obligated to remove the alteration or improvement upon the expiration or
earlier termination of this Sublease. Upon the expiration or earlier
termination of this Sublease, Sublessee shall be responsible for removing any
improvements installed in the Subleased Premises by Sublessee except for those
items with respect to which Sublessor or Master Lessor previously has notified
Sublessor or Master Lessor may remain.
15. Release and Waiver of Subrogation: Sublessor and Sublessee hereby
---------------------------------
release each other from any injury to persons, damage to property, or loss of
any kind which is caused by or results from any risk insured against under any
valid and collectable insurance policy carried by either party, which contains a
waiver of subrogation by the insurer; provided, however, that such liability
shall be released only to the extent that the damages are covered by such
insurance, and only if the insurance permits such partial release. This release
shall be in effect only so long as the applicable insurance policy contains a
clause to the effect that this release shall not affect the
6.
<PAGE>
right of the insured to recover under such policy. Each party shall use its best
efforts to cause each insurance policy obtained by it to provide that the
insurer waives all right of recovery against the other party and its agents and
employees in connection with any damage or injury covered by such policy, and
each party shall notify the other party if it is unable to obtain such a waiver
of subrogation. Sublessor shall not be liable to Sublessee, nor shall Sublessee
be entitled to terminate this Sublease or to abate Rent, for any reason,
including without limitation: (i) failure or interruption of any utility system
or service; or (ii) failure of Master Lessor to maintain the Subleased Premises
as may be required under the Master Lease. If Sublessor and Sublessee are
corporations or other forms of business entity, then the obligations of
Sublessor and Sublessee shall not constitute the personal obligations of the
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders or other principals or representatives of such business entity.
16. Default: Sublessee's failure to perform each of its obligations under
-------
this Sublease shall constitute a default hereunder. In addition, Sublessee
shall be in material default of its obligations under this Sublease if Sublessee
is responsible for the occurrence of any of the events of default set forth in
Section 15.1 of the Master Lease.
17. Remedies: In the event of any default by Sublessee under this
--------
Sublease (including, without limitation, a default pursuant to Section 15.1 of
the Master Lease), Sublessor shall have all remedies provided by applicable law,
including, without limitation, all rights pursuant to Section 15.2 of the Master
Lease and under California Civil Code Sections 1951.2 and 1951.4. Sublessor may
resort to its remedies cumulatively or in the alternative.
18. Surrender: On or before the Expiration Date, Sublessee shall remove
---------
all of its trade fixtures and shall surrender the Subleased Premises to
Sublessor in the condition received, free of Hazardous Materials stored,
released, used or disposed of by Sublessee, its agents, employees and
contractors, reasonable wear and tear and damage from casualty or condemnation
excepted. If the Subleased Premises are not so surrendered, then Sublessee
shall be liable to Sublessor for all costs incurred by Sublessor in returning
the Subleased Premises to the required condition, plus interest thereon at the
Interest Rate; Sublessee shall indemnify, defend, protect and hold harmless
Sublessor against any and all claims, liabilities, judgments, causes of action,
damages, costs, and expenses (including attorneys' and experts' fees) resulting
from Sublessee's delay in surrendering the Subleased Premises.
19. Broker: Sublessor and Sublessee each represent to the other that they
------
have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction, except Wayne Mascia & Associates, representing
Sublessor. Each party agrees to hold the other party harmless 1 9 from and
against all claims for brokerage commissions, finder's fees, or other
compensation made by any other agent, broker, salesman or finder as a
consequence of said party's actions or dealings with such agent, broker,
salesman, or finder.
20. Notices: Unless five (5) days' prior written notice is given in the
-------
manner set forth in this Paragraph, the address of each party and Master Lessor
for all purposes connected with this Sublease shall be that address set forth
below their signatures at the end of this Sublease. All notices, demands, or
communications in connection with this Sublease shall be considered received
when (i) personally delivered, or (ii) if properly addressed and either sent by
nationally
7.
<PAGE>
recognized overnight courier or deposited in the mail (registered or certified,
return receipt requested, and postage prepaid), on the date shown on the return
receipt for acceptance or rejection. All notices given to the Master Lessor
under the Master Lease shall be considered received only when delivered in
accordance with the Master Lease to all parties hereto at the address set forth
below their signatures at the end of this Sublease.
21. Severability: If any term of this Sublease is held to be invalid or
------------
unenforceable by any court of competent jurisdiction, then the remainder of this
Sublease shall remain in full force and effect to the fullest extent possible
under the law, and shall not be affected or impaired.
22. Amendment: This Sublease may not be amended except by the written
---------
agreement of all parties hereto.
23. Attorneys' Fees: If either party brings any action or legal
---------------
proceeding with respect to this Sublease, the prevailing party shall be entitled
to recover reasonable attorneys' fees, experts' fees, and court costs.
24. Other Sublease Terms:
--------------------
A. Incorporation By Reference. The terms and conditions of this
--------------------------
Sublease shall include various Sections of the Master Lease, which are
incorporated into this Sublease as if fully set forth, except that: (i) each
reference in such incorporated Sections to "Lease" shall be deemed a reference
to "Sublease"; (ii) each reference to the "Premises" shall be deemed a reference
to the "Subleased Premises"; (iii) each reference to "Landlord" and "Tenant"
shall be deemed a reference to "Sublessor" and "Sublessee", respectively; (iv)
with respect to work, services, repairs, restoration, provision of insurance or
the performance of any other obligation of Master Lessor under the Master Lease,
the sole obligation of Sublessor shall be to request the same in writing from
Master Lessor as and when requested to do so by Sublessee, and to use
Sublessor's reasonable good faith efforts (without requiring Sublessor to spend
more than a nominal sum) to obtain the Master Lessor's performance; (v) with
respect to any obligation of Sublessee to be performed under this Sublease,
wherever the Master Lease grants to Sublessor a specified number of days to
perform its obligations under the Lease, Sublessee shall have three (3) fewer
days to perform the obligation, including, without limitation, curing any
defaults (provided, however, that if any cure period provides for three (3) days
or less to perform, Sublessee shall have two (2) business days to perform); and
(vi) with respect to any approval required to be obtained from the "Landlord"
under the Master Lease, such consent must be obtained from both the Master
Lessor and the Sublessor and the approval of Sublessor may be withheld, if the
Master Lessor's consent is not obtained.
The following paragraphs of the Master Lease are hereby incorporated into
this Sublease:
Basic Lease Information Provisions: "Landlord", "Development",
----------------------------------
"Building Address", "Rentable Area of Project", "Maintenance, Operating Costs
and Taxes", "Landlord's Address for Notices", "Tenant's Address for Notices",
"Property Manager", and "Additional Provisions 36 and 40";
Sections 3.2 and 3.3;
--------------------
8.
<PAGE>
Sections 4 and 5, except that references to "Landlord" in Section
----------------
5.2(g) shall mean only Master Lessor;
Article 6, except that (i) references to "Landlord" in the first
---------
sentence of Section 6.1 shall mean only Master Lessor; (ii) the words "Except
for any Tenant Improvements to be constructed by Tenant as provided in the
Construction Rider," hereby are deleted; and (iii) the reference to "$10,000.00"
in Section 6.1 (c) shall be changed to $2,500.00);
Article 7, except that references to "Landlord" in Sections 7.2 and
---------
7.3 shall mean only Master Lessor;
Article 8;
---------
Article 9, except that Section 9.2(b) hereby is deleted;
---------
Article 10, except that Section 10.1 hereby is deleted;
----------
Article 11, except that references to "Landlord" in Section 11.2 shall
----------
mean only Master Lessor;
Article 12, except that (i) references to "Landlord" in Sections 12.1
----------
and 12.2 shall mean only Master Lessor; and (ii) Sublessee shall not exercise
the termination right referenced in Section 12.3 without the prior written
consent of Sublessor, which may not be unduly withheld in its sole discretion;
Article 13, except that (i) references to "Landlord" in Sections 13.2,
----------
13.3, 13.4 and 13.5 shall mean only Master Lessor; and (ii) Sublessee shall not
exercise the termination right referenced in Section 13.2(a) without the prior
written consent of Sublessor, which may not be unduly withheld in its sole
discretion;
Article 15;
----------
Articles 17 through 19, except that Section 19.1 hereby is deleted;
----------------------
Articles 20 and 21 except that references to `Landlord" in Article 20
------------------
shall mean only Master Lessor;
Articles 24 through 29;
----------------------
Articles 32 through 24;
----------------------
Exhibits A and C; and
----------------
Paragraphs 36 and 40 of Exhibit D.
---------------------------------
B. Assumption of Obligations: This Sublease is and all times shall
-------------------------
be subject and subordinate to the Master Lease and the rights of Master Lessor
thereunder. Sublessee hereby expressly assumes and agrees: (i) to comply with
all provisions of the Master Lease to the extent applicable to the Subleased
Premises; (ii) to perform all the obligations on the part of
9.
<PAGE>
the "Tenant" to be performed under the terms of the Master Lease during the term
of this Sublease (except for Sublessor's obligation to pay Base Rent and
Additional Rent thereunder); and (iii) to hold Sublessor free and harmless of
and from all liability, judgments, costs, damages, claims, demands, and expenses
(including reasonable attorneys' and experts' fees) arising out of Sublessee's
failure to comply with or to perform Sublessee's obligations hereunder or the
obligations of the "Tenant" under the Master Lease as herein provided or to act
or omit to act in any manner which will constitute a breach of the Master Lease.
Sublessor hereby expressly agrees to comply with all provisions of the Master
Lease not the obligation of Sublessee hereunder, including the obligation to pay
the Base Rent and Additional Rent due thereunder.
25. Condition Precedent: This Sublease and Sublessor's and Sublessee's
-------------------
obligations hereunder are conditioned upon obtaining the written consent of the
Master Lessor. If Sublessor fails to obtain the Master Lessor's consent within
thirty (30) days after the latest of the dates of execution of this Sublease by
Sublessor and Sublessee, then either Sublessor or Sublessee may terminate this
Sublease by giving the other written notice, and Sublessor shall return to
Sublessee all sums paid to Sublessor in connection with Sublessee's execution
hereof.
26. Parking. During the Term, as extended, Sublessee shall have the non-
-------
exclusive right to use three (3) parking stalls in the parking area adjacent to
the Premises for each 1,000 rentable square feet of the Subleased Premises, at
no cost to Sublessee, subject to the provisions of Section 36 of the Master
Lease.
27. Signage. Subject to the provisions of the Master Lease, Sublessor and
-------
Sublessee shall cooperate on obtaining building signage for the Subleased
Premises.
28. Furniture, Fixtures and Equipment. Subject to the execution of a
---------------------------------
purchase agreement between Sublessor and Apple Computer, Inc. with respect to
certain furniture, fixtures and equipment remaining on the Premises, Sublessee
shall be entitled, at no cost to Sublessee, to use certain furniture, fixtures
and equipment ("Furniture", as more particularly described on Schedule 2
----------
attached hereto and incorporated by reference herein, located within the
Subleased Premises, excluding, however, all cubicles located therein, which
shall be removed by Sublessor prior to the Commencement Date. Prior to the
Commencement Date, Sublessor and Sublessee shall create an inventory of the
Furniture to be used by Sublessee during the Term. Sublessee shall use the
Furniture in its as-is condition, without warranty from Sublessor of any kind,
and shall return the Furniture to Sublessor upon the expiration or earlier
termination of this Sublease in the condition received, ordinary wear and tear
excepted. Sublessor shall have no obligation to repair or replace the Furniture,
but shall maintain property insurance with respect thereto. Upon the execution
of this Sublease by Sublessee, Sublessee shall deposit with Sublessor the amount
of Fifteen Thousand and No/ 100 Dollars ($15,000.00) ("Furniture Deposit") to
serve as security for the return of the Furniture to Sublessor in the condition
required by this Paragraph. Within thirty (30) days after the expiration or
earlier termination of this Sublease, Sublessor shall return to Sublessee so
much of the Furniture Deposit as is not required to return the Furniture to the
condition required by this Paragraph.
29. Landlord's Work. Sublessee acknowledges that Master Lessor is
---------------
obligated to perform certain repairs to the Parking Facility surrounding the
Building, and that such repairs will not be completed prior to the Commencement
Date. Sublessee shall have no right to
10.
<PAGE>
terminate this Sublease, nor any recourse against Sublessor, for Landlord's
failure to complete the repairs or for any inconvenience to Sublessee or its
employees or invitees resulting from Landlord's work in the Parking Facility.
30. Sublessor's Representations. Sublessor hereby represents and warrants
---------------------------
to Sublessee, to the best of Sublessor's knowledge, that: (i) the Master Lease
is in full force and effect, and the copy of the Master Lease attached hereto is
a true and correct copy thereof; and (ii) there are no claims or defenses or
circumstances which, with the passage of time, would lead to claims or defenses
by Master Lessor against Sublessor as Tenant under the Master Lease. Sublessor
shall provide to Sublessee copies of any notices received from Master Lessor
regarding the Master Lease, including, without limitation, notices of default.
31. Authorization to Direct Sublease Payments. Sublessor hereby
-----------------------------------------
acknowledges that. Sublessor's failure to pay the Rent and other sums owing by
Sublessor to Master Lessor under the Master Lease will cause Sublessee to incur
damages, costs and 'expenses not contemplated by this Sublease, especially in
those cases where Sublessee has paid sums to Sublessor hereunder which
correspond in whole or in part to the amounts owing by Sublessor to Master
Lessor under the Master Lease. Accordingly, Sublessee shall have the right to
pay all Rent and other sums owing by Sublessee to Sublessor hereunder for those
items which also are owed by Sublessor to Master Lessor under the Master Lease
directly to Master Lessor on the following terms and conditions:
A. Sublessee reasonably believes that Sublessor has failed to make
any payment requited to be made by Sublessor to Master Lessor under the Master
Lease and Sublessor fails to provide adequate proof of payment within two (2)
business days after Sublessee's written demand requesting such proof.
B. Sublessee shall not prepay any amounts owing by Sublessee without
the consent of Sublessor.
C. Sublessee shall provide to Sublessor concurrently with any
payment to Master Lessor reasonable evidence of such payment.
D. If Sublessor notifies Sublessee that it disputes any amount
demanded by Master Lessor, Sublessee shall not make any such payment to Master
Lessor unless Master Lessor has provided a three-day notice to pay such amount
or forfeit the Master Lease.
Any sums paid directly by Sublessee to Master Lessor in accordance with this
Paragraph shall be credited toward the amounts payable by Sublessee to Sublessor
under this Sublease.
[SIGNATURES APPEAR ON NEXT PAGE]
11.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease on the day and
year first above written.
SUBLESSEE: SUBLESSOR:
CLARENT CORPORATION, UNWIRED PLANET, INC.,
a California corporation a Delaware corporation
By: /s/ Michael F. Vargo By: /s/ Alan J. Black
---------------------------- ---------------------------
Printed Printed
Name: Michael F. Vargo Name: Alan J. Black
-------------------------- ------------------------
Its: Secretary Its: CFO
--------------------------- --------------------------
Address: 800 Chesapeake Address: 800 Chesapeake
Building 15 Building 15
Redwood City, CA 94063 Redwood City, CA 94063
Telephone: +1-650-306-7504 Telephone: 650-817-1447
------------------------ -------------------
12.
<PAGE>
CONSENT TO SUBLEASE
-------------------
Master Lessor hereby acknowledges receipt of a copy of this Sublease, and
consents to this Sublease. By this consent, Master Lessor shall not be deemed
in any way to have entered into the Sublease or to have consented to any further
assignment or sublease.
MASTER LESSOR:
Seaport Centre Associates, L.L.C.,
a California limited liability company
By: Opportunity Capital Partners IV, LLC.,
a California limited liability company manager
By:___________________________
Its:__________________________
Address: c/o William Wilson & Associates
Ten Almaden Boulevard, Suite 430
San Jose, California 95113
13.
<PAGE>
LEASE AGREEMENT
between
SEAPORT CENTRE ASSOCIATES, LLC
as "LANDLORD"
and
UNWIRED PLANET, INC.
as "LANDLORD"
EXHIBIT A - MASTER LEASE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. PREMISES........................................................... 4
2. TERM; POSSESSION................................................... 4
3. RENT............................................................... 4
4. SECURITY DEPOSIT................................................... 8
5. USE AND COMPLIANCE WITH LAWS....................................... 8
6. TENANT IMPROVEMENTS & ALTERATIONS.................................. 11
7. MAINTENANCE AND REPAIRS............................................ 12
8. TENANT'S TAXES..................................................... 14
9. UTILITIES.......................................................... 15
10. EXCULPATION AND INDEMNIFICATION.................................... 15
11. INSURANCE.......................................................... 16
12. DAMAGE OR DESTRUCTION.............................................. 18
13. CONDEMNATION....................................................... 19
14. ASSIGNMENT AND SUBLETTING.......................................... 21
15. DEFAULT AND REMEDIES............................................... 24
16. LATE CHARGE AND INTEREST........................................... 26
17. WAIVER............................................................. 26
18. ENTRY, INSPECTION AND CLOSURE...................................... 26
19. SURRENDER AND HOLDING OVER......................................... 27
20. ENCUMBRANCES....................................................... 28
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS..................... 29
22. NOTICES............................................................ 29
23. ATTORNEYS' FEES.................................................... 30
24. QUIET POSSESSION................................................... 30
25. SECURITY MEASURES.................................................. 30
26. FORCE MAJEURE...................................................... 30
27. RULES AND REGULATIONS.............................................. 30
28. LANDLORD'S LIABILITY............................................... 31
29. CONSENTS AND APPROVALS............................................. 31
30. BROKERS............................................................ 31
31. RELOCATION OF PREMISES............................................. 32
32. ENTIRE AGREEMENT................................................... 32
33. MISCELLANEOUS...................................................... 32
34. AUTHORITY.......................................................... 32
</TABLE>
i.
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
ADDITIONAL RENT.................................................. 6
ALTERATIONS...................................................... 11
AWARD............................................................ 19
BROKER........................................................... 31
BUILDING......................................................... 4
BUILDING RULES................................................... 30
BUILDING SYSTEMS................................................. 8
CLAIMS........................................................... 15
COMMENCEMENT DATE................................................ 4
CONDEMNATION..................................................... 19
CONDEMNOR........................................................ 19
CONTROLS......................................................... 14
DATE OF CONDEMNATION............................................. 19
DEVELOPMENT...................................................... 4
ENCUMBRANCE...................................................... 28
ENVIRONMENTAL LOSSES............................................. 9
ENVIRONMENTAL REQUIREMENTS....................................... 9
EVENT OF DEFAULT................................................. 24
EXPIRATION DATE.................................................. 4
HANDLED BY TENANT................................................ 9
HANDLING BY TENANT............................................... 9
HAZARDOUS MATERIALS.............................................. 9
HVAC............................................................. 8
INTEREST RATE.................................................... 26
LAWS............................................................. 5
MORTGAGEE........................................................ 28
OPERATING COSTS.................................................. 5
PARKING FACILITY................................................. 4
PERMITTED HAZARDOUS MATERIALS.................................... 9
PREMISES......................................................... 4
PROJECT.......................................................... 4
PROPERTY......................................................... 4
PROPERTY MANAGER................................................. 16
PROPOSED TRANSFEREE.............................................. 21
RENT............................................................. 7
RENTAL TAX....................................................... 14
REPRESENTATIVES.................................................. 9
SECURITY DEPOSIT................................................. 8
SERVICE FAILURE.................................................. 15
TAXES............................................................ 6
TENANT'S SHARE................................................... 6
TENANT'S TAXES................................................... 14
TENANT IMPROVEMENTS.............................................. 11
TERM............................................................. 4
TRADE FIXTURES................................................... 12
TRANSFER......................................................... 21
TRANSFEREE....................................................... 22
VISITORS......................................................... 9
</TABLE>
ii.
<PAGE>
BASIC LEASE INFORMATION
LEASE DATE: For identification purposes only, the date of this
Lease is March 10, 1998
LANDLORD: SEAPORT CENTRE ASSOCIATES, LLC, a California
limited liability company
TENANT: UNWIRED PLANET, INC. a Delaware corporation
PROJECT: Seaport Centre Phase Three (East Campus)
DEVELOPMENT: Seaport Centre Phases One, Two and Three,
consisting of 26 buildings, the underlying land
and associated land.
BUILDING ADDRESS: 800 Chesapeake, Building 15
Redwood City, California
RENTABLE AREA OF BUILDING: Approximately 40,795 square feet
RENTABLE AREA OF PROJECT: 135,245
PREMISES: Floor: Entire two story building
Building Number: 15
Rentable Area: Approximately 40,795 square feet
TERM: 84 full calendar months (plus any partial month at
the beginning of the Term)
COMMENCEMENT DATE: June 1, 1998
Expiration Date: The last day of the 84th full calendar month in
the Term
BASE RENT: Months 01-12: _____ per rentable square foot per
month
Months 13-24: _____ per rentable square foot per
month
Months 25-36: _____ per rentable square foot per
month
Months 37-48: _____ per rentable square foot per
month
Months 49-60: _____ per rentable square foot per
month
Months 61-72: _____ per rentable square foot per
month
Months 72-84: _____ per rentable square foot per
month
MAINTENANCE, OPERATING This is a "triple net lease" where Tenant is
COSTS AND TAXES: responsible for maintenance, operating costs and
taxes, all in accordance with the applicable
provisions of the Lease.
-1-
<PAGE>
TENANT'S SHARE: 30.16%
SECURITY DEPOSIT: A Letter of Credit as provided in Section 36
below.
LANDLORD'S ADDRESS FOR Seaport Centre Associates, LLC
PAYMENT OF RENT: Ten Almaden Boulevard, Suite 430
San Jose, CA 95113
LANDLORD'S ADDRESS FOR Seaport Centre Associates, LLC
NOTICES: c/o William Wilson & Associates
Ten Almaden Boulevard, Suite 430
San Jose, CA 95113
with a copy to:
Seaport Centre Associates, LLC
c/o William Wilson & Associates
2929 Campus Drive, Suite 450
San Mateo, CA 94403
Attn: General Counsel
TENANT'S ADDRESS FOR 800 Chesapeake
NOTICES: Redwood City, California
BROKER(S): Wayne Mascia & Associates
GUARANTOR(S): (none)
PROPERTY MANAGER: William Wilson & Associates
ADDITIONAL PROVISIONS: 35. Letter of Credit
36. Parking
37. Extension Option
38. Right of First Offer - Building 14
39. Right of First Offer - Building 19
40. Landlord's Improvements
Exhibits:
- ---------
Exhibit A: The Premises
Exhibit B: Construction Rider
Exhibit C: Building Rules
Exhibit D: Additional Provisions
-2-
<PAGE>
The Basic Lease Information set forth above is part of the Lease. In the
event of any conflict between any provision in the Basic Lease Information and
the Lease, the Lease shall control.
-3-
<PAGE>
THIS LEASE is made as of the Lease Date set forth in the Basic Lease
Information, by and between the Landlord identified in the Basic Lease
Information ("LANDLORD"), and the Tenant identified in the Basic Lease
Information ("TENANT"). Landlord and Tenant hereby agree as follows:
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, upon the terms and subject to the conditions of this Lease, and
subject to covenants, conditions and restrictions recorded in the real estate
records in the county in which the Property is located, the space identified in
the Basic Lease Information as the Premises (the "PREMISES"), in the Building
located at the address specified in the Basic Lease Information (the
"BUILDING"). The approximate configuration and location of the Premises is shown
on Exhibit A. Landlord and Tenant agree that the rentable area of the Premises
---------
for all purposes under this Lease shall be the Rentable Area specified in the
Basic Lease Information. The Building, together with the parking facilities
serving the Building (the "PARKING FACILITY"), and the parcel(s) of land on
which the Building and the Parking Facility are situated (collectively, the
"PROPERTY"), !s part of the Project identified in the Basic Lease Information
(the "PROJECT"), which is part of the Development identified in the Basic Lease
Information (the "DEVELOPMENT").
2. TERM; POSSESSION. The term of this Lease (the "TERM") shall commence on the
Commencement Date as described below and, unless sooner terminated, shall expire
on the Expiration Date set forth in the Basic Lease Information (the "EXPIRATION
DATE"). The "COMMENCEMENT DATE" shall be June 1, 1998. The tenant which
previously leased the Building (the "Previous Tenant") has left personal
property, including furniture, in the Building. In accordance with its lease,
and an early lease termination agreement, the Existing Tenant is obligated to
remove such personal property, and repair any damage caused by such removal,
within thirty (30) days after Landlord enters into a replacement lease (such as
this Lease) for the Building. Landlord agrees to use good faith efforts to cause
the Previous Tenant to remove such personal property in a shorter period of time
than such thirty (30) days. Landlord will repair, or cause to be repaired, any
damage to the offices in the Building resulting from the removal of such
personal property.
3. RENT.
3.1 Base Rent. Tenant agrees to pay to Landlord the Base Rent set forth in
---------
the Basic Lease Information, without prior notice or demand, on the first day of
each and every calendar month during the Term, except that Base Rent for the
first full calendar month in which Base Rent is payable shall be paid upon
Tenant's execution of this Lease and Base Rent for any partial month at the
beginning of the Term shall be paid on the Commencement Date. Base Rent for any
partial month at the beginning or end of the Term shall be prorated based on the
actual number of days in the month.
If the Basic Lease Information provides for any change in Base Rent by
reference to years or months (without specifying particular dates), the change
will take effect on the applicable annual or monthly anniversary of the
Commencement Date (which won't necessarily be the first day of a calendar
month).
-4-
<PAGE>
3.2 Additional Rent: Operating Costs and Taxes.
------------------------------------------
(a) Definitions.
-----------
(1) "OPERATING COSTS" means all costs of managing, operating,
maintaining and repairing the Project, including all costs, expenditures, fees
and charges for: (A) operation, maintenance and repair of the Project (including
maintenance, repair and replacement of glass, the roof covering or membrane, and
landscaping); (B) utilities and services (including telecommunications
facilities and equipment, recycling programs and trash removal), and associated
supplies and materials; (C) compensation (including employment taxes and fringe
benefits) for persons who perform duties in connection with the operation,
management, maintenance and repair of the Project, such compensation to be
appropriately allocated for persons who also perform duties unrelated to the
Project; (D) property (including coverage for earthquake and flood if carried by
Landlord), liability, rental income and other insurance relating to the Project,
and expenditures for deductible amounts paid under such insurance; (E) licenses,
permits and inspections; (F) complying with the requirements of any law,
statute, ordinance or governmental rule or regulation or any orders pursuant
thereto (collectively "LAWS"); (G) amortization of capital replacements, repairs
or improvements to the Project, including capital replacements, repairs or
improvements required to comply with Laws, with interest on the unamortized
balance at the rate paid by Landlord on funds borrowed to finance such capital
improvements (or, if Landlord finances such improvements out of Landlord's funds
without borrowing, the rate that Landlord would have paid to borrow such funds,
as reasonably determined by Landlord), over such useful life as Landlord shall
reasonably determine in accordance with generally accepted accounting
principles; (H) an office for the management of the Project, including expenses
of furnishing and equipping such office and the rental value of any space
occupied for such purposes; (I) property management fees reasonably charged by
owners of commercial projects in the geographical area of the Project; (J)
accounting, legal and other professional services incurred in connection with
the operation of the Project and the calculation of Operating Costs and Taxes;
(K) a reasonable allowance for depreciation on machinery and equipment used to
maintain the Project and on other personal property owned by Landlord in the
Project (including window coverings and carpeting in common areas); (L)
contesting the validity or applicability of any Laws that may affect the
Project; (M) the Project's share of any shared or common area maintenance fees
and expenses (including costs and expenses of operating, managing, owning and
maintaining the Parking Facility and the common areas of the Project, any
fitness center in the Development, the fees and charges from the Seaport Centre
Owners Association and any other fees and expenses shared with the Development);
and (N) any other cost, expenditure, fee or charge, whether or not hereinbefore
described, which in accordance with generally accepted property management
practices would be considered an expense of managing, operating, maintaining and
repairing the Project. Operating Costs for any calendar year during which
average occupancy of the Project is less than one hundred percent (100%) shall
be calculated based upon the Operating Costs that would have been incurred if
the Project had an average occupancy of one hundred percent (100%) during the
entire calendar year.
Operating Costs shall not include (i) costs of special services rendered to
individual tenants (including Tenant) for which a special charge is made; (ii)
interest and principal payments, including penalties and late charges thereon,
on loans or indebtedness secured by the Building; (iii) costs of improvements
for Tenant or other tenants of the Project; (v) costs of services or other
benefits of a type which are not available to Tenant but which are available to
other tenants or
-5-
<PAGE>
occupants, and costs for which Landlord is reimbursed by other tenants of the
Project other than through payment of tenants' shares of Operating Costs and
Taxes; (vi) utility charges paid by Tenant (and other tenants in the Project)
directly to the applicable public utility company; (vii) leasing commissions,
attorneys' fees and other expenses incurred in connection with leasing space in
the Project or enforcing such leases; (viii) depreciation or amortization, other
than as specifically enumerated in the definition of Operating Costs above; and
(ix) costs, fines or penalties incurred due to Landlord's violation of any Law.
In no event shall the Operating Costs used by Landlord in determining Tenant's
Share of Operating Costs exceed one hundred percent (100%) of the actual
Operating Costs incurred by Landlord in connection with the Project, and
Landlord shall not recover the costs of any items more than once.
(4) "TAXES" means: all real property taxes and general, special
or district assessments or other governmental impositions, of whatever kind,
nature or origin, imposed on or by reason of the ownership or use of the
Project; governmental charges, fees or assessments for transit or traffic
mitigation (including area-wide traffic improvement assessments and
transportation system management fees), housing, police, fire or other
governmental service or purported benefits to the Project; personal property
taxes assessed on the personal property of Landlord used in the operation of the
Project; service payments in lieu of taxes and taxes and assessments of every
kind and nature whatsoever levied or assessed in addition to, in lieu of or in
substitution for existing or additional real or personal property taxes on the
Project or the personal property described above; any increases in the foregoing
caused by changes in assessed valuation, tax rate or other factors or
circumstances; and the reasonable cost of contesting by appropriate proceedings
the amount or validity of any taxes, assessments or charges described above.
Taxes shall not include any state and federal personal or corporate income taxes
measured by the income of Landlord from all sources (other than taxes on rent at
the Property), as well as any franchise, inheritance, or estate, succession,
gift tax, or capital levy. Landlord agrees that for the purpose of this Lease
any special assessments or special taxes for public improvements to the property
will be amortized, with interest at the rate payable to the assessing or taxing
authority, over the maximum time Landlord is permitted to pay such special
assessment or special tax without penalty. To the extent paid by Tenant or other
tenants as "Tenant's Taxes" (as defined in Section 8 - Tenant's Taxes),
"Tenant's Taxes" shall be excluded from Taxes.
(5) "TENANT'S SHARE" means the Rentable Area of the Premises
divided by the total Rentable Area of the Project, as set forth in the Basic
Lease Information. If the Rentable Area of the Project is changed or the
Rentable Area of the Premises is changed by Tenant' s leasing of additional
space hereunder or for any other reason, Tenant's Share shall be adjusted
accordingly.
(b) Additional Rent.
---------------
(1) Tenant shall pay Landlord as "ADDITIONAL RENT" for each
calendar year or portion thereof during the Term Tenant's Share of the sum of
(x) the amount of Operating Costs, and (y) the amount of Taxes.
(2) Prior to the Commencement Date and each calendar year
thereafter, Landlord shall notify Tenant of Landlord's estimate of Operating
Costs, Taxes and Tenant's Additional Rent for the following calendar year (or
first partial year following the Commencement
-6-
<PAGE>
Date). Commencing on the Commencement Date, and in subsequent calendar years, on
the first day of January of each calendar year and continuing on the first day
of every month thereafter in such year, Tenant shall pay to Landlord one-twelfth
(1/12th) of the Additional Rent, as reasonably estimated by Landlord for such
full calendar year. If Landlord thereafter reasonably estimates that Operating
Costs or Taxes for such year will vary from Landlord's prior estimate, Landlord
may, by notice to Tenant, revise the estimate for such year (and Additional Rent
shall thereafter be payable based on the revised estimate).
(3) As soon as reasonably practicable after the end of each
calendar year, Landlord shall furnish Tenant a statement with respect to such
year, showing Operating Costs, Taxes and Additional Rent for the year, and the
total payments made by Tenant with respect thereto. Unless Tenant raises any
objections to Landlord's statement within ninety (90) days after receipt of the
same, such statement shall conclusively be deemed correct and Tenant shall have
no right thereafter to dispute such statement or any item therein or the
computation of Additional Rent based thereon. If Tenant does object to such
statement, then Landlord shall provide Tenant with reasonable verification of
the figures shown on the statement and the parties shall negotiate in good faith
to resolve any disputes. Any objection of Tenant to Landlord's statement and
resolution of any dispute shall not postpone the time for payment of any amounts
due Tenant or Landlord based on Landlord's statement, nor shall any failure of
Landlord to deliver Landlord's statement in a timely manner relieve Tenant of
Tenant's obligation to pay any amounts due Landlord based on Landlord's
statement.
(4) If Tenant's Additional Rent as finally determined for any
calendar year exceeds the total payments made by Tenant on account thereof,
Tenant shall pay Landlord the deficiency within twenty (20) days of Tenant's
receipt of Landlord's statement. If the total payments made by Tenant on account
thereof exceed Tenant's Additional Rent as finally determined for such year,
Tenant's excess payment shall be credited toward the rent next due from Tenant
under this Lease. For any partial calendar year at the beginning or end of the
Term, Additional Rent shall be prorated on the basis of a 365-day year by
computing Tenant's Share of the Operating Costs and Taxes for the entire year
and then prorating such amount for the number of days during such year included
in the Term. Notwithstanding the termination of this Lease, Landlord shall pay
to Tenant or Tenant shall pay to Landlord, as the case may be, within twenty
(20) days after Tenant's receipt of Landlord's final statement for the calendar
year in which this Lease terminates, the difference between Tenant's Additional
Rent for that year, as finally determined by Landlord, and the total amount
previously paid by Tenant on account thereof.
If for any reason Taxes for any year during the Term are reduced, refunded
or otherwise changed, Tenant's Additional Rent shall be adjusted accordingly. If
Taxes are temporarily reduced as a result of space in the Project being leased
to a tenant that is entitled to an exemption from property taxes or other taxes,
then for purposes of determining Additional Rent for each year in which Taxes
are reduced by any such exemption, Taxes for such year shall be calculated on
the basis of the amount the Taxes for the year would have been in the absence of
the exemption. The obligations of Landlord to refund any overpayment of
Additional Rent and of Tenant to pay any Additional Rent not previously paid
shall survive the expiration of the Term.
3.3 Payment, of Rent. All amounts payable or reimbursable by Tenant under
----------------
this Lease, including late charges and interest (collectively, "RENT"), shall
constitute rent and shall be payable
-7-
<PAGE>
and recoverable as rent in the manner provided in this Lease. All sums payable
to Landlord on demand under the terms of this Lease shall be payable within
twenty (20) days after receipt of notice from Landlord of the amounts due. All
rent shall be paid without offset, recoupment or deduction in lawful money of
the United States of America to Landlord at Landlord's Address for Payment of
Rent as set forth in the Basic Lease Information, or to such other person or at
such other place as Landlord may from time to time designate.
4. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with
Landlord the amount specified in the Basic Lease Information as the Security
Deposit, if any (the "SECURITY DEPOSIT"), as security for the performance of
Tenant's obligations under this Lease. Landlord may (but shall have no
obligation to) use the Security Deposit or any portion thereof to cure any Event
of Default under this Lease or to compensate Landlord for any damage Landlord
incurs as a result of Tenant's failure to perform any of Tenant's obligations
hereunder. In such event Tenant shall pay to Landlord on demand an amount
sufficient to replenish the Security Deposit. If Tenant is not in default at the
expiration or termination of this Lease, then within thirty (30) days after
Tenant vacates the Premises Landlord shall return to Tenant the Security Deposit
or the balance thereof then held by Landlord and not applied as provided above.
Landlord may commingle the Security Deposit with Landlord's general and other
funds. Landlord shall not be required to pay interest on -the Security Deposit
to Tenant.
5. USE AND COMPLIANCE WITH LAWS.
5.1 Use. The Premises shall be used and occupied solely for the purposes
---
of (a) general business offices, (b) and research and development, and for no
other use or purpose. Tenant shall comply with all present and future Laws
relating to Tenant's use or occupancy of the Premises (and make any repairs,
alterations or improvements as required to comply with all such Laws), and shall
observe the "Building Rules" (as defined in Section 27 - Rules and Regulations);
provided, however, that the foregoing shall not be interpreted to require Tenant
to perform structural or capital work except to the extent required as a result
of Tenant's specific use of the Premises. Tenant shall not do, bring, keep or
sell anything in or about the Premises that is prohibited by, or that will cause
a cancellation of or an increase in the existing premium for, any insurance
policy covering the Property or any part thereof. Tenant shall not permit the
Premises to be occupied or used in any manner that will constitute waste or a
nuisance, or disturb the quiet enjoyment of or otherwise annoy other tenants in
the Building. Without limiting the foregoing, the Premises shall not be used to
manufacture goods or products (other than computer software products), for
educational activities (other than occasional training sessions for Tenant' s
customers), practice of medicine or any of the healing arts, providing social
services, for any governmental use (including embassy or consulate use), or for
personnel agency, customer service office, studios for radio, television or
other media, travel agency or reservation center operations or uses. Tenant
shall not, without the prior consent of Landlord, (i) bring into the Building or
the Premises anything that may cause substantial noise, odor or vibration,
overload the floors in the Premises or the Building or any of the heating,
ventilating and air-conditioning("HVAC"), mechanical, elevator, plumbing,
electrical, fire protection, life safety, security or other systems in the
Building ("BUILDING SYSTEMS"), or jeopardize the structural integrity of the
Building or any part thereof; (ii) connect to the utility systems of the
Building any apparatus, machinery or other equipment other than typical office
equipment; or (iii) connect to any electrical circuit in the Premises any
equipment or other load with aggregate electrical power requirements in excess
of 80% of the rated capacity of the circuit.
-8-
<PAGE>
Tenant shall honor and comply with the terms of all recorded covenants,
conditions and restrictions relating to the Property.
5.2 Hazardous Materials.
-------------------
(a) Definitions.
-----------
(1) "HAZARDOUS MATERIALS" shall mean any substance: (A) that now
or in the future is regulated or governed by, requires investigation or
remediation under, or is defined as a hazardous waste, hazardous substance,
pollutant or contaminant under any governmental statute, code, ordinance,
regulation, rule or order, and any amendment thereto, including the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
(S)9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C.
-------
(S)6901 et seq., or (13) that is toxic, explosive, corrosive, flammable,
-------
radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline,
diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos,
radon and urea formaldehyde foam insulation.
(2) "ENVIRONMENTAL REQUIREMENTS" shall mean all present and
future Laws, orders, permits, licenses, approvals, authorizations and other
requirements of any kind applicable to Hazardous Materials.
(3) "HANDLED BY TENANT" and "HANDLING BY TENANT" shall mean and
refer to any installation, handling, generation, storage, use, disposal,
discharge, release, abatement, removal, transportation, or any other activity of
any type by Tenant or its agents, employees, contractors, licensees, assignees,
sublessees, transferees or representatives (collectively, "REPRESENTATIVES") or
its guests, customers, invitees, or visitors (collectively, "VISITORS"), at or
about the Premises in connection with or involving Hazardous Materials.
(4) "ENVIRONMENTAL LOSSES" shall mean all costs and expenses of
any kind, damages, including foreseeable and unforeseeable consequential
damages, fines and penalties incurred in connection with any violation of and
compliance with Environmental Requirements and all losses of any kind
attributable to the diminution of value, loss of use or adverse effects on
marketability or use of any portion of the Premises or Property.
(b) Tenant's Covenants. No Hazardous Materials shall be Handled by
------------------
Tenant at or about the Premises or Property without Landlord's prior written
consent, which consent may be granted, denied, or conditioned upon compliance
with Landlord's requirements, all in Landlord's absolute discretion.
Notwithstanding the foregoing, normal quantities and use of those Hazardous
Materials customarily used in the conduct of general office activities, such as
copier fluids and cleaning supplies ("PERMITTED HAZARDOUS MATERIALS"), may be
used and stored at the Premises without Landlord's prior written consent,
provided that Tenant's activities at or about the Premises and Property and the
Handling by Tenant of all Hazardous Materials shall comply at all times with all
Environmental Requirements. At the expiration or termination of the Lease,
Tenant shall promptly remove from the Premises and Property all Hazardous
Materials Handled by Tenant at the Premises or the Property. Tenant shall keep
Landlord fully and promptly informed of all Handling by Tenant of Hazardous
Materials other than Permitted Hazardous Materials. Tenant shall be responsible
and liable for the compliance with all of the provisions of this Section by all
of Tenant's
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Representatives and Visitors, and all of Tenant's obligations under this Section
(including its indemnification obligations under paragraph (e) below) shall
survive the expiration or termination of this Lease.
(c) Compliance. Tenant shall at Tenant's expense promptly take all
----------
actions required by any governmental agency or entity in connection with or as a
result of the Handling by Tenant of Hazardous Materials at or about the Premises
or Property, including inspection and testing, performing all cleanup, removal
and remediation work required with respect to those Hazardous Materials,
complying with all closure requirements and post-closure monitoring, and filing
all required reports or plans. All of the foregoing work and all Handling by
Tenant of all Hazardous Materials shall be performed in a good, safe and
workmanlike manner by consultants qualified and licensed to undertake such work
and in a manner that will not interfere with any other tenant's quiet enjoyment
of the Property or Landlord's use, operation, leasing and sale of the Property.
Tenant shall deliver to Landlord prior to delivery to any governmental agency,
or promptly after receipt from any such agency, copies of all permits,
manifests, closure or remedial action plans, notices, and all other documents
relating to the Handling by Tenant of Hazardous Materials at or about the
Premises or Property. If any lien attaches to the Premises or the Property in
connection with or as a result of the Handling by Tenant of Hazardous Materials,
and Tenant does not cause the same to be released, by payment, bonding or
otherwise, within twenty (20) days after the attachment thereof, Landlord shall
have the right but not the obligation to cause the same to be released and any
sums expended by Landlord (plus Landlord's administrative costs) in connection
therewith shall be payable by Tenant on demand.
(d) Landlord's Rights. Landlord shall have the right, but not the
-----------------
obligation, to enter the Premises at any reasonable time, upon reasonable notice
(and without any notice requirement for any emergency) (i) to confirm Tenant's
compliance with the provisions of this Section 5.2, and (ii) to perform Tenant's
obligations under this Section if Tenant has failed to do so after reasonable
notice to Tenant. Landlord shall also have the right to engage qualified
Hazardous Materials consultants to inspect the Premises and review the Handling
by Tenant of Hazardous Materials, including review of all permits, reports,
plans, and other documents regarding same. Tenant shall pay to Landlord on
demand the costs of Landlord's consultants' fees and ail costs incurred by
Landlord in performing Tenant's obligations under this Section. Landlord shall
use reasonable efforts to minimize any interference with Tenant's business
caused by Landlord's entry into the Premises, but Landlord shall not be
responsible for any interference caused thereby.
(e) Tenant's Indemnification. Tenant agrees to indemnify, defend,
------------------------
protect and hold harmless Landlord and its partners or members and its or their
partners, members, directors, officers, shareholders, employees and agents from
all Environmental Losses and all other claims, actions, losses, damages,
liabilities, costs and expenses of every kind, including reachable attorneys',
experts' and consultants' fees and costs, incurred at any time and arising from
or in connection with the Handling by Tenant of Hazardous Materials at or about
the Property or Tenant's failure to comply in full with all Environmental
Requirements with respect to the Premises.
(f) Landlord's Responsibilities. Landlord shall not use any of the
---------------------------
Land or Building for any activities involving the use, generation, handling,
release, threatened release, treatment, storage, discharge, disposal or
transportation of any Hazardous Materials, except in such
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quantity or concentration that is customarily used, stored or disposed in the
ordinary course of the business so long as such activity duly complies with
applicable Laws and good business practice. If Landlord violates the foregoing
covenant resulting in an Environmental Claim (as hereinafter defined) with
respect to the Premises, then Landlord agrees to (a) notify Tenant immediately
of any such Environmental Claim and (b) clean up any contamination in full
compliance with ail applicable Laws. The costs of any Environmental Claim for
Hazardous Materials (x) existing on the Land, or included in the Building, on
the Commencement Date of this Lease, (y) caused by underground flow of Hazardous
Materials shall not be included in Operating Costs. "Environmental Claim" means
any claim, demand, action, cause of action, suit, damage, punitive damage, fine,
penalty, expense, liability, criminal liability, judgment, or governmental
investigation relating to remediation or compliance with requirements of Laws
covering Hazardous Materials. The term "Environmental Claim" also includes any
costs incurred in responding to efforts to require remediation and any claim
based upon any asserted or actual breach or violation of any requirements of any
Laws covering Hazardous Materials.
(g) Third Parties. Except as provided in the immediately preceding
-------------
subsection (f), if any third party (other than Landlord or its representatives,
any other tenant in the Project, or Tenant or its representatives) places
Hazardous Materials on the Property, then Landlord shall have the right to
include the costs of remediation and removal in Operating Costs, subject to the
provisions of Section 3.2 of this Lease.
6. TENANT IMPROVEMENTS & ALTERATIONS.
6.1 Landlord and Tenant shall perform their respective obligations with
respect to design and construction of any improvements to be constructed and
installed in the Premises (the "TENANT IMPROVEMENTS"), as provided in the
Construction Rider. Except for any Tenant Improvements to be constructed by
Tenant as provided in the Construction Rider, Tenant shall not make any
alterations, improvements or changes to the Premises, including installation of
any security system or telephone or data communication wiring, ("ALTERATIONS"),
without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. Notwithstanding any other provision contained
herein, Tenant shall not be required to obtain Landlord's prior consent for
minor, non-structural Alterations that (a) do not affect any of the Building
Systems, (b) are not visible from the exterior of the Premises, and (c) cost
less than Ten Thousand Dollars ($10,000), so long as Tenant gives Landlord
notice of the proposed Alterations at least ten (10) days prior to commencing
the Alterations and complies with all of the following provisions (except that
Tenant shall not be required to obtain Landlord's approval of any plans or
specifications therefor). Any such Alterations shall be completed by Tenant at
Tenant's sole cost and expense: (i) with due diligence, in a good and
workmanlike manner, using new materials; (ii) in compliance with plans and
specifications approved by Landlord; (iii) in compliance with reasonable
construction rules and regulations promulgated by Landlord from time to time;
(iv) in accordance with all applicable Laws (including all work, whether
structural or non-structural, inside or outside the Premises, required to comply
fully with all applicable Laws and necessitated by Tenant's work); and (v)
subject to all conditions which Landlord may in Landlord's discretion impose.
Such conditions may include requirements for Tenant to: (i) provide payment or
performance bonds or additional insurance (from Tenant or Tenant's contractors,
subcontractors or design professionals); (ii) use contractors or subcontractors
approved by Landlord, which approval shall not be unreasonably withheld, and use
contractors designated by Landlord for Alterations affecting the structure of
the Building, the
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Building Systems and the life safety systems of the Building; and (iii) remove
all or part of the Alterations prior to or upon expiration or termination of the
Term, as designated in writing by Landlord at the time Tenant requests
Landlord's consent to the Alteration. If any work outside the Premises, or any
work on or adjustment to any of the Building Systems, is required in connection
with or as a result of Tenant' s work, such work shall be performed at Tenant's
expense by contractors designated by Landlord. Landlord's right to review and
approve (or withhold approval of) Tenant's plans, drawings, specifications,
contractor(s) and other aspects of construction work proposed by Tenant is
intended solely to protect Landlord, the Property and Landlord's interests. No
approval or consent by Landlord shall be deemed or construed to be a
representation or warranty by Landlord as to the adequacy, sufficiency, fitness
or suitability thereof or compliance thereof with applicable Laws or other
requirements. Except as otherwise provided in Landlord's consent, all
Alterations shall upon installation become part of the realty and be the
property of Landlord.
6.2 Before making any Alterations, Tenant shall submit to Landlord for
Landlord's prior approval reasonably detailed final plans and specifications
prepared by a licensed architect or engineer, a copy of the construction
contract, including the name of the contractor and all subcontractors proposed
by Tenant to make the Alterations and a copy of the contractor's license. Tenant
shall reimburse Landlord upon demand for any reasonable expenses incurred by
Landlord in connection with any Alterations made by Tenant, including reasonable
fees charged by Landlord's contractors or consultants to review plans and
specifications prepared by Tenant and to update the existing as-built plans and
specifications of the Building to reflect the Alterations. Tenant shall obtain
all applicable permits, authorizations and governmental approvals and deliver
copies of the same to Landlord before commencement of any Alterations.
6.3 Tenant shall keep the Premises and the Project free and clear of all
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant. If any such lien attaches to the Premises or the Project,
and Tenant does not cause the same to be released by payment, bonding or
otherwise within twenty (20) days after the attachment thereof, Landlord shall
have the right but not the obligation to cause the same to be released, and any
sums expended by Landlord (plus Landlord's reasonable administrative costs) in
connection therewith shall be payable by Tenant on demand with interest thereon
from the date of expenditure by Landlord at the Interest Rate (as defined in
Section 16.2- Interest). Tenant shall give Landlord at least ten (10) days'
notice prior to the commencement of any Alterations and cooperate with Landlord
in posting and maintaining notices of non-responsibility in connection
therewith.
6.4 Subject to the provisions of Section 5 - Use and Compliance with Laws
and the foregoing provisions of this Section, Tenant may install and maintain
furnishings, equipment, movable partitions, business equipment and other trade
fixtures ("TRADE FIXTURES") in the Premises, provided that the Trade Fixtures do
not become an integral part of the Premises or the Building. Tenant shall
promptly repair any damage to the Premises or the Building caused by any
installation or removal of such Trade Fixtures.
7. MAINTENANCE AND REPAIRS.
7.1 By taking possession of the Premises Tenant agrees that the Premises
are then in a good and tenantable condition. Tenant shall be responsible to
clean, maintain and repair the Premises, including providing janitorial services
and disposal of trash; and to that end, during the
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Term, Tenant, at Tenant's expense but under the direction of Landlord, shall
repair and maintain the Premises, including, without limitation, any elevator,
the heating, ventilating and air conditioning system or systems serving the
Premises, the electrical and plumbing systems serving the Premises, including
the lighting and plumbing fixtures, the restrooms serving the Premises, interior
stairways in the Premises, the interior and exterior glass, plate glass
skylights, interior walls, floor coverings, ceiling (ceiling tiles and grid),
Tenant Improvements, Alterations, fire extinguishers, outlets and fixtures, and
any appliances (including dishwashers, hot water heaters and garbage disposers)
in the Premises, in a first class condition, and keep the Premises in a clean,
safe and orderly condition. Prior to the Commencement Date Tenant shall provide
Landlord with a copy of a service contract with a licensed commercial Heating,
Ventilating and Air-conditioning maintenance company (which contract and company
shall be subject to Landlord's prior approval, which shall not be unreasonably
withheld or delayed), to maintain, on an ongoing basis (at least quarterly), the
heating, ventilating and air-conditioning system serving the Premises. Prior to
the Commencement Date Landlord shall (a) re-caulk the Building, (b) repaint the
exterior of the Building, (c) repair and re-coat the roof of the Building, and
(d) cause the following systems (collectively, the "Building Systems") to be
inspected and placed in good working order and repair: (i) electrical, (ii)
plumbing, (iii) heating, ventilating and air-conditioning, and (iv) life safety
systems. If, during the thirty (30) days following the Commencement Date, any of
the Building Systems cease being in good working order and repair, and Tenant
gives Landlord written notice of such failure within such thirty (30) days
following the Commencement Date, then Landlord shall cause such Building System
to be placed in good working condition and repair, at no cost to Tenant. Except
for any repairs and maintenance which are the responsibility of Landlord
pursuant to the immediately preceding sentence, Tenant shall be responsible for
all repairs and maintenance of the Building System commencing on the thirty-
first (31st)day following the Commencement Date.
Tenant acknowledges that the sewer piping at the Development is made of ABS
plastic. Accordingly, without Landlord's prior written consent, which consent
may be granted or withheld in Landlord's sole discretion, Tenant shall allow
only ordinary domestic sewage to be placed in the sewer system from the
Premises. UNDER NO CIRCUMSTANCES SHALL TENANT EVER PLACE, OR ALLOW TO BE PLACED,
ANY ESTERS OR KETONES (USUALLY FOUND IN SOLVENTS TO CLEAN UP PETROLEUM PRODUCTS)
IN THE DRAINS OR SEWER SYSTEM, FROM THE PREMISES.
7.2 Landlord shall (a) maintain or cause to be maintained in reasonably
good order, condition and repair, the structural portions of the roof,
foundations, floors and exterior walls of the Building, and the public and
common areas outside of the Building, (b) that portion of the electrical, water
and sanitary sewer systems serving the Building and located outside the
Building, (c) wash the exterior windows of the Building on a periodic basis, (d)
caulk exterior window joints and concrete slabs and (e) paint the exterior of
the Building, all of which shall be included as a part of Operating Costs,
subject to the terms and conditions contained in Section 3.2 of this Lease;
provided, however, if any maintenance or repair of electrical, water and
sanitary sewer systems outside the Building is caused by Tenant's misuse of such
system, the costs of such maintenance and repair shall not constitute a capital
expenditure for the purposes of Section 3.2 of this Lease. Landlord shall be
under no obligation to inspect the Premises. Tenant shall promptly report in
writing to Landlord any defective condition known to Tenant which Landlord is
required to repair. As a material part of the consideration for this Lease,
Tenant hereby waives any benefits of any
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<PAGE>
applicable existing or future Law, including the provisions of California Civil
Code Sections 1932(1), 1941 and 1942, that allows a tenant to make repairs at
its landlord's expense.
7.3 Landlord hereby reserves the right, at any time and from time to time,
without liability to Tenant, and without constituting an eviction, constructive
or otherwise, or entitling Tenant to any abatement of rent or to terminate this
Lease or otherwise releasing Tenant from any of Tenant's obligations under this
Lease :
(a) To make alterations, additions, repairs, improvements to or in or
to decrease the size of area of, all or any part of the Building, the fixtures
and equipment therein, and the Building Systems (except that Landlord shall not
have any right under this provision to materially reduce the size of the
Building, or permanently, materially and adversely affect Tenant's access to and
use of the Premises, except only as may be required to comply with Laws or as a
result of any fire or other casualty, or Condemnation);
(b) To change the Building's name or street address;
(c) To install and maintain any and all signs on the exterior and
interior of the Building;
(d) To reduce, increase, enclose or otherwise change at any time and
from time to time the size, number, location, lay-out and nature of the common
areas (including the Parking Facility) and other tenancies and premises in the
Property and to create additional rentable areas through use or enclosure of
common areas; and
(e) If any governmental authority promulgates or revises any Law or
imposes mandatory or voluntary controls or guidelines on Landlord or the
Property relating to the use or conservation of energy or utilities or the
reduction of automobile or other emissions or reduction or management of traffic
or parking on the Property (collectively "CONTROLS"), to comply with such
Controls, whether mandatory or voluntary, or make any alterations to the
Property related thereto.
(f) In exercising its rights under this Section 7.3, Landlord agrees
to use reasonable efforts to minimize any interruption to or disruption of
Tenant's use of the Premises.
8. TENANT'S TAXES. "TENANT'S TAXES" shall mean (a) all taxes, assessments,
license fees and other governmental charges or impositions levied or assessed
against or with respect to Tenant's personal property or Trade Fixtures in the
Premises, whether any such imposition is levied directly against Tenant or
levied against Landlord or the Property, (b) all rental, excise, sales or
transaction privilege taxes arising out of this Lease (excluding, however, state
and federal personal or corporate income taxes measured by the income of
Landlord from all sources) imposed by any taxing authority upon Landlord or upon
Landlord's receipt of any rent payable by Tenant pursuant to the terms of this
Lease ("RENTAL TAX"), and (c) any increase in Taxes attributable to inclusion of
a value placed on Tenant's personal property, Trade Fixtures or Alterations.
Tenant shall pay any Rental Tax to Landlord in addition to and at the same time
as Base Rent is payable under this Lease, and shall pay all other Tenant's Taxes
before delinquency (and, at Landlord's request, shall furnish Landlord
satisfactory evidence thereof). If Landlord pays Tenant's Taxes or any portion
thereof, Tenant shall reimburse Landlord upon demand for the amount of such
payment, together with
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interest at the Interest Rate from the date of Landlord's payment to the date of
Tenant's reimbursement.
9. UTILITIES.
9.1 Payment for Utilities and Services.
----------------------------------
(a) If the temperature otherwise maintained in any portion of the
Premises by the I-IVAC systems of the Building is affected as a result of any
lights, machines or equipment used by Tenant in the Premises, then Landlord
shall have the right to install any machinery or equipment reasonably necessary
to restore the temperature, including modifications to the standard air-
conditioning equipment. The cost of any such equipment and modifications,
including the cost of installation and any additional cost of operation and
maintenance of the same, shall be paid by Tenant to Landlord upon demand.
(b) Electricity, water, sanitary sewer and any gas will be separately
metered for the Premises. Tenant shall pay prior to delinquency all charges for
water, gas, electricity, telephone and other telecommunication services,
janitorial service, trash pick-up, sewer and all other services consumed on or
supplied to the Premises, and all taxes, levies, fees and surcharges thereon.
9.2 Interruption of Services. In the event of an interruption in or
------------------------
failure or inability to provide any services or utilities to the Premises or
Building for any reason (a "SERVICE FAILURE"), such Service Failure shall not,
regardless of its duration, impose upon Landlord any liability whatsoever,
constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to
an abatement of rent or to terminate this Lease or otherwise release Tenant from
any of Tenant's obligations under this Lease. Tenant hereby waives any benefits
of any applicable existing or future Law, including the provisions of California
Civil Code Section 1932(1 ), permitting the termination of this Lease due to
such interruption, failure or inability.
10. EXCULPATION AND INDEMNIFICATION.
10.1 Landlord's Indemnification of Tenant. Landlord shall indemnify,
------------------------------------
protect, defend and hold Tenant harmless from and against any claims, actions,
liabilities, damages, costs or expenses, including reasonable attorneys' fees
and costs incurred in defending against the same ("CLAIMS") asserted by any
third party against Tenant for loss, injury or damage, to the extent such loss,
injury or damage is caused by the willful misconduct or negligent acts or
omissions of Landlord or its authorized representatives.
10.2 Tenant's Indemnification of Landlord. Tenant shall indemnify,
------------------------------------
protect, defend and hold Landlord and Landlord's authorized representatives
harmless from and against Claims arising from (a) the acts or omissions of
Tenant or Tenant's Representatives or Visitors in or about the Property, or (b)
any construction or other work undertaken by Tenant on the Premises (including
any design defects), or (c) any breach or default under this Lease by Tenant, or
(d) any loss, injury or damage, howsoever and by whomsoever caused, to any
person or property, occurring in or about the Premises during the Term,
excepting only Claims described in this clause (d) to the extent they are caused
by the willful misconduct or negligent acts or omissions of Landlord or its
authorized representatives.
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10.3 Damage to Tenant and Tenant's Property. Landlord shall not be liable
--------------------------------------
to Tenant for any loss, injury or other damage to Tenant or to Tenant's property
in or about the Premises or the Property from any cause (including defects in
the Property or in any equipment in the Property; fire, explosion or other
casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes
or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above,
or about the Premises or the Property; or acts of other tenants in the
Property). Tenant hereby waives all claims against Landlord for any such loss,
injury or damage and the cost and expense of defending against claims relating
thereto, including any loss, injury or damage caused by Landlord's negligence
(active or passive) or willful misconduct. Notwithstanding any other provision
of this Lease to the contrary, in no event shall Landlord or Tenant be liable to
the other party for any punitive or consequential damages or damages for loss of
business by Tenant or Landlord except for any liability which Tenant might have
for holding over in the Premises beyond the expiration of the Term in accordance
with the provisions of Section 19.2 of this Lease.
10.4 Survival. The obligations of the parties under this Section 10 shall
--------
survive the expiration or termination of this Lease.
11. INSURANCE.
11.1 Tenant's Insurance.
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(a) Liability Insurance. Tenant shall maintain in full force
-------------------
throughout the Term, commercial general liability insurance providing coverage
on an occurrence form basis with limits of not less than Two Million Dollars
($2,000,000.00)each occurrence for bodily injury and property damage combined,
Two Million Dollars ($2,000,000.00) annual general aggregate, and Two Million
Dollars ($2,000,000.00) products and completed operations annual aggregate.
Tenant's liability insurance policy or policies shall: (i) include premises and
operations liability coverage, products and completed operations liability
coverage, broad form property damage coverage including completed operations,
blanket contractual liability coverage including, to the maximum extent
possible, coverage for the indemnification obligations of Tenant under this
Lease, and personal and advertising injury coverage; (ii) provide that the
insurance company has the duty to defend all insureds under the policy; (iii)
provide that defense costs are paid in addition to and do not deplete any of the
policy limits; (iv) cover liabilities arising out of or incurred in connection
with Tenant's use or occupancy of the Premises or the Property; (v) extend
coverage to cover liability for the actions of Tenant's Representatives and
Visitors; and (iv) designate separate limits for the Property. Each policy of
liability insurance required by this Section shall: (i) contain a cross
liability endorsement or separation of insureds clause; (ii) provide that any
waiver of subrogation rights or release prior to a loss does not void coverage;
(iii) provide that it is primary to and not contributing with, any policy of
insurance carried by Landlord covering the same loss; (iv) provide that any
failure to comply with the reporting provisions shall not affect coverage
provided to Landlord, its partners, property managers and Mortgagees; and (v)
name Landlord, its partners, the Property Manager identified in the Basic Lease
Information (the "PROPERTY MANAGER"), and such other parties in interest as
Landlord may from time to time reasonably designate to Tenant in writing, as
additional insureds. Such additional insureds shall be provided at least the
same extent of coverage as is provided to Tenant under such policies. All
endorsements effecting such additional insured status shall be at least as broad
as additional insured endorsement form number CG 20 11 11 85 promulgated by the
Insurance Services Office.
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(b) Property Insurance. Tenant shall at all times maintain in
------------------
effect with respect to any Alterations and Tenant's Trade Fixtures and personal
property, commercial property insurance providing coverage, on an "all risk" or
"special form" basis, in an amount equal to at least 90% of the full replacement
cost of the covered property. Tenant may carry such insurance under a blanket
policy, provided that such policy provides coverage equivalent to a separate
policy. During the Term, the proceeds from any such policies of insurance shall
be used for the repair or replacement of the Alterations, Trade Fixtures and
personal property so insured. Landlord shall be provided coverage under such
insurance to the extent of its insurable interest and, if requested by Landlord,
both Landlord and Tenant shall sign all documents reasonably necessary or proper
in connection with the settlement of any claim or loss under such insurance.
Landlord will have no obligation to carry insurance on any Alterations or on
Tenant's Trade Fixtures or personal property.
(c) Requirements For All Policies. Each policy of insurance
-----------------------------
required under this Section 11.1 shall: (i) be in a form, and written by an
insurer, reasonably acceptable to Landlord, (ii) be maintained at Tenant's sole
cost and expense, and (iii) require at least thirty (30) days' written notice to
Landlord prior to any cancellation, nonrenewal or modification of insurance
coverage. Insurance companies issuing such policies shall have rating
classifications of "A" or better and financial size category ratings of "VU" or
better according to the latest edition of the A.M. Best Key Rating Guide. All
insurance companies issuing such policies shall be admitted carders licensed to
do business in the state where the Property is located. Any deductible amount
under such insurance shall not exceed $5,000. Tenant shall provide to Landlord,
upon request, evidence that the insurance required to be carried by Tenant
pursuant to this Section, including any endorsement effecting the additional
insured status, is in full force and effect and that premiums therefor have been
paid.
(d) Updating Coverage. Tenant shall increase the amounts of
-----------------
insurance as required by any Mortgagee, and, not more frequently than once every
three (3) years, as recommended by Landlord's insurance broker, if, in the
reasonable opinion of either of them, the amount of insurance then required
under this Lease is not adequate.
(e) Certificates of Insurance. Prior to occupancy of the Premises
-------------------------
by and not less than thirty (30) days prior to expiration of any policy Tenant,
thereafter, Tenant shall furnish to Landlord a certificate of insurance
reflecting that the insurance required by this Section is in force, accompanied
by an endorsement showing the required additional insureds satisfactory to
Landlord in substance and form. Notwithstanding the requirements of this
paragraph, Tenant shall at Landlord's request provide to Landlord a certified
copy of each insurance policy required to be in force at any time pursuant to
the requirements of this Lease or its Exhibits.
11.2 Landlord's Insurance. During the Term, to the extent such coverages
--------------------
axe available at a commercially reasonable cost, Landlord shall maintain in
effect insurance on the Building with responsible insurers, on an "all risk" or
"special form" basis, insuring the Building and the Tenant Improvements in an
amount equal to at least 90% of the replacement cost thereof, excluding land,
foundations, footings and underground installations. Landlord may, but shall not
be obligated to, carry insurance against additional perils and/or in greater
amounts. Landlord shall maintain in full force throughout the Term, commercial
general liability insurance providing coverage with limits of not less than Two
Million Dollars ($2,000,000.00)each occurrence for bodily injury and property
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damage combined covering the Property (the cost of the premiums for which shall
be included in Operating Costs).
11.3 Mutual Waiver of Right of Recovery & Waiver of Subrogation. Landlord
----------------------------------------------------------
and Tenant each hereby waive any right of recovery against each other and the
partners, managers, members, shareholders, officers, directors and authorized
representatives of each other for any loss or damage that is covered by any
policy of property insurance maintained by either party (or required by this
Lease to be maintained) with respect to the Premises or the Property or any
operation therein, regardless of cause, including negligence (active or passive)
of the party benefiting from the waiver. If any such policy of insurance
relating to this Lease or to the Premises or the Property does not permit the
foregoing waiver or if the coverage under any such policy would be invalidated
as a result of such waiver, the party maintaining such policy shall obtain from
the insurer under such policy a waiver of all right of recovery by way of
subrogation against either party in connection with any claim, loss or damage
covered by such policy.
12. DAMAGE OR DESTRUCTION.
12.1 Landlord's Duty to Repair.
(a) If all or a substantial part of the Premises are rendered
untenantable or inaccessible by damage to all or any pan of the Property from
fire or other casualty then, unless either party is entitled to and elects to
terminate this Lease pursuant to Sections 12.2 - Landlord's Right to Terminate
and 12.3 - Tenant's Right to Terminate, Landlord shall, at its expense, use
reasonable efforts to repair and restore the Premises and/or the Property, as
the case may be, to substantially their former condition to the extent permitted
by then applicable Laws; provided, however, in no event shall Landlord have any
obligation for repair or restoration: (i) beyond the extent of the sum of(x) the
insurance proceeds received by Landlord for such repair or restoration plus (y)
$10,000, or (ii) for any of Tenant's personal property, Trade Fixtures or
Alterations.
(b) If Landlord is required or elects to repair damage to the Premises
and/or the Property, this Lease shall continue in effect, but Tenant's Base Rent
and Additional Rent shall be abated with regard to any portion of the Premises
that Tenant is prevented from using by reason of such damage or its repair from
the date of the casualty until substantial completion of Landlord's repair of
the affected portion of the Premises as required under this Lease. In no event
shall Landlord be liable to Tenant by reason of any injury to or interference
with Tenant's business or property arising from fire or other casualty or by
reason of any repairs to any part of the Property necessitated by such casualty.
12.2 Landlord's Right to Terminate. Landlord may elect to terminate this
-----------------------------
Lease following damage by fire or other casualty under the following
circumstances:
(a) If, in the reasonable judgment of Landlord, the Premises and the
Property cannot be substantially repaired and restored under applicable Laws
within one (1) year from the date of the casualty;
(b) If, in the reasonable judgment of Landlord, adequate proceeds are
not, for any reason (except for Landlord's failure to maintain the insurance
coverage required to be maintained by Landlord under this Lease), made available
to Landlord from Landlord's insurance policies
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(and/or from Landlord's funds made available for such purpose, at Landlord's
sole option) to make the required repairs;
(c) If the Building is damaged or destroyed to the extent that, in the
reasonable judgment of Landlord, the cost to repair and restore the Building
would exceed twenty-five percent (25%) of the full replacement cost of the
Building, whether or not the Premises are at all damaged or destroyed; or
(d) If the fire or other casualty occurs during the last year of the
Term. If any of the circumstances described in subparagraphs(a), (b), (c) or (d)
of this Section 12.2 occur or arise, Landlord shall give Tenant notice within
one hundred and twenty (120) days after the date of the casualty, specifying
whether Landlord elects to terminate this Lease as provided above and, if not,
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease.
12.3 Tenant's Right to Terminate. If all or a substantial part of the
----------------------------
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Property from fire or other casualty, and Landlord does not elect to
terminate as provided above, then Tenant may elect to terminate this Lease if
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease is greater than one (1) year, in which event Tenant
may elect to terminate this Lease by giving Landlord notice of such election to
terminate within thirty (30) days after Landlord's notice to Tenant pursuant to
Section 12.2 - Landlord's Right to Terminate.
12.4 Waiver. Landlord and Tenant each hereby waive the provisions of
------
California Civil Code Sections 1932(2), 1933(4) and any other applicable
existing or future Law permitting the termination of a lease agreement in the
event of damage or destruction under any circumstances other than as provided in
Sections 12.2 - Landlord's Right to Terminate and 12.3 - Tenant's Right to
Terminate.
13. CONDEMNATION.
13.1 Definitions.
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(a) "AWARD" shall mean all compensation, sums, or anything of value
awarded, paid or received on a total or partial Condemnation.
(b) "CONDEMNATION" shall mean (i) a permanent taking (or a temporary
taking for a period extending beyond the end of the Term) pursuant to the
exercise of the power of condemnation or eminent domain by any public or quasi-
public authority, private corporation or individual having such power
("CONDEMNOR"), whether by legal proceedings or otherwise, or (ii) a voluntary
sale or transfer by Landlord to any such authority, either under threat of
condemnation or while legal proceedings for condemnation are pending.
(c) "DATE OF CONDEMNATION" shall mean the earlier of the date that
title to the property taken is vested in the Condemnor or the date the Condemnor
has the right to possession of the property being condemned.
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13.2 Effect on Lease.
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(a) If more than one-third (1/3) of the Premises is taken by
Condemnation, this Lease shall terminate as of the Date of Condemnation. If one-
third (1/3) or less of the Premises is taken by Condemnation, this Lease shall
remain in effect; provided, however, that if the portion of the Premises
remaining after the Condemnation will be unsuitable for Tenant's continued use,
then upon notice to Landlord within thirty (30) days after Landlord notifies
Tenant of the Condemnation, Tenant may terminate this Lease effective as of the
Date of Condemnation.
(b) If twenty-five percent (25%) or more of the Project or of the
parcel(s) of land on which the Building is situated or of the Parking Facility
or of the floor area in the Building is taken by Condemnation, or if as a result
of any Condemnation the Building is no longer reasonably suitable for use as an
office building, whether or not any portion of the Premises is taken, Landlord
may elect to terminate this Lease, effective as of the Date of Condemnation, by
notice to Tenant within thirty (30) days after the Date of Condemnation.
(c) If all or a portion of the Premises is temporarily taken by a
Condemnor for a period not extending beyond the end of the Term, this Lease
shall remain in full force and effect.
13.3 Restoration. If this Lease is not terminated as provided in Section
-----------
13.2- Effect on Lease, Landlord, at its expense, shall diligently proceed to
repair and restore the Premises to substantially its former condition (to the
extent permitted by then applicable Laws) and/or repair and restore the Building
to an architecturally complete office building; provided, however, that
Landlord's obligations to so repair and restore shall be limited to the amount
of any Award received by Landlord and not required to be paid to any Mortgagee
(as defined in Section 20.2 below). In no event shall Landlord have any
obligation to repair or replace any improvements in the Premises beyond the
amount of any Award received by Landlord for such repair or to repair or replace
any of Tenant's personal property, Trade Fixtures, or Alterations.
13.4 Abatement and Reduction of Rent. If any portion of the Premises is
-------------------------------
taken in a Condemnation or is rendered permanently untenantable by repairs
necessitated by the Condemnation, and this Lease is not terminated, the Base
Rent and Additional Rent payable under this Lease shall be proportionally
reduced as of the Date of Condemnation based upon the percentage of rentable
square feet in the Premises so taken or rendered permanently untenantable. In
addition, if this Lease remains in effect following a Condemnation and Landlord
proceeds to repair and restore the Premises, the Base Rent and Additional Rent
payable under this Lease shall be abated during the period of such repair or
restoration to the extent such repairs prevent Tenant's use of the Premises.
13.5 Awards. Any Award made shall be paid to Landlord, and Tenant hereby
------
assigns to Landlord, and waives all interest in or claim to, any such Award,
including any claim for the value of the unexpired Term; provided, however, that
Tenant shall be entitled to receive, or to prosecute a separate claim for, an
Award for a temporary taking of the Premises or a portion thereof by a Condemnor
where this Lease is not terminated (to the extent such Award relates to the
unexpired Term), or an Award or portion thereof separately designated for
relocation and moving expenses or the interruption of or damage to Tenant's
business or as compensation for Tenant's personal property, Trade Fixtures or
Alterations.
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13.6 Waiver. Landlord and Tenant each hereby waive the provisions of
------
California Code of Civil Procedure Section 1265.130 and any other applicable
existing or future Law allowing either party to petition for a termination of
this Lease upon a partial taking of the Premises and/or the Property.
14. ASSIGNMENT AND SUBLETTING.
14.1 Landlord's Consent Required. Tenant shall not assign this Lease or
---------------------------
any interest therein, or sublet or license or permit the use or occupancy of the
Premises or any pan thereof by or for the benefit of anyone other than Tenant,
or in any other manner transfer all or any pan of Tenant's interest under this
Lease (each and all a "TRANSFER"), without the prior written consent of
Landlord, which consent (subject to the other provisions of this Section 14)
shall not be unreasonably withheld. If Tenant is a business entity, any direct
or indirect transfer of fifty percent (50%) or more of the ownership interest of
the entity (whether in a single transaction or in the aggregate through more
than one transaction) shall be deemed a Transfer. A public offering of Tenant's
stock shall not constitute a Transfer under the provisions of this Lease.
Notwithstanding any provision in this Lease to the contrary, Tenant shall not
mortgage, pledge, hypothecate or otherwise encumber this Lease or all or any pan
of Tenant's interest under this Lease.
14.2 Reasonable Consent.
------------------
(a) Prior to any proposed Transfer, Tenant shall submit in writing to
Landlord (i) the name and legal composition of the proposed assignee, subtenant,
user or other transferee (each a "PROPOSED TRANSFEREE"); (ii) the nature of the
business proposed to be carried on in the Premises; (iii) a current balance
sheet, income statements for the last two years and such other reasonable
financial and other information concerning the Proposed Transferee as Landlord
may request; and (iv) a copy of the proposed assignment, sublease or other
agreement governing the proposed Transfer. Within fifteen (15) Business Days
after Landlord receives all such information it shall notify Tenant whether it
approves or disapproves such Transfer or if it elects to proceed under Section
14.7 - Landlord's Right to Space.
(b) Tenant acknowledges and agrees that, among other circumstances for
which Landlord could reasonably withhold consent to a proposed Transfer, it
shall be reasonable for Landlord to withhold consent where (i) the Proposed
Transferee does not intend itself to occupy the entire portion of the Premises
assigned or sublet, (ii) Landlord reasonably disapproves of the Proposed
Transferee's business operating ability or history, reputation or
creditworthiness or the nature or character of the business to be conducted by
the Proposed Transferee at the Premises, (iii) the Proposed Transferee is a
governmental agency or unit or an existing tenant in the Project, unless, in the
case of an existing tenant, Landlord does not have space available for lease
containing the same or more square feet as is contained in the Premises to
accommodate the existing tenant's expansion or renewal in the Project, (iv) the
proposed Transfer would violate any "exclusive" rights of any tenants in the
Project, (v) Landlord or Landlord's agent has shown space in the Project to the
Proposed Transferee or responded to any inquiries from the Proposed Transferee
or the Proposed Transferee's agent concerning availability of space in the
Project, at any time within the preceding six months, or (vi) Landlord otherwise
determines that the proposed Transfer would have the effect of materially
decreasing the financial value of the Project or increasing the expenses
associated with operating, maintaining and repairing the Project. In no event
may Tenant publicly advertise all or
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any portion of the Premises for assignment or sublease at a rental less than
that then sought by Landlord for a direct lease (non-sublease)of comparable
space in the Project. Notwithstanding the foregoing, Tenant may employ a broker
who advertises on a commercial multiple listing service in order to offer the
Premises for assignment or sublease.
14.3 Excess Consideration. If Landlord consents to the Transfer, Landlord
--------------------
shall be entitled to receive as Additional Rent hereunder, fifty percent (50%)
of all "Sublease Profits" (as defined below). "Sublease Profits" shall mean any
consideration paid by the Transferee for the assignment or sublease and, in the
case of a sublease, the excess of the rent and other consideration payable by
the subtenant over the amount of Base Rent and Additional Rent payable hereunder
applicable to the subleased space, less any and all direct, out-of-pocket
expenses and cash concessions, including costs for necessary Alterations,
attorneys' fees (not to exceed One Thousand and 00/100 Dollars [$1,000.00] in
attorneys' fees) and brokerage commission, paid by Tenant to procure the
assignee or subtenant. Tenant shall pay to Landlord as additional rent, within
twenty (20) days after receipt by Tenant, any such excess consideration paid by
any transferee (the "TRANSFEREE") for the Transfer provided any capital
expenditures and brokerage commissions in connection with any sublease shall be
amortized over the term of the sublease.
14.4 No Release Of Tenant. No consent by Landlord to any Transfer shall
--------------------
relieve Tenant of any obligation to be performed by Tenant under this Lease,
whether occurring before or after such consent, assignment, subletting or other
Transfer. Each Transferee shall be jointly and severally liable with Tenant (and
Tenant shall be jointly and severally liable with each Transferee) for the
payment of rent (or, in the case of a sublease, rent in the amount set forth in
the sublease) and for the performance of all other terms and provisions of this
Lease. The consent by Landlord to any Transfer shall not relieve Tenant or any
such Transferee from the obligation to obtain Landlord' s express prior written
consent to any subsequent Transfer by Tenant or any Transferee. The acceptance
of rent by Landlord from any other person (whether or not such person is an
occupant of the Premises) shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any Transfer.
14.5 Expenses and Attorneys' Fees. Tenant shall pay to Landlord on demand
----------------------------
all costs and expenses (including reasonable attorneys' fees not to exceed One
Thousand and 00/100 Dollars [$1,000.00] for each request for Landlord's consent
to a proposed Transfer) incurred by Landlord in connection with reviewing or
consenting to any proposed Transfer (including any request for consent to, or
any waiver of Landlord's rights in connection with, any security interest in any
of Tenant's property at the Premises).
14.6 Effectiveness of Transfer. Prior to the date on which any permitted
-------------------------
Transfer (whether or not requiring Landlord's consent) becomes effective, Tenant
shall deliver to Landlord a counterpart of the fully executed Transfer document
and Landlord's standard form of Consent to Assignment or Consent to Sublease
executed by Tenant and the Transferee in which each of Tenant and the Transferee
confirms its obligations pursuant to this Lease. Failure or refusal of a
Transferee to execute any such instrument shall not release or discharge the
Transferee from liability as provided herein. The voluntary, involuntary or
other surrender of this Lease by Tenant, or a mutual cancellation by Landlord
and Tenant, shall not work a merger, and any such surrender or cancellation
shall, at the option of Landlord, either terminate all or any existing subleases
or operate as an assignment to Landlord of any or all of such subleases.
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14.7 Landlord's Right to Space. Notwithstanding any of the above
-------------------------
provisions of this Section to the contrary, if Tenant notifies Landlord that it
desires to enter into a Transfer, Landlord, in lieu of consenting to such
Transfer, may elect (x) in the case of an assignment or a sublease of the entire
Premises, to terminate this Lease, or (y) in the case of a sublease of less than
the entire Premises, to terminate this Lease as it relates to the space proposed
to be subleased by Tenant. In such event, this Lease will terminate (or the
space proposed to be subleased will be removed from the Premises subject to this
Lease and the Base Rent and Tenant's Share under this Lease shall be
proportionately reduced) on the date the Transfer was proposed to be effective,
and Landlord may lease such space to any party, including the prospective
Transferee identified by Tenant. Landlord acknowledges that within twelve (12)
months following the Commencement Date Tenant intends to sublease up to 15,000
rentable square feet on the ground floor of the Premises, and, notwithstanding
the provisions of this Section 14.7 to the contrary, Landlord shall not have the
right to terminate this Lease as it relates to Tenant subleasing up to 15,000
rentable square feet on the ground floor of the Premises during the initial
twelve (12) months following the Commencement Date. Notwithstanding the
provisions of this Section 14.7 to the contrary, if(i) Tenant proposes to assign
this Lease, or to sublease all or a portion of the Premises, and (ii) Landlord
notifies Tenant that Landlord elects to terminate this Lease due to such
proposed assignment, or Landlord elects to terminate this Lease with respect to
the space Tenant proposes to sublease, then Tenant shall have the right to
rescind any such termination by Landlord by giving Landlord written notice
("Tenant's Rescission Notice") only within five (5) Business Days following
Landlord's written notice of termination pursuant to the provisions of this
Section 14.7. Upon Tenant giving Tenant' s Rescission Notice, (iii) this Lease
shall remain in full force and effect in accordance with the provisions
contained herein, and (iv) Tenant shall be deemed to have withdrawn the request
for consent to a Transfer, and the proposed Transfer which was the basis for
Landlord's termination under the provisions of this Section 14.7 shall be void,
and of no force and effect.
14.8 Assignment of Sublease Rents. Tenant hereby absolutely and
----------------------------
irrevocably assigns to Landlord any and all rights to receive rent and other
consideration from any sublease and agrees that Landlord, as assignee or as
attorney-in-fact for Tenant solely for purposes of collecting rent and other
consideration from any sublessee, or a receiver for Tenant appointed on
Landlord's application may (but shall not be obligated to) collect such rents
and other consideration and apply the same toward Tenant's obligations to
Landlord under this Lease; provided, however, that Landlord grants to Tenant at
all times prior to occurrence of any breach or default by Tenant a revocable
license to collect such rents (which license shall automatically and without
notice be and be deemed to have been revoked and terminated immediately upon any
Event of Default).
14.9 Transfer to Affiliate. Notwithstanding any provision contained in the
---------------------
Section 14 to the contrary, Tenant shall have the right, without the consent of
Landlord, upon ten (10) days prior written notice to Landlord, to transfer
Tenant's interest in this Lease to an "Affiliate" of Tenant, and the provisions
of Sections 14.2, 14.3 and 14.7 shall not apply with respect to the transfer to
the Affiliate, but the transfer to the Affiliate shall be subject to all other
terms and conditions of this Lease, including the provisions of this Section
14.9. Tenant shall remain liable under this Lease after any such transfer. For
the purposes of this Article 14, the term "Affiliate" of Tenant shall mean and
refer to any entity controlling, controlled by or under common control with
Tenant or Tenant's parent, as the case may be, or any corporation or other
entity resulting from a merger or consolidation with Tenant, or to any person or
entity which acquires at least ninety percent (90%) of all the assets of Tenant
as a going concern. "Control" as used herein shall mean the possession,
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direct or indirect, of the power to direct or cause the direction of the
management and policies of such controlled entity; and the ownership, or
possession of the right to vote, in the ordinary direction of its affairs, of at
least rift3' percent (50%) of the voting interest in any entity. Notwithstanding
Tenant's right to Transfer to an Affiliate pursuant to the provisions of this
Section 14.9, Tenant may not, through use of its rights under this Article 14 in
two or more transactions (whether separate transactions or steps or phases of a
single transaction), at one time or over time, whether by first assigning this
Lease to a subsidiary and then merging the subsidiary into another entity or
selling the stock of the subsidiary or by other means, assign or sublease the
Premises, or transfer control of Tenant, to any person or entity which is not a
subsidiary, affiliate or controlling corporation of the original Tenant, as then
constituted, existing prior to the commencement of such transactions, without
first obtaining Landlord's prior written consent pursuant to the provisions of
Section 14.2.
15. DEFAULT AND REMEDIES.
15.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an "EVENT OF DEFAULT" by Tenant:
(a) Tenant fails to make any payment of rent when due, or any amount
required to replenish the security deposit as provided in Section 4 above, if
payment in full is not received by Landlord within three (3) days after written
notice that it is due.
(b) Tenant abandons the Premises, together with Tenant' s failure to
pay Rent when due.
(c) Tenant fails timely to deliver any subordination document,
estoppel certificate or financial statement requested by Landlord within the
applicable time period specified in Sections 20 - Encumbrances - and 21 -
Estoppel Certificates and Financial Statements- below.
(d) Tenant violates the restrictions on Transfer set forth in Section
14 -Assignment and Subletting.
(e) Tenant ceases doing business as a going concern; makes an
assignment for the benefit of creditors; is adjudicated an insolvent, files a
petition (or files an answer admitting the material allegations of a petition)
seeking relief under any under any state or federal bankruptcy or other statute,
law or regulation affecting creditors' rights; all or substantially all of
Tenant's assets are subject to judicial seizure or attachment and are not
released within 60 days, or Tenant consents to or acquiesces in the appointment
of a trustee, receiver or liquidator for Tenant or for all or any substantial
part of Tenant's assets.
(f) Tenant fails, within ninety (90) days after the commencement of
any proceedings against Tenant seeking relief under any state or federal
bankruptcy or other statute, law or regulation affecting creditors' rights, to
have such proceedings dismissed, or Tenant fails, within ninety (90) days after
an appointment, without Tenant's consent or acquiescence, of any trustee,
receiver or liquidator for Tenant or for all or any substantial part of Tenant's
assets, to have such appointment vacated.
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(g) Tenant fails to perform or comply with any provision of this Lease
other than those described in (a) through (f) above, and does not fully cure
such failure within thirty (30) days after notice to Tenant or, if such failure
cannot be cured within such thirty (30)-day period, Tenant fails within such
thirty (30)-day period to commence, and thereafter diligently proceed with, all
actions necessary to cure such failure as soon as reasonably possible but in all
events within one hundred twenty (120) days of such notice; provided, however,
that if Landlord in Landlord's reasonable judgment determines that such failure
will not be cured by Tenant within such one hundred twenty (120) days, then such
failure shall constitute an Event of Default immediately upon such notice to
Tenant.
15.2 Remedies. Upon the occurrence of an Event of Default, Landlord shall
--------
have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:
(a) Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord, including re-entry into the Premises, efforts to relet the Premises,
reletting of the Premises for Tenant's account, storage of Tenant's personal
property and Trade Fixtures, acceptance of keys to the Premises from Tenant or
exercise of any other rights and remedies under this Section, shall constitute
an acceptance of Tenant's surrender of the Premises or constitute a termination
of this Lease or of Tenant's right to possession of the Premises. Upon such
termination in writing of Tenant's right to possession of the Premises, as
herein provided, this Lease shall terminate and Landlord shall be entitled to
recover damages from Tenant as provided in California Civil Code Section 1951.2
and any other applicable existing or future Law providing for recovery of
damages for such breach, including the worth at the time of award of the amount
by which the rent which would be payable by Tenant hereunder for the remainder
of the Term after the date of the award of damages, including Additional Rent as
reasonably estimated by Landlord, exceeds the amount of such rental loss as
Tenant proves could have been reasonably avoided, discounted at the discount
rate published by the Federal Reserve Bank of San Francisco for member banks at
the time of the award plus one percent (1%).
(b) Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations).
(c) Landlord may cure the Event of Default at Tenant's expense. If
Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the amount of such payment or
expense with interest at the Interest Rate from the date the sum is paid or the
expense is incurred until Landlord is reimbursed by Tenant.
(d) Landlord may remove ail Tenant's property from the Premises, and
such property may be stored by Landlord in a public warehouse or elsewhere at
the sole cost and for the account of Tenant. If Landlord does not elect to store
any or all of Tenant's property left in the Premises, Landlord may consider such
property to be abandoned by Tenant, and Landlord may thereupon dispose of such
property in any manner deemed appropriate by Landlord. Any proceeds realized by
Landlord on the disposal of any such property shall be applied first to offset
all expenses
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of storage and sale, then credited against Tenant's outstanding obligations to
Landlord under this Lease, and any balance remaining after satisfaction of all
obligations of Tenant under this Lease shall be delivered to Tenant
16. LATE CHARGE AND INTEREST.
16.1 Late Charge. If any payment of rent is not received by Landlord
-----------
within five (5) days after written notice from Landlord to Tenant that the
payment is past due, Tenant shall pay to Landlord on demand as a late charge an
additional amount equal to four percent (4%) of the overdue payment; provided,
however, if Landlord has given Tenant written notice two (2) or more times in
any consecutive twelve (12) month period that a payment of rent is past due,
then Tenant shall pay to Landlord on demand commencing with the third (3rd) past
due payment in any twelve (12) month period, and continuing with each past due
payment thereafter in such twelve (12) month period, as a late charge an
additional amount equal to four percent (4%) of the overdue payment without any
requirement of additional notice that such payment is past due. A late charge
shall not be imposed more than once on any particular installment not paid when
due, but imposition of a late charge on any payment not made when due does not
eliminate or supersede late charges imposed on other (prior) payments not made
when due or preclude imposition of a late charge on other installments or
payments not made when due.
16.2 Interest. In addition to the late charges referred to above, which
--------
are intended to defray Landlord' s costs resulting from late payments, any
payment from Tenant to Landlord not paid when due shall at Landlord's option
bear interest from the date due until paid to Landlord by Tenant at the rate of
fifteen percent (15%) per annum or the maximum lawful rate that Landlord may
charge to Tenant under applicable laws, whichever is less (the "INTEREST RATE").
Acceptance of any late charge and/or interest shall not constitute a waiver of
Tenant's default with respect to the overdue sum or prevent Landlord from
exercising any of its other rights and remedies under this Lease.
17. WAIVER. No provisions of this Lease shall be deemed waived by either party
unless such waiver is in a writing signed by the waiving party. The waiver by
either party of any breach of any provision of this Lease shall not be deemed a
waiver of such provision or of any subsequent breach of the same or any other
provision of this Lease. No delay or omission in the exercise of any right or
remedy of either party upon any default by the other party shall impair such
right or remedy or be construed as a waiver. Landlord's acceptance of any
payments of rent due under this Lease shall not be deemed a waiver of any
default by Tenant under this Lease (including Tenant's recurrent failure to
timely pay rent) other than Tenant's nonpayment of the accepted sums, and no
endorsement or statement on any check or on any letter accompanying any check or
payment shall be deemed an accord and satisfaction. The consent to or approval
by either party of any act by the other party requiring the first party's
consent or approval shall not be deemed to waive or render unnecessary the
consenting or approving party's consent to or approval of any subsequent act by
the other party.
18. ENTRY, INSPECTION AND CLOSURE. Upon reasonable oral or written notice to
Tenant (and without notice in emergencies); Landlord and its authorized
representatives may enter the Premises at all reasonable times to: (a) determine
whether the Premises are in good condition, (b) determine whether Tenant is
complying with its obligations under this Lease, (c) perform any
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maintenance or repair of the Premises or the Building that Landlord has the
right or obligation to perform, (d) install or repair improvements for other
tenants where access to the Premises is required for such installation or
repair, (e) serve, post or keep posted any notices required or allowed under the
provisions of this Lease, (f) show the Premises to prospective brokers, agents,
buyers, transferees, or Mortgagees, or (g) do any other act or thing necessary
for the safety or preservation of the Premises or the Building. In addition,
Landlord shall show the Premises to prospective tenants upon prior reasonable
oral or notice to Tenant during the last twelve (12) months of the Term. When
reasonably necessary Landlord may temporarily close entrances, doors, corridors,
elevators or other facilities in the Building without liability to Tenant by
reason of such closure. Landlord shall conduct its activities under this Section
in a manner that will minimize inconvenience to Tenant without incurring
additional expense to Landlord. In no event shall Tenant be entitled to an
abatement of rent on account of any entry by Landlord, and Landlord shall not be
liable in any manner for any inconvenience, loss of business or other damage to
Tenant or other persons arising out of Landlord's entry on the Premises in
accordance with this Section. No action by Landlord pursuant to this paragraph
shall constitute an eviction of Tenant, constructive or otherwise, entitle
Tenant to an abatement of rent or to terminate this Lease or otherwise release
Tenant from any of Tenant's obligations under this Lease.
19. SURRENDER AND HOLDING OVER.
19.1 Surrender. Upon the expiration or termination of this Lease, Tenant
---------
shall surrender the Premises and all Tenant Improvements and Alterations to
Landlord broom-clean and in good condition, except for reasonable wear and tear,
damage from casualty or condemnation and any changes resulting from approved
Alterations; provided, however, that on or before the expiration or termination
of this Lease Tenant shall remove all telephone and other cabling installed in
the Building by Tenant and remove from the Premises all Tenant's personal
property and any Trade Fixtures and all Alterations that Landlord has elected to
require Tenant to remove as provided in Section 6.1 - Tenant Improvements &
Alterations, and repair any damage caused by such removal; provided, however,
upon expiration or termination of this Lease Tenant shall not be obligated to
remove any Hazardous Material from the Property unless Handled by Tenant at the
Property. If such removal is not completed on or before the expiration or
termination of the Term, Landlord shall have the right (but no obligation) to
remove the same, and Tenant shall pay Landlord on demand for all costs of
removal and storage thereof and for the rental value of the Premises for the
period from the end of the Term through the end of the time reasonably required
for such removal. Landlord shall also have the right to retain or dispose of all
or any portion of such property if Tenant does not pay all such costs and
retrieve the property within ten (10) days after notice from Landlord (in which
event title to all such property described in Landlord's notice shall be
transferred to and vest in Landlord). Tenant waives all Claims against Landlord
for any damage or loss to Tenant resulting from Landlord's removal, storage,
retention, or disposition of any such property. Upon expiration or termination
of this Lease or of Tenant's possession, whichever is earliest, Tenant shall
surrender all keys to the Premises or any other part of the Building and shall
deliver to Landlord all keys for or make known to Landlord the combination of
locks on all safes, cabinets and vaults that may be located in the Premises.
Tenant's obligations under this Section shall survive the expiration or
termination of this Lease .
19.2 Holding Over. If Tenant (directly or through any Transferee or other
------------
successor-in-interest of Tenant) remains in possession of the Premises after the
expiration or term/nation of this
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Lease, Tenant's continued possession shall be on the basis of a tenancy at the
sufferance of Landlord. No act or omission by Landlord, other than its specific
written consent, shall constitute permission for Tenant to continue in
possession of the Premises, and if such consent is given or declared to have
been given by a court judgment, Landlord may terminate Tenant's holdover tenancy
at any time upon seven (7) days written notice. In such event, Tenant shall
continue to comply with or perform all the terms and obligations of Tenant under
tiffs Lease, except that the monthly Base Rent during Tenant's holding over
shall be twice the Base Rent payable in the last full month prior to the
termination hereof. Acceptance by Landlord of rent after such termination shall
not constitute a renewal or extension of this Lease; and nothing contained in
this provision shall be deemed to waive Landlord's right of re-entry or any
other right hereunder or at law. Tenant shall indemnify, defend and hold
Landlord harmless from and against all Claims arising or resulting directly or
indirectly from Tenant's failure to timely surrender the Premises, including (i)
any rent payable by or any loss, cost, or damages claimed by any prospective
tenant of the Premises, and (ii) Landlord's damages as a result of such
prospective tenant rescinding or refusing to enter into the prospective lease of
the Premises by reason of such failure to timely surrender the Premises.
20. ENCUMBRANCES.
20.1 Subordination. This Lease is expressly made subject and subordinate
-------------
to any mortgage, deed of trust, ground lease, underlying lease or like
encumbrance affecting any part of the Property or any interest of Landlord
therein which is now existing or hereafter executed or recorded ("ENCUMBRANCE");
provided, however, that such subordination shall only be effective, as to future
Encumbrances, if the holder of the Encumbrance agrees in writing that this Lease
shall survive the termination of the Encumbrance by lapse of time, foreclosure
or otherwise so long as Tenant is not in default under this Lease beyond any
applicable notice and cure period. Provided the conditions of the preceding
sentence are satisfied, Tenant shall execute and deliver to Landlord, within ten
(10) Business Days after written request therefor by Landlord and in a form
reasonably requested by Landlord, any additional documents evidencing the
subordination of this Lease with respect to any such Encumbrance and the
nondisturbance agreement of the holder of any such Encumbrance. If the interest
of Landlord in the Property is transferred pursuant to or in lieu of proceedings
for enforcement of any Encumbrance, Tenant shall immediately and automatically
attorn to the new owner, and this Lease shall continue in full force and effect
as a direct lease between the transferee and Tenant on the terms and conditions
set forth in this Lease. Landlord agrees to use reasonable good faith efforts to
obtain, at Tenant's cost and expense, within 60 days after execution of this
Lease, a Subordination, Attornment and Non-Disturbance Agreement (the "SNDA")
from the holder of any Encumbrance existing at the date of this Lease pursuant
to the provisions contained above; provided, however, Landlord's failure to
obtain an SNDA shall not affect the validity of this Lease.
20.2 Mortgagee Protection. Tenant agrees to give any holder of any
--------------------
Encumbrance covering any part of the Property ("MORTGAGEE"), by registered mail,
a copy of any notice of default served upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise) of the address of such Mortgagee. If Landlord
shall have failed to cure such default within thirty (30) days from the
effective date of such notice of default, then the Mortgagee shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
to cure such default (including the time necessary to foreclose or otherwise
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<PAGE>
terminate its Encumbrance, if necessary to effect such cure), and this Lease
shall not be terminated so long as such remedies are being diligently pursued.
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.
21.1 Estoppel Certificates. Within ten (l0) Business Days after written
---------------------
request therefor, Tenant shall execute and deliver to Landlord, in a form
provided by or satisfactory to Landlord, a certificate stating that this Lease
is in full force and effect, describing any amendments or modifications hereto,
acknowledging that this Lease is subordinate or prior, as the case may be, to
any Encumbrance and stating any other information Landlord may reasonably
request, including the Term, the monthly Base Rent, the date to which Rent has
been paid, the amount of any security deposit or prepaid rent, whether either
party hereto is in default under the terms of the Lease, and whether Landlord
has completed its construction obligations hereunder (if any). If Tenant fails
timely to execute and deliver such certificate as provided above, then Landlord
and the addressee of such certificate shall be entitled to rely upon the
information contained in the certificate submitted to Tenant as true, correct
and complete, and Tenant shall be estopped from later denying, contradicting or
taking any position inconsistent with the information contained in such
certificate. Any person or entity purchasing, acquiring an interest in or
extending financing with respect to the Property shall be entitled to rely upon
any such certificate. If Tenant fails to deliver such certificate within ten
(10) Business Days after Landlord's second written request therefor, Tenant
shall be liable to Landlord for any damages incurred by Landlord including any
profits or other benefits from any financing of the Property or any interest
therein which are lost or made unavailable as a result, directly or indirectly,
of Tenant's failure or refusal to timely execute or deliver such estoppel
certificate.
21.2 Financial Statements. Within ten (10) Business Days after written
--------------------
request therefor, but not more than once a year, Tenant shall deliver to
Landlord a copy of the financial statements (including at least a year end
balance sheet and a statement of profit and loss) of Tenant (and of each
guarantor of Tenant's obligations under this Lease) for each of the two most
recently completed years, prepared in accordance with generally accepted
accounting principles (and, if such is Tenant's normal practice, audited by an
independent certified public accountant), all then available subsequent interim
statements, and such other financial information as may reasonably be requested
by Landlord or required by any Mortgagee. Landlord shall not disclose details of
such financial statements except (x) pursuant to court proceedings, and (y) to
Landlord's (a) directors, (b) shareholders, (c) officers, (d) those employees of
Landlord and of Landlord's agents who have a need to know, (e) accountants, (f)
auditors, (g) lenders and/or Mortgagee, (h) purchasers, (i) potential lenders
and/or Mortgagees and purchasers, and (j) attorneys. Landlord shall use all
reasonable efforts to prevent such persons or employees of such entities from
disclosing details of Tenant's financial statements.
22. NOTICES. Any notice, demand, request, consent or approval that either party
desires or is required to give to the other party under this Lease shall be in
writing and shall be served personally, delivered by messenger or courier
service, or sent by U.S. certified mail, return receipt requested, postage
prepaid, addressed to the other party at the party's address for notices set
forth in the Basic Lease Information. Any notice required pursuant to any Laws
may be incorporated into, given concurrently with or given separately from any
notice required under this Lease. Notices shall be deemed to have been given
and be effective on the earlier of (a) receipt (or refusal of
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<PAGE>
delivery or receipt); or (b) one (1) day after acceptance by the independent
service for delivery, if sent by independent messenger or courier service, or
three (3) days after mailing if sent by mail in accordance with this Section.
Either party may change its address for notices hereunder, effective fifteen
(15) days after notice to the other party complying with this Section. If Tenant
sublets the Premises, notices from Landlord shall be effective on the subtenant
when given to Tenant pursuant to this Section.
23. ATTORNEYS' FEES. In the event of any dispute between Landlord and Tenant in
any way related to this Lease, the non-prevailing party shall pay to the
prevailing party all reasonable attorneys' fees and costs and expenses of any
type incurred by the prevailing party in connection with any action or
proceeding (including any appeal and the enforcement of any judgment or award),
whether or not the dispute is litigated or prosecuted to final judgment. The
"prevailing party" shall be determined based upon an assessment of which party's
major arguments or positions taken in the action or proceeding could fairly be
said to have prevailed (whether by compromise, settlement, abandonment by the
other party of its claim or defense, final decision, after any appeals, or
otherwise) over the other party's major arguments or positions on major disputed
issues.
24. QUIET POSSESSION. Subject to Tenant's full and timely performance of all of
Tenant's obligations under this Lease and subject to the terms of this Lease,
including Section 20 -Encumbrances, Tenant shall have the quiet possession of
the Premises throughout the Term as against any persons or entities lawfully
claiming by, through or under Landlord.
25. SECURITY MEASURES. Tenant shall be responsible for all security measures
for the Premises, such as the registration or search of all persons entering or
leaving the Building, requiring identification for access to the Building,
evacuation of the Building for cause, suspected cause, or for drill purposes,
the issuance of magnetic pass cards or keys for Building or elevator access to
prevent any threat of property loss or damage, bodily injury or business
interruption. Landlord shall have no security responsibility for the Premises
or the Project. Landlord, its agents and employees shall have no liability to
Tenant or its Representatives or Visitors for the implementation or exercise of,
or the failure to implement or exercise, any security measures for the Premises
or the Project, or for any resulting disturbance of Tenant's use or enjoyment of
the Premises:
26. FORCE MAJEURE. If either Landlord or Tenant is delayed, interrupted or
prevented from performing any of its obligations under this Lease (other than,
with respect to Tenant the payment of Base Rent, Additional Rent or any other
charge payable by Tenant to Landlord under this Lease), including Landlord's
obligations under the Construction Rider and such delay, interruption or
prevention is due to fire, act of God, governmental act or failure to act, labor
dispute, unavailability of materials or any cause outside the reasonable control
of Landlord or Tenant, then the time for performance of the affected obligations
of Landlord or Tenant, as the case may be, shall be extended for a period
equivalent to the period of such delay, interruption or prevention. The
inability to pay money shall in no event constitute force majeure.
27. RULES AND REGULATIONS. Tenant shall be bound by and shall comply with the
rules and regulations attached to and made a part of this Lease as Exhibit C to
---------
the extent those rules and regulations are not in conflict with the terms of
this Lease, as well as any reasonable rules and regulations hereafter adopted by
Landlord for all tenants of the Building, upon notice to Tenant
thereof(collectively, the "BUILDING RULES"). Landlord shall not be responsible
to Tenant or to any
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<PAGE>
other person for any violation of, or failure to observe, the Building Rules by
any other tenant or other person.
28. LANDLORD'S LIABILITY. The term "Landlord," as used in this Lease, shall
mean only the owner or owners of the Building at the time in question. In the
event of any conveyance of title to the Building, then from and after the date
of such conveyance, upon such transferee's written recognition of this Lease,
the transferor Landlord shall be relieved of all liability with respect to
Landlord's obligations to be performed under this Lease after the date of such
conveyance. Notwithstanding any other term or provision of this Lease, the
liability of Landlord for its obligations under this Lease is limited solely to
Landlord's interest in the Building as the same may from time to time be
encumbered, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's partners
or members or its or their respective partners, shareholders, members,
directors, officers or managers on account of any of Landlord's obligations or
actions under this Lease.
29. CONSENTS AND APPROVALS.
29.1 Determination in Good Faith. Wherever the consent, approval,
---------------------------
judgment or determination of Landlord is required or permitted under this Lease,
Landlord may exercise its good faith business judgment in granting or
withholding such consent or approval or in making such judgment or determination
without reference to any extrinsic standard of reasonableness, unless the
specific provision contained in this Lease providing for such consent, approval,
judgment or determination specifies that Landlord's consent or approval is not
to be unreasonably withheld, or that such judgment or determination is to be
reasonable, or otherwise specifies the standards under which Landlord may
withhold its consent. If it is determined that Landlord failed to give its
consent where it was required to do so under this Lease, Tenant shall be
entitled to injunctive relief but shall not to be entitled to monetary damages
or to terminate this Lease for such failure.
29.2 No Liability Imposed on Landlord. The review and/or approval by
--------------------------------
Landlord of any item or matter to be reviewed or approved by Landlord under the
terms of this Lease or any Exhibits or Addenda hereto shall not impose upon
Landlord any liability for the accuracy or sufficiency of any such item or
matter or the quality or suitability of such item for its intended use. Any such
review or approval is for the sole purpose of protecting Landlord's interest in
the Property, and no third parties, including Tenant or the Representatives and
Visitors of Tenant or any person or entity claiming by, through or under Tenant,
shall have any rights as a consequence thereof.
30. BROKERS. Landlord shall pay the fee or commission of the broker or brokers
identified in the Basic Lease Information (the "BROKER") in accordance with
Landlord's separate written agreement with the Broker, if any. Tenant warrants
and represents to Landlord that in the negotiating or making of this Lease
neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or
finder who might be entitled to a fee or commission for this Lease other than
the Broker. Tenant shall indemnify and hold Landlord harmless from any claim or
claims, including costs, expenses and attorney's fees incurred by Landlord
asserted by any other broker or finder for a fee or commission based upon any
dealings with or statements made by Tenant or Tenant's Representatives.
Landlord shall indemnify and hold Tenant harmless from any claim or claims,
including costs, expenses and attorney's fees incurred by Tenant asserted by any
other broker or
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<PAGE>
finder for a fee or commission based upon any dealings with or statements made
by Landlord or Landlord's Representatives.
31. RELOCATION OF PREMISES. [Intentionally Deleted].
32. ENTIRE AGREEMENT. This Lease, including the Exhibits and any Addenda
attached hereto, and the documents referred to herein, if any, constitute the
entire agreement between Landlord and Tenant with respect to the leasing of
space by Tenant in the Building, and supersede ail prior or contemporaneous
agreements, understandings, proposals and other representations by or between
Landlord and Tenant, whether written or oral, all of which are merged herein.
Neither Landlord nor Landlord's agents have made any representations or
warranties with respect to the Premises, the Building, the Project or this Lease
except as expressly set forth herein, and no rights, easements or licenses shall
be acquired by Tenant by implication or otherwise unless expressly set forth
herein. The submission of this Lease for examination does not constitute an
option for the Premises and this Lease shall become effective as a binding
agreement only upon execution and delivery thereof by Landlord to Tenant.
33. MISCELLANEOUS. This Lease may not be amended or modified except by a
writing signed by Landlord and Tenant. Subject to Section 14 - Assignment and
Subletting and Section 28 - Landlord's Liability, this Lease shall be binding on
and shall inure to the benefit of the parties and their respective successors,
assigns and legal representatives. The determination that any provisions hereof
may be void, invalid, illegal or unenforceable shall not impair any other
provisions hereof and all such other provisions of this Lease shall remain in
full force and effect. The unenforceability, invalidity or illegality of any
provision of this Lease under particular circumstances shall not render
unenforceable, invalid or illegal other provisions of this Lease, or the same
provisions under other circumstances. This Lease shall be construed and
interpreted in accordance with the laws (excluding conflict of laws principles)
of the State in which the Building is located. The provisions of this Lease
shall be construed in accordance with the fair meaning of the language used and
shall not be strictly construed against either party, even if such party drafted
the provision in question. When required by the context of this Lease, the
singular includes the plural. Wherever the term "including" is used in this
Lease, it shall be interpreted as meaning "including, but not limited to" the
matter or matters thereafter enumerated. The captions contained in this Lease
are for purposes of convenience only and are not to be used to interpret or
construe this Lease. If more than one person or entity is identified as Tenant
hereunder, the obligations of each and all of them under this Lease shall be
joint and several. Time is of the essence with respect to this Lease, except as
to the conditions relating to the delivery of possession of the Premises to
Tenant. Neither Landlord nor Tenant shall record this Lease.
34. AUTHORITY. If Tenant is a corporation, partnership, limited liability
company or other form of business entity, each of the persons executing this
Lease on behalf of Tenant warrants and represents that Tenant is a duly
organized and validly existing entity, that Tenant has full right and authority
to enter into this Lease and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Lease. Tenant
shall provide Landlord upon request with evidence reasonably satisfactory to
Landlord confirming the foregoing representations.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of
the date first above written.
TENANT: LANDLORD:
UNWIRED PLANET, INC., SEAPORT CENTRE ASSOCIATES, LLC
a Delaware Corporation a California limited liability company Manager
By: OPPORTUNITY CAPITAL
PARTNERS IV, LLC,
a California limited liability company
Manager
By: /s/ By: /s/ William Wilson
________________________ ________________________
Name:___________________ Name:___________________
Title___________________ Title___________________
By: /s/ By: /s/
________________________ ________________________
Name:___________________ Name:___________________
Title___________________ Title___________________
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<PAGE>
EXHIBIT A
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF MARCH 10, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
UNWIRED PLANET, INC., AS TENANT ("LEASE")
Seaport Centre III
800 CHESAPEAKE DR., REDWOOD CITY
Two - Story Office / R & D Building
[FIRST FLOOR PLAN APPEARS HERE]
[SECOND FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT B
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF MARCH 10, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
UNWIRED PLANET, INC., AS TENANT ("LEASE")
CONSTRUCTION RIDER
------------------
1. Tenant Improvements. Upon Tenant's written request made at any time
-------------------
within three (3) years after the Commencement Date of this Lease, and after
completion of Final Construction Documents (as hereinafter defined), Landlord
shall with reasonable diligence through Commercial Interior Contractors ("CIC")
construct and install in the Premises the improvements and fixtures provided for
in this Construction Rider ("TENANT IMPROVEMENTS").Tenant recognizes and agrees
that CIC is an affiliate of Landlord. Upon request by Landlord, Tenant shall
designate in writing an individual authorized to act as Tenant's Representative
with respect to all approvals, directions and authorizations pursuant to this
Construction Rider.
1.1 Plans. The Tenant Improvements shall be constructed
-----
substantially as shown on the conceptual space plan for the Premises prepared by
a space planner mutually agreeable to Landlord and Tenant, which space planner
will be retained by Tenant (after Tenant's notice pursuant to the provisions of
Section I above) as the space planner for the Premises ("SPACE PLANNER"), to
prepare a space plan ("SPACE PLAN") reasonably acceptable to Landlord and
Tenant.
As soon as may be reasonably practicable after requested by Tenant,
the Space Planner will prepare and deliver to Tenant detailed plans and
specifications sufficient to permit the construction of the Tenant Improvements
by Landlord's contractor ("Construction Documents"). Landlord will provide
Tenant with a cost estimate for the work shown in the Construction Documents.
Tenant shall respond to the Construction Documents and cost estimate within
three (3) Business Days after receipt thereof, specifying any changes or
modifications Tenant desires in the Construction Documents. The Space Planner
will then revise the Construction Documents and resubmit them to Tenant for its
approval and Landlord will provide Tenant with a revised cost estimate. Tenant
shall approve or disapprove the same within three (3) Business Days after
receipt. The revised Construction Documents and cost estimate, as approved by
Tenant and Landlord, are hereinafter referred to as the "FINAL CONSTRUCTION
DOCUMENTS" and "FINAL COST ESTIMATE," respectively.
Additional interior decorating services and advice on the furnishing and
decoration of the Premises, such as the selection of fixtures, furnishings or
design of mill work, shall be provided by Tenant at its expense, but shall be
subject to the reasonable approval of Landlord.
Exhibit B, Page 1
<PAGE>
1.2 Construction. Upon approval by Landlord and Tenant of the Final
------------
Construction Documents and the Final Cost Estimate, Landlord shall proceed with
reasonable diligence to cause the Tenant Improvements to be Substantially
Completed. CIC will construct the Tenant Improvements at competitive prices,
with a fee not to exceed the market rate for other similar sized and type of
construction contracts in the Redwood City, California area. CIC will
competitively bid subcontracts, using at least three (3) subcontractors for each
proposed subcontract. Tenant may add names to the subcontractor bid list prior
to such subcontracts being put to bid, subject to the reasonable right of CIC
and Landlord to review and approve subcontractors based on their qualifications,
including quality of work, creditworthiness, and experience. Tenant agrees to
cooperate with Landlord and CIC in planning and scheduling the construction of
Tenant Improvements to allow CIC to proceed with construction of Tenant
Improvements in an efficient manner, but Landlord will use, and cause CIC to
use, reasonable efforts to not unreasonably disrupt Tenant's business operations
during construction of Tenant Improvements.
The Tenant Improvements shall be deemed to be "SUBSTANTIALLY COMPLETED"
when they have been completed in accordance with the Final Construction
Documents except for finishing details, minor omissions, decorations and
mechanical adjustments of the type normally found on an architectural "punch
list". (The definition of Substantially Completed shall also define the terms
"SUBSTANTIAL COMPLETION" and "SUBSTANTIALLY COMPLETE.")
Following Substantial Completion of the Tenant Improvements, Landlord and
Tenant shall inspect the Premises and jointly prepare a "punch list" of agreed
items of construction remaining to be completed. Landlord shall cause CIC to
complete the items set forth in the punch list as soon as reasonably possible
using commercially reasonable efforts. Tenant shall cooperate with and
accommodate Landlord and CIC in completing the items on the punch list.
1.3 Cost of Tenant Improvements. Landlord shall contribute up to Two
---------------------------
Hundred Three Thousand Nine Hundred Seventy-Five and 00/100 Dollars
($203,975.00) (the "ALLOWANCE'), based upon $5.00 per rentable square foot in
the Premises toward the cost of the design (including preparation of space plans
and Construction Documents), construction and installation of the Tenant
Improvements. Tenant may use up to Fifty Thousand and 00/ 100 Dollars
($50,000.00) out of the Allowance for wiring and cabling in the Building. The
balance, if any, of the cost of the Tenant Improvements ("ADDITIONAL COST"),
including, but not limited to, usual markups for overhead, supervision and
profit, shall be paid by Tenant. Tenant shall pay Landlord 50% of the Additional
Cost based upon the Final Cost Estimate prior to the commencement of
construction of the Tenant Improvements. The balance of the actual Additional
Cost shall be paid to Landlord upon Substantial Completion of the Tenant
Improvements, within twenty (20) days after receipt of Landlord's invoice
therefor. Landlord will use reasonable care in preparing the cost estimates, but
they are estimates only and do not limit Tenant's obligation to pay for the
actual Additional Cost of the Tenant Improvements, whether or not it exceeds the
estimated amounts.
1.4 Changes. If Tenant requests any change, addition or alteration
-------
in or to any Final Construction Documents ("CHANGES") Landlord shall cause the
Space Planner to prepare additional Plans implementing such Change. Tenant shall
pay the cost of preparing. additional Plans within twenty (20) days after
receipt of Landlord's invoice therefor. As soon as practicable after the
completion of such additional Construction Documents, Landlord shall notify
Tenant of the estimated cost of the Changes. Within three (3) Business Days
after receipt of such cost
Exhibit B, Page 2
<PAGE>
estimate, Tenant shall notify Landlord in writing whether Tenant approves the
Change. If Tenant approves the Change, Landlord shall proceed with the Change
and Tenant shall be liable for any Additional Cost resulting from the Change. If
Tenant fails to approve the Change within such three (3) Business Day period,
construction of the Tenant Improvements shall proceed as provided in accordance
with the original Construction Documents.
1.5 Delays. Tenant shall be responsible for, and shall pay to
------
Landlord, any and all costs and expenses incurred by Landlord in connection with
any delay in the commencement or completion of any Tenant Improvements and any
increase in the cost of Tenant Improvements caused by (i) Tenant's failure to
submit information to the Space Planner or approve any Space Plan, Construction
Documents or cost estimates within the time periods required herein, (ii) any
delays in obtaining any items or materials constituting part of the Tenant
Improvements requested by Tenant, (iii) any Changes, or (iv) any other delay
requested or caused by Tenant (collectively, "TENANT DELAYS").
2. Delivery of Premises. [Intentionally Deleted].
--------------------
3. Access to Premises. Landlord shall allow Tenant and Tenant's
------------------
Representatives to enter the Premises prior to the Commencement Date to permit
Tenant to make the Premises ready for its use and occupancy; provided, however,
that prior to such entry of the Premises, Tenant shall provide evidence
reasonably satisfactory to Landlord that Tenant's insurance, as described in
Section 11.1 - Tenant's Insurance of the Lease, shall be in effect as of the
time of such entry. Such permission may be reasonably revoked at any time upon
twenty-four (24) hours' notice, and Tenant and its Representatives shall not
interfere with Landlord or Landlord's contractor in completing Landlord's work
at the Building or the Tenant Improvements.
Tenant agrees that Landlord shall not be liable in any way for any injury,
loss or damage which may occur to any of Tenant's property placed upon or
installed in the Premises prior to the Commencement Date, the same being at
Tenant's sole risk, and Tenant shall be liable for all injury, loss or damage to
persons or property arising as a result of such entry into the Premises by
Tenant or its Representatives.
4. Ownership of Tenant Improvements. All Tenant Improvements, whether
--------------------------------
installed by Landlord or Tenant, shall become a part of the Premises, shall be
the property of Landlord and, subject to the provisions of the Lease, shall be
surrendered by Tenant with the Premises, without any compensation to Tenant, at
the expiration or termination of the Lease in accordance with the provisions of
the Lease.
Exhibit B, Page 3
<PAGE>
INITIALS:
Landlord ____
Tenant ____
Exhibit B, Page 4
<PAGE>
EXHIBIT C
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF MARCH 10, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
UNWIRED PLANET, INC., AS TENANT ("LEASE")
BUILDING RULES
--------------
The following Building Rules are additional provisions of the foregoing
Lease to which they are attached. The capitalized terms used herein have the
same meanings as these terms are given in the Lease.
1. Use of Common Areas. Tenant will not obstruct the sidewalks, halls,
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passages, exits, entrances, elevators or stairways of the Building ("COMMON
AREAS"), and Tenant will not use the Common Areas for any purpose other than
ingress and egress to and from the Premises. The Common Areas, except for the
sidewalks, are not open to the general public and Landlord reserves the right to
control and prevent access to the Common Areas of any person whose presence, in
Landlord's opinion, would be prejudicial to the safety, reputation and interests
of the Building and its tenants.
2. No Access to Roof. Tenant has no right of access to the roof of the
-----------------
Building and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air-conditioner or other device on the roof of the Building, without
the prior written consent of Landlord. Any such device installed without such
written consent is subject to removal at Tenant's expense without notice at any
time. In any event Tenant will be liable for any damages or repairs incurred or
required as a result of its installation, use, repair, maintenance or removal of
such devices on the roof and agrees to indemnify and hold harmless Landlord from
any liability, loss, damage, cost or expense, including reasonable attorneys'
fees, arising from any activities of Tenant or of Tenant's Representatives on
the roof of the Building. Notwithstanding the foregoing, Landlord hereby
consents to entry by Tenant's HVAC contractor onto the roof for service of the
HVAC units, subject to reasonable rules and regulations of Landlord, and
provided that such contractor shall be responsible for any damage such
contractor causes to the roof.
3. Signage. Tenant shall have the right, at Tenant's sole cost and
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expense, to install a sign upon a monument to be located in front of the
Building, subject to Landlord's reasonable approval, and subject to ordinances,
regulations and any approval from the City of Redwood City. Landlord shall, at
Landlord's sole cost and expense, construct a monument, subject to approval of
the City of Redwood City. No sign, placard, picture, name, advertisement or
notice visible from the exterior of the Premises will be inscribed, painted,
affixed or otherwise displayed by Tenant on or in any part of the Building
without the prior written consent of Landlord. Landlord reserves the right to
adopt and furnish Tenant with general guidelines relating to signs in or on the
Building. All
Exhibit C, Page 1
<PAGE>
approved signage will be inscribed, painted or affixed at Tenant's expense by a
person approved by Landlord, which approval will not be unreasonably withheld.
4. Prohibited Uses. The Premises will not be used for manufacturing, for
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the storage of merchandise held for sale to the general public, for lodging or
for the sale of goods to the general public. Tenant will not permit any food
preparation on the Premises except that Tenant may use Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and similar beverages
so long as such use is in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations.
5. Janitorial Services. Tenant will be responsible, at Tenant's expense,
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to keep the Premises clean, including daily janitorial service. Tenant shall
enter into an agreement with a janitorial service to clean the Premises during
week-days, which contract and janitorial company shall be subject to Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed.
6. Keys and Locks. Landlord will furnish Tenant, free of charge, two keys
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to each door or lock in the Premises. Landlord may make a reasonable charge for
any additional or replacement keys. Tenant will not duplicate any keys, alter
any locks or install any new or additional lock or bolt on any door of its
Premises or on any other part of the Building without the prior written consent
of Landlord, which consent shall not be unreasonably withheld or delayed and, in
any event, Tenant will provide Landlord with a key for any such lock (except for
secure areas designated reasonably by Tenant). On the termination of the Lease,
Tenant will deliver to Landlord all keys to any locks or doors in the Building
which have been obtained by Tenant.
7. Freight. Tenant shall not transport freight in loads exceeding the
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weight limitations of any elevator in the Building. Landlord reserves the right
to prescribe the weight, size and position of all equipment, materials,
furniture or other property brought into the Building, and no property will be
received in the Building except along such routes as may be designated by
Landlord. Landlord reserves the right to require that heavy objects will stand
on wood strips of such length and thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage
to any such property from any cause, and Tenant will be liable for all damage or
injuries caused by moving or maintaining such property.
8. Nuisances and Dangerous Substances. Tenant will not conduct itself or
----------------------------------
permit Tenant's Representatives or Visitors to conduct themselves, in the
Premises or anywhere on or in the Project in a manner which is offensive or
unduly annoying to any other Tenant or Landlord's property managers. Tenant will
not install or operate any phonograph, radio receiver, musical instrument, or
television or other similar device in any part of the Common Areas and shall not
operate any such device installed in the Premises in such manner as to disturb
or unreasonably annoy other tenants of the Project. Tenant will not use or keep
in the Premises or the Property any kerosene, gasoline or other combustible
fluid or material other than limited quantities thereof reasonably necessary for
the maintenance of office equipment, or, without Landlord's prior written
approval, use any method of beating or air conditioning other than that supplied
by Landlord. Tenant will not use or keep any foul or noxious gas or substance in
the Premises or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Project by
reason of noise, odors or vibrations, or interfere in any way with other
Exhibit C, Page 2
<PAGE>
tenants or those having business therein. Tenant will not bring or keep any
animals in or about the Premises or the Project, except for animals trained to
assist, and assisting Tenant's disabled Visitors.
9. Building Name and Address. Without Landlord's prior written consent,
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Tenant will not use the name of the Building in connection with or in promoting
or advertising Tenant's business except as Tenant's address.
10. Building Directory. A directory for the Building will be provided for
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the display of the name and location of tenants. Landlord reserves the right to
approve any additional names Tenant desires to place in the directory and, if so
approved, Landlord may assess a reasonable charge for adding such additional
names.
11. Window Coverings. No curtains draperies, blinds, shutters, shades,
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awnings, screens or other coverings, window ventilators, hangings, decorations
or similar equipment shall be attached to, hung or placed in, or used in or with
any window of the Building without the prior written consent of Landlord, and
Landlord shall have the right to control all lighting within the Premises that
may be visible from the exterior of the Building.
12. Floor Coverings. Tenant will not lay or otherwise affix linoleum,
---------------
tile, carpet or any other floor covering to the floor of the Premises in any
manner except as approved in writing by Landlord. Tenant will be liable for the
cost of repair of any damage resulting from the violation of this rule or the
removal of any floor covering by Tenant or its contractors, employees or
invitees.
13. Wiring and Cabling Installations. Landlord will direct Tenant's
--------------------------------
electricians and other vendors as to where and how data, telephone, and
electrical wires and cables are to be installed. No boring or cutting for wires
or cables will be allowed without the prior written consent of Landlord. The
location of burglar alarms, smoke detectors, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the written
approval of Landlord, which approval shall not be unreasonably withheld or
delayed.
14. Office Closing Procedures. Tenant will see that the doors of the
-------------------------
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant or its employees leave the Premises, so as
to prevent waste or damage. Tenant will be liable for all damage or injuries
sustained by other tenants or occupants of the Building or Landlord resulting
from Tenant's carelessness in this regard or violation of this rule. Tenant
will keep the doors to the Building corridors closed at all times except for
ingress and egress.
15. Plumbing Facilities. The toilet rooms, toilets, urinals, wash bowls
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and other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall be
disposed of therein. Tenant will be liable for any breakage, stoppage or damage
resulting from the violation of this rule by Tenant, its employees or invitees.
16. Use of Hand Trucks. Tenant will not use or permit to be used in the
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Premises or in the Common Areas any hand trucks, carts or dollies except those
equipped with rubber tires and side guards or such other equipment as Landlord
may approve.
Exhibit C, Page 3
<PAGE>
17. Refuse. Tenant shall store all Tenant's trash and garbage within the
------
Premises or in other facilities designated By Landlord for such purpose. Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary manner of removing and disposing of
trash and garbage in the city in which the Building is located without being in
violation of any law or ordinance governing such disposal. All trash and garbage
removal shall be made in accordance with directions issued from time to time by
Landlord, only through such Common Areas provided for such purpose's and at such
times as Landlord may designate. Tenant shall be responsible for removing trash
from the Premises. Tenant shall comply with the requirements of any recycling
program adopted by Landlord for the Building.
18. Soliciting. Canvassing, peddling, soliciting and distribution of
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handbills or any other written materials in the Building are prohibited, and
Tenant will cooperate to prevent the same.
19. Parking. Tenant will use, and cause Tenant's Representatives and
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Visitors to use, any parking spaces to which Tenant is entitled under the Lease
in a manner consistent with Landlord's directional signs and markings in the
Parking Facility. Specifically, but without limitation, Tenant will not park, or
permit Tenant's Representatives or Visitors to park, in a manner that impedes
access to and from the Building or the Parking Facility or that violates space
reservations for handicapped drivers registered as such with the California
Department of Motor Vehicles. Landlord may use such reasonable means as may be
necessary to enforce the directional signs and markings in the Parking Facility,
including but not limited to towing services, and Landlord will not be liable
for any damage to vehicles towed as a result of noncompliance with such parking
regulations.
20. Fire, Security and Safety Regulations. Tenant will comply with all
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safety, security, fire protection and evacuation measures and procedures
established by Landlord or any governmental agency.
21. Responsibility for Theft. Tenant assumes any and all responsibility
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for protecting the Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises closed.
22. Sales and Auctions. Tenant will not conduct or permit to be conducted
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any sale by auction in, upon or from the Premises or elsewhere in the Property,
whether said auction be voluntary, involuntary, pursuant to any assignment for
the payment of creditors or pursuant to any bankruptcy or other insolvency
proceeding.
23. Waiver of Rules. Landlord may waive any one or more of these Building
---------------
Rules for the benefit of any particular tenant or tenants, but no such waiver by
Landlord will be construed as a waiver of such Building Rules in favor of any
other tenant or tenants nor prevent Landlord from thereafter enforcing these
Building Rules against any or all of the tenants of the Building.
24. Effect on Lease. These Building Rules are in addition to, and shall
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not be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Violation of these Building
Rules constitutes a failure to fully perform the provisions of the Lease, as
referred to in Section 15.1 - "Events of Default".
Exhibit C, Page 4
<PAGE>
25. Non-Discriminatory Enforcement. Subject to the provisions of the
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Lease (and the provisions of other leases with respect to other tenants),
Landlord shall use reasonable efforts to enforce these Building Rules in a non-
discriminatory manner, but in no event shall Landlord have any liability for any
failure or refusal to do so (and Tenant's sole and exclusive remedy for any such
failure or refusal shall be injunctive relief preventing Landlord from enforcing
any of the Building Rules against Tenant in a manner that discriminates against
Tenant).
26. Additional and Amended Rules. Landlord reserves the right to rescind
----------------------------
or amend these Building Rules and/or adopt any other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.
INITIALS:
Landlord ____
Tenant ____
Exhibit C, Page 5
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EXHIBIT D
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF MARCH 10, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
UNWIRED PLANET, INC., AS TENANT ("LEASE")
ADDITIONAL PROVISIONS RIDER
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35. LETTER OF CREDIT.
(a) Tenant shall deliver to Landlord a clean, unconditional, irrevocable,
transferable letter of credit (the "LETTER OF CREDIT") in form, and issued by a
financial institution ("ISSUER") satisfactory to Landlord. The Letter of Credit
shall be provided to Landlord as set forth in Section (b) below, and shall be in
the amount of $800,000.00, name Landlord as the beneficiary thereunder, and
provide that draws thereunder will be honored upon receipt by Issuer of a
written statement signed by Landlord stating that Landlord is entitled to draw
down on the Letter of Credit. Landlord shall be entitled to draw the entire
amount under the Letter of Credit if either (i) Tenant does not deliver to
Landlord a replacement letter of credit from Issuer or another financial
institution satisfactory to Landlord in the amount and form of the initial
Letter of Credit no later than one month before the expiration date of the then
existing Letter of Credit, or (ii) upon a proposed sale or lease of the Building
Tenant does not deliver to any the new landlord a replacement Letter of Credit
pursuant to the provisions of (d) below. If Tenant is in default under the Lease
beyond any applicable notice and cure period, Landlord shall be entitled to draw
under the Letter of Credit only an amount equal to the amount of any monetary
default as defined below (or, only if partial draws are not permitted, the
entire amount of the Letter of Credit). As used herein, "monetary default" means
any delinquent installment of Base Rent, Additional Rent or Rent under this
Lease (as and when Tenant fails to pay the same beyond any applicable notice and
cure period contained in this Lease), plus any damages to which Landlord is
entitled under the Lease. Landlord agrees that the Letter of Credit may also
provide for partial draws by Landlord. To the extent not applied by Landlord
pursuant to the provisions of the Lease any amount drawn under the Letter of
Credit shall be held or applied by Landlord as a Security Deposit, subject to
the terms of Section 4 of this Lease.
(b) The Letter of Credit shall be issued and delivered to Landlord within
fifteen (15) days after complete execution of this Lease by Landlord and Tenant.
If Tenant Fails to deliver to Landlord the Letter of Credit when required, such
failure shall constitute an Event of Default under the Lease.
(c) Provided that (x) there has been no Event of Default under the Lease
within the preceding twelve (12) months, and (y) on the respective following
dates Tenant is not in default under the Lease beyond any applicable notice and
cure period, the amount remaining available to be drawn under the Letter of
Credit shall be reduced in twelve month increments, beginning twelve months
after the Commencement Date, so the amount available to be drawn under the
Letter of Credit shall be as follows:
Exhibit D, Page 1
<PAGE>
<TABLE>
<CAPTION>
Months (counting from the Commencement Date through Amount Available
applicable monthly anniversary of Commencement Date) Under the Letter of Credit
--------------------------------------------------- ---------------------------
<S> <C>
01-12 $ 800,000.00
13-24 __________
25-36 __________
37-48 __________
49-60 __________
61-72 __________
73 - end of Term __________
</TABLE>
In addition:
(A) Provided there has been no Event of Default under the Lease during the
eighteen (18) months preceding such request, then if either (i) an initial
public offering of Tenants stock is made on any public stock exchange and
Tenant's publicly traded common stock has a market value of at least $200
million (as averaged over the first five [5] days of public trading of Tenant's
common stock), or (ii) (1) Tenant is acquired by an entity traded on any public
stock exchange, (2) such acquiring entity has a market value of at least $200
million on the date of such acquisition, and (3) such acquiring entity becomes
liable under this Lease, then the amount available under the Letter of Credit
for the applicable period contained above shall be reduced to the greater of
one-half (1/2) of the applicable amount contained above, or _________ and
(B) Provided there has been no Event of Default under the Lease during the
eighteen (18) months prior to the last day of the sixtieth (60th) full calendar
month following the Commencement Date, then if prior to the end of the sixtieth
(60th) full calendar month following the Commencement Date either (i) an initial
public offering of Tenant's stock is made on any public stock exchange and
Tenant's publicly traded common stock has a market value of at least $200
million, as averaged over the last five [5] days of public trading of Tenant's
common stock immediately prior to the last day of the sixtieth (60th) full
calendar month following the Commencement Date, or (ii) (1) Tenant is acquired
by an entity traded on any public stock exchange, (2) such acquiring entity has
a market value of at least $200 million on the last day of the sixtieth (60th)
full calendar month following the Commencement Date, and (3) such acquiring
entity becomes liable under this Lease, then effective on the first day after
the last day of the sixtieth (60th) full calendar month following the
Commencement Date, the amount available under the Letter of Credit shall be
reduced ____________
(d) If Landlord shall be holding the Letter of Credit as security, then,
in the event of a proposed sale or lease of the Building by Landlord, Tenant
will, upon ten (10) Business Days' notice, at its sole cost and expense, cause
the issuing bank to consent to the assignment or to issue a substitute letter of
credit on identical terms except for the stated beneficiary, from the same
issuing bank or another bank acceptable to Landlord in Landlord's sole
discretion, naming the new landlord as the beneficiary thereof upon delivery by
Landlord of the then outstanding Letter of Credit.
36. PARKING.
(a) Tenant's Parking Rights. Landlord shall provide Tenant, on an
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unassigned and non-exclusive basis, for use by Tenant and Tenant's
Representatives and Visitors, at the users' sole risk,
Exhibit D, Page 2
<PAGE>
one (1) parking space in the Parking Facility. for each three hundred thirty-
three (333) rentable square feet of space leased to Tenant. The parking spaces
to be made available to Tenant hereunder may contain a reasonable mix of spaces
for compact cars And up to ten percent (10%) of the unassigned spaces may also
be designated by Landlord as Building visitors' parking.
(b) Availability of Parking Spaces. Landlord shall take reasonable actions
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to ensure the availability of the parking spaces leased by Tenant, but Landlord
does not guarantee the availability of those spaces at all times against the
actions of other tenants of the Building and users of the Parking Facility.
Access to the Parking Facility may, at Landlord's option, be regulated by card,
pass, bumper sticker, decal or other appropriate identification issued by
Landlord. Landlord retains the right to revoke the parking privileges of any
user of the Parking Facility who violates the rules and regulations governing
use of the Parking Facility (and Tenant shall be responsible for causing any
employee of Tenant or other person using parking spaces allocated to Tenant to
comply with all parking rules and regulations).
(c) Assignment and Subletting. Notwithstanding any other provision of the
-------------------------
Lease to the contrary, Tenant shall not assign its rights to the parking spaces
or any interest therein, or sublease or otherwise allow the use of all or any
part of the parking spaces to or by any other person, except either (i) to a
Permitted Transferee, or (ii) with Landlord's prior written consent, which may
be granted or withheld by Landlord in its sole discretion. In the event of any
separate assignment or sublease of parking space rights that is approved by
Landlord, Landlord shall be entitled to receive, as additional Rent hereunder,
one hundred percent (100%) of any profit received by Tenant in connection with
such assignment or sublease of parking spaces.
(d) Condemnation, Damage or Destruction. In the event the Parking Facility
-----------------------------------
is the subject of a Condemnation, or is damaged or destroyed, and this Lease is
not terminated, and if in such event the available number of parking spaces in
the Parking Facility is permanently reduced, then Tenant's rights to use parking
spaces hereunder may, at the election of Landlord, thereafter be reduced in
proportion to the reduction of the total number of parking spaces in the Parking
Facility. In such event, Landlord reserves the right to reduce the number of
parking spaces to which Tenant is entitled or to relocate some or all of the
parking spaces to which Tenant is entitled to other areas in the Parking
Facility.
37. EXTENSION OPTION.
Provided that Unwired Planet has not assigned this Lease or sublet any or
all of the Premises other than to an Affiliate (it being intended that all
rights pursuant to this provision are and shall be personal to the original
Tenant under this Lease and its Affiliates and shall not be transferable or
exercisable for the benefit of any Transferee), and provided Tenant is not in
default under this Lease beyond any applicable notice and cure periods at the
time of exercise or at any time thereafter until the beginning of any such
extension of the Term, Tenant shall have the option (the "EXTENSION OPTION") to
extend the Term for one additional consecutive period of five (5) years (the
"EXTENSION PERIOD"), by giving written notice to Landlord of the exercise of any
such Extension Option at least twelve (12) months, but not more than eighteen
(18) months, prior to the expiration of the initial Term. `Me exercise of any
Extension Option by Tenant shall be irrevocable and shall cover the entire
Premises leased by Tenant pursuant to this Lease. Upon such exercise, the term
of the Lease shall automatically be extended for the applicable Extension Period
without the execution of any further instrument by the parties; provided that
Landlord and Tenant shall, if requested by either
Exhibit D, Page 3
<PAGE>
party, execute and acknowledge an instrument confirming the exercise of the
Extension Option. Any Extension Option shall terminate if not exercised
precisely in the manner provided herein. Any extension of the Term shall be upon
all the terms and conditions set forth in this Lease and all Exhibits thereto,
except that: (i) Tenant shall have no further option to extend the Term of the
Lease, other than as specifically set forth herein; (ii) Landlord shall not be
obligated to contribute funds toward the cost of any remodeling, renovation,
alteration or improvement work in the Premises; and (iii) Base Rent for any such
Extension Period shall be the then Fair Market Base Rental (as defined below)
for the Premises for the space and term involved, which shall be determined as
set forth below.
(a) "FAIR MARKET BASE RENTAL" shall mean the "fair market" Base Rent at
the time or times in question for the applicable space, based on the prevailing
rentals then being charged to tenants in the Project and tenants in other
similar type buildings in the general vicinity of the Project of comparable
size, location, quality and age as the Building for leases with terms equal to
the Extension Period, taking into account the creditworthiness and financial
strength of the tenant, the financial guaranties provided by the tenant (if
any), the value of market concessions (including the value of construction,
renovation, moving and other allowances or rent credits), the desirability,
location in the building, size and quality of the space, tenant finish allowance
and/or tenant improvements, included services, operating expenses and tax and
expense stops or other escalation clauses, and brokerage commissions, for the
space in the Building for which Fair Market Base Rental is being determined and
for comparable space in the buildings which are being used for comparison. Fair
Market Base Rental shall also reflect the then prevailing rental structure for
comparable buildings in the general vicinity of the Property, so that if, for
example, at the time Fair Market Base Rental is being determined the prevailing
rental structure for comparable space and for comparable lease terms includes
periodic rental adjustments or escalations, Fair Market Base Rental shall
reflect such rental structure.
(b) Landlord and Tenant shall endeavor to agree upon the Fair Market Base
Rental. If they are unable to so agree within thirty (30) days after receipt by
Landlord of Tenant's notice of exercise of the Extension Option, Landlord and
Tenant shall mutually select a licensed real estate broker who is active in the
leasing of space similar to the Building in the general vicinity of the Project.
Landlord shall submit Landlord's determination of Fair Market Base Rental and
Tenant shall submit Tenant's determination of Fair Market Base Rental to such
broker, at such time or times and in such manner as Landlord and Tenant shall
agree (or as directed by the broker if Landlord and Tenant do not promptly
agree). The broker shall select either Landlord's or Tenant's determination as
the Fair Market Base Rental, and such determination shall be binding on Landlord
and Tenant. If Tenant's determination is selected as the Fair Market Base
Rental, then Landlord shall bear all of the broker's cost and fees. If
Landlord's determination is selected as the Fair Market Base Rental, then Tenant
shall bear all of the broker's cost and fees.
(c) In the event the Fair Market Base Rental for any Extension Period has
not been determined at such time as Tenant is obligated to pay Base Rent for
such Extension Period, Tenant shall pay as Base Rent pending such determination,
the Base Rent in effect for such space immediately prior to the Extension
Period; provided, that upon the determination of the applicable Fair Market Base
Rental, any shortage of Base Rent paid, together with interest at the rate
specified in the Lease, shall be paid to Landlord by Tenant.
Exhibit D, Page 4
<PAGE>
(d) In no event shall the Base Rent during any Extension Period be less
than the Base Rent in effect immediately prior to such Extension Period.
(e) The term of this Lease, whether consisting of the Initial Term alone
or the Initial Term as extended by any Extension Period (if any Extension Option
is exercised), is referred to in this Lease as the "Term."
38. RIGHT OF FIRST OFFER - BUILDING 14.
(a) Provided that Unwired Planet has not assigned this Lease or sublet any
or all of the Premises other than to an Affiliate (it being intended that all
rights pursuant to this provision are and shall be personal to the original
Tenant under this Lease and its Affiliates and shall not be transferable or
exercisable for the benefit of any Transferee), and provided Tenant is not in
default beyond any applicable notice and cure period under this Lease at the
time of the exercise of any such right or at any time thereafter until delivery
of possession of the space to Tenant, and subject to any and all rights of other
tenants in the Project with respect to such space (including renewal and
extension rights and rights of first offer, first negotiation, first refusal or
other expansion rights) existing as of the date of this Lease, Tenant shall have
a one-time right of first offer to lease Building 14 ( "Building 14"),
containing approximately 40,897 rentable square' feet, located at 900
Chesapeake, in the Project.
(b) Such right of first offer (i) may only be exercised with respect to
vacant space or space which has been previously leased and as to which an
existing tenant of Building 14 has elected not to extend its lease or re-lease
such space and (ii) may only be exercised with respect to all of Building 14
being offered by Landlord. If Building 14 becomes available, Landlord shall
offer to lease the entire Building 14 to Tenant at the same rent and on the same
terms that Landlord intends to offer to other prospective tenants. Tenant shall
have ten (10) days following receipt of Landlord's offer with respect to
Building 14 within which to notify Landlord in writing of its intention to lease
Building 14, and such notice, if given by Tenant, shall constitute an acceptance
of Landlord's terms for the lease of such space. If Tenant exercises such right
of first offer, the space to be leased by Tenant shall be leased on the same
terms and conditions as are contained in this Lease except for the economic and
other terms specifically set forth in Landlord's notice, and the parties shall
execute an amendment to this Lease to include Building 14 in the Premises and
otherwise to provide for the leasing of Building 14 on such terms. If Tenant
fails so to exercise Tenant's right of first offer within such ten (10) day
period, Landlord may thereafter lease Building 14 to other prospective tenants.
(c) If Tenant does not lease Building 14 from Landlord when it is first
offered to Tenant by Landlord, then this right of first offer shall terminate
and Tenant shall have no further rights to lease any of Building 14.
39. RIGHT OF FIRST OFFER - BUILDING 19.
(a) Provided that Unwired Planet has not assigned this Lease or sublet any
or all of the Premises other than to an Affiliate (it being intended that all
rights pursuant to this provision are and shall be personal to the original
Tenant under this Lease and its Affiliates and shall not be transferable or
exercisable for the benefit of any Transferee), and provided Tenant is not in
default beyond any applicable notice and cure period under this Lease at the
time of the exercise of any
Exhibit D, Page 5
<PAGE>
such right or at any time thereafter until delivery of possession of the space
to Tenant, and subject to any and all rights of other tenants in the Project
with respect to such space (including renewal and extension rights and rights of
first offer, first negotiation, first refusal or other expansion rights)
existing as of the date of this Lease, Tenant shall have a one-time right of
first offer to lease Building 19 ("BUILDING 19"), containing approximately
25,250 rentable square feet, located at 700 Chesapeake, in the Project.
(b) Such right of first offer (i) may only be exercised with respect to
vacant space or space which has been previously leased and as to which an
existing tenant of Building 19 has elected not to extend its lease or re-lease
such space and (ii) may only be exercised with respect to all of Building 19
being offered by Landlord. If Building 19 becomes available, Landlord shall
offer to lease the entire Building 19 to Tenant at the same rent and on the same
terms that Landlord intends to offer to other prospective tenants. Tenant shall
have ten (10) days following receipt of Landlord's offer with respect to
Building 19 within which to notify Landlord in writing of its intention to lease
Building 19, and such notice, if given by Tenant, shall constitute an acceptance
of Landlord's term for the lease of such space. If Tenant exercises such right
of first offer, the space to be leased by Tenant shall be leased on the same
terms and conditions as are contained in this Lease except for the economic and
other terms specifically set forth in Landlord's notice, and the parties shall
execute an amendment to this Lease to include Building 19 in the Premises and
otherwise to provide for the leasing of Building 19 on such terms. If Tenant
fails so to exercise Tenant's right of first offer within such ten (10) day
period, Landlord may thereafter lease Building 19 to other prospective tenants.
(c) If Tenant does not lease Building 19 from Landlord when it is first
offered to Tenant by Landlord, then this right of fast offer shall terminate and
Tenant shall have no further rights to lease any of Building 19.
40. LANDLORD'S IMPROVEMENTS.
Notwithstanding any provision in the Lease to the contrary, Landlord shall,
at Landlord's sole cost and expense, (a) repair the Parking Facility in the
vicinity of the Building, and (b) if required by applicable Law, (i) install two
(2) ramps to the Building, and (ii) bring in to compliance or, if necessary,
replace up to five (5) exterior doors at the Building. Landlord shall use
commercially reasonable efforts to promptly complete such work, although the
parties hereto agree that the repairs of the Parking Facility will probably not
be completed by the Commencement Date of this Lease. Throughout the Term of the
Lease Landlord shall maintain such Parking Facility, the costs of which
maintenance shall be included in Operating Costs in accordance with the
provisions of Section 3.2 of this Lease.
INITIALS:
Landlord ____
Tenant ____
Exhibit D, Page 6
<PAGE>
EXHIBIT A
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF MARCH 10, 1998
BETWEEN
SEAPORT CENTRE ASSOCIATES, LLC, AS LANDLORD,
AND
UNWIRED PLANET, INC., AS TENANT ("LEASE")
Seaport Centre III
800 CHESAPEAKE DR., REDWOOD CITY
Two - Story Office / R & D Building
[FIRST FLOOR PLAN APPEARS HERE]
[SECOND FLOOR PLAN APPEARS HERE]
EXHIBIT B - PREMISES
1.
<PAGE>
[FIRST FLOOR RESTROOMS PLAN APPEARS HERE]
SCHEDULE 1
<PAGE>
[FIRST FLOOR RESTROOM PLAN APPEARS HERE]
EXHIBIT C
SUBLEASED PREMISES
<PAGE>
SCHEDULE 2
----------
LIST OF FURNITURE
(to be provided)
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 12, 1999 (except for the second paragraph of Note 4 and Note 12, as to
which the date is April , 1999), in the Registration Statement (Form S-1) and
related Prospectus of Clarent Corporation for the registration of
shares of its common stock.
Our audits also included the financial statement schedule of Clarent
Corporation for each of the three years in the period ended December 31, 1998
listed in item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Palo Alto, California
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the approval
of the Certificate of Incorporation in the State of Delaware as discussed in
Note 12 to the consolidated financial statements.
/s/ Ernst & Young LLP
Palo Alto, California
April 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AT DECEMBER 31, 1997 AND 1998 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 474 11,903
<SECURITIES> 0 0
<RECEIVABLES> 815 8,030
<ALLOWANCES> 38 1,087
<INVENTORY> 889 3,620
<CURRENT-ASSETS> 2,265 22,944
<PP&E> 634 2,840
<DEPRECIATION> 91 607
<TOTAL-ASSETS> 2,818 25,177
<CURRENT-LIABILITIES> 1,484 11,413
<BONDS> 0 0
0 0
3,685 21,024
<COMMON> 27 2,389
<OTHER-SE> (2,378) (9,649)
<TOTAL-LIABILITY-AND-EQUITY> 2,818 25,177
<SALES> 3,359 14,647
<TOTAL-REVENUES> 3,359 14,647
<CGS> 1,189 6,653
<TOTAL-COSTS> 1,189 6,653
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 172
<INCOME-PRETAX> (2,059) (5,435)
<INCOME-TAX> 0 40
<INCOME-CONTINUING> (2,059) (5,475)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,059) (5,475)
<EPS-PRIMARY> 0 (0.39)
<EPS-DILUTED> 0 (0.39)
</TABLE>
